Business Structures Flashcards
What is Limited Liability
The Shareholders of the company are not responsible for the debts of the entity should it fail. Personal assets will not be sold to repay the entities debts.
Note: Directors can be personally pursued for business debts if they act inappropriately.
What is Unlimited Liability
Unlimited Liability is where owners of the business could be responsible for the debts of the business should it fail. Personal assets may be sold to repay the entities debts.
What is the difference between Business Entities and Incorporated Entities
Incorporated Organisations:
- Members are NOT Owners
- Profits are not distributed to members
- Accumulated funds for future NOT Equity of owner
- No drawings
- Fundraising for raising cash
- If closes down funds not distributed to members
What are two advantages of a Sole Trader
Advantages:
- All profits for the owner
- Flexible work hours
- Own Boss
What are two advantages of a Partnership
Advantages:
- Greater access to capital than Sole Trader
- Shares risk, skill and workload
- Partners liable for tax on profit as opposed to a company which is taxed on profits and shareholders taxed on dividends.
What are two advantages of a Limited Liability Company
Advantages:
- Limited Liability
- Can borrow by the way of debentures
- Has perpetual succession
- Separation of ownership from day to day management of business
- Large amounts of capital can be raised through shares/debentures
What are two disadvantages of a Sole Trader
Disadvantages:
- Owner takes all responsibility/risk
- Limited access to funds for expansion
- Unlimited Liability
- Operating problems when owner is sick or on holiday
What are two disadvantages of a Partnership
Disadvantages:
- Share profits
- Unlimited Liability
- Limited life, on death or a partner the partnership dissolves
- Partners have joint and several liability, therefore one partners actions can bind the others
What are two disadvantages of a Limited Liability Business
Disadvantages:
- Expensive set up costs
- Strict legal/reporting requirements
- Company profits are taxed and the shareholders dividends are also taxed (double taxation)
State 2-3 sources of finance for a Sole Trader
- Capital (Owners)
- Revenue from sales of a good or service
- Accounts payable
- Loans from the banks
State 2-3 sources of finance for an Unincorporated Organisation
- Membership subscriptions
- Fundraising
- Donations
- Loans from the bank
State 2-3 sources of finance for an Incorporated Oraganisation
- Membership subscriptions
- Fund raising
- Donations
- Grants
- Loans from the bank
- Debentures
State 2-3 sources of finance for a Partnership
- Partners Capital
- Accounts Payable
- Revenue from sale of goods or service
- Advance form partners
- Loans from banks
State 2-3 sources of finance for a Limited Liability Company
- Share capital
- Revenue from sales of goods or service
- Accounts payable
- Loans
- Debentures
Which two entities must have their financial statements audited
- Limited Liabilities Companies
- Incorporated Organisations
- This is a disadvantages as it costs more money for an audit
What is the lifetime of a Sole Trader
Finishes when owner dies or business is winds up
What is the lifetime of a Partnership
Finishes when a partner dies or the partnership resolves
What is the lifetime of a Limited Liability Company
Infinite. Going concern
What is the lifetime of an Incorporated Organisation
Indefinite. Continues even though members come and go
What is the lifetime of an Unincorporated Organisation
Indefinite. Continues even though members come and go
What are two advantages of an Incorporated Organisation
- Limited Liability
- ## Unlimited Lifetime
What is Unlimited Liability
Unlimited Liability is where owners of the business could be responsible for the debts of the business should it fail. Personal assets may be sold to repay the entities debts.
What is the difference between Business Entities and Incorporated Entities
Incorporated Organisations:
- Members are NOT Owners
- Profits are not distributed to members
- Accumulated funds for future NOT Equity of owner
- No drawings
- Fundraising for raising cash
- If closes down funds not distributed to members
What are two advantages of a Sole Trader
Advantages:
- All profits for the owner
- Flexible work hours
- Own Boss