Business Structures Flashcards
What are 4 different business structures?
Sole traders
Partnerships
Limited companies
What are 3 characteristics of a sole trader?
●You make all the business decisions
●Unlimited liability
●Share all profits and losses
What are unlimited liabilities?
●business owners are personally liable for any debt their business may accrue
What are limited liabilities?
●business owners are only responsible for a business’
debts up to the value of their financial investment in the business
What are 3 advantages of being a sole trader?
*easy to set up
*retain all the profits
*in control of the business
What are 3 disadvantages of being a sole trader?
●no one to share responsibilities with
●have to raise all the capital yourself
●usually small-scale
What are ordinary shares?
●They are variable dividends and are paid after preference shareholders
What are 3 advantages of limited companies?
●They are a separate legal entity
●You have the ability to raise finance
●easier succession as not registered to one owner
What are preference shares?
They are fixed dividends and are paid before ordinary shareholders
What is share premium?
shares are issued for greater than their nominal value
What is a partnership (characteristics)?
●shared ownership
●formed to realise profits
●unlimited liability between each partner
Rules of partnerships
●Any partnership may dissolve it at any time with no formal procedure
●Death or bankruptcy of a partner will automatically dissolve the partnership
●Equal share of assets/profits+losses
What are some partnership agreements?
●Profit Sharing Ratio (PSR)
●Capital contributed by each partner
●Interest on capital
●Interest on partners’ drawings
●Salaries payable to partners
What are 4 advantages to partnerships?
●Management/decision making is shared
●Wider skills and knowledge available
●Profits +losses + risks are shared
●Increases sources of capital and more than 1 is contributing
What are 2 disadvantages to partnerships?
●Profits are shared, so lower profits per partner
●Management/Decsions are shared
What is are some key characteristics of partnerships in the Income Statement (IS) ?
●has to show agreed partners’ salaries
●has to show any interest payments to partners
●has to show how the remaining profits are shared
What are some key characteristics of partnerships in the SoFP?
The SoFP has individual capital accounts and individual current accounts
What are 3 characteristics of a limited company?
●Limited liability
●Separate legal identity
●More regulations
What are ordinary shares known as?
They are also known as share captial
