Business Structures Flashcards
A business owned by one person who has unlimited liability.
Sole Trader
- Simple and cheap to establish.
- The owner has control over all decisions.
- The owner keeps all the profit.
- Fewer government reporting requirements.
Advantages of Sole Trader
- Unlimited liability
- Owner suffers all losses
- Difficult to take holidays or leave.
Disadvantages of Sole Trader
A business owned by 2 to 20 partners that have unlimited liability.
Partnership
- Simple and inexpensive to set up.
- Partners bring more money and skills.
- Share of losses.
Advantages of Partnership
- Unlimited liability.
- Profits must be shared.
- Disputes between partners.
- Ceases if a partner dies, leaves or retires.
Disadvantages of Partnerships
A business which has a separate legal entity from its shareholders and has 1 to 50 shareholders who have limited liability.
Company
- Limited liability
- Can raise money through shareholders.
- Unlimited life: change in shareholders doesn’t cease the business.
- Run by a board of directors not the shareholders.
Advantages of Company
- Expensive to set up and operate.
- Complex reporting requirements.
Disadvantages of Company
A business or person buys the right to use the name, products and services of an existing business.
Franchise
Liability depends if the company was set up by a sole trader, partnership or company.
Liability of Franchises
- Established reputation, products, or service, and store layout.
- Advertising and marketing support.
- Franchisor provides training.
Advantages of Franchise
- Franchisor controls decisions and operations.
- Paying ongoing fees to the franchisor.
- Profit must be shared with franchisor.
Disadvantages of Franchises
A business that has at least 5 members with shared management and equal voting rights. It is a separate legal entity.
Cooperative
Limited Liability: Members are limited to the value of their investment for business debts
Cooperative Liability
