Chapter 2 Business Organisation Flashcards
What is a business organisation
A busines s organisation an enterprise set up by entrepreneur/s to produce or trade in goods and services,
What is a sole trading business
A sole trading business is owned and controlled by one entrepreneur only.
What is risk
Risk is he possibility of making loss instead of profit.
What is unlimited liability
Unlimited liability is a situation where, in case of bankruptcy, the owner’s personal belongings may be used to clear off the debts of the enterprise,
Advantages of a sole trading business
Easy to set up and simple to operate Little capital is required to set up the business All profits belong to the sole trader
Decisions are taken quickly
Disadvantages faced by a sole trader are:
Lack of capital to expand the business
The sole trader bears all the risks and responsibilities
Lack of continuity: Death of sole trader may result in closure of business The sole trader suffers from unlimited liability
What is a partnership?
A partnership consists of 2 or more people who collectively own and manage a business to make profit.
What is the deed of partnership
Deed of Partnership is an agreement which outlines the terms and conditions of a partnership business.
Advantages of partnership
Capital: More capital can be raised than a sole trader
Shared responsibilities: Responsibilities are shared among partners, Each partner could specialise in one task
Collective decision-making: Decisions are taken together and there is sharing of knowledge and ideas
Sharing of losses: Losses are shared among all partners
Disadvantage of a partnership
Disagreements among partners: Conflicts prevent the smooth running of the business
Sharing of profits: Profits have to be shared among partners
Unlimited liability: Partners may face unlimited liability
Lack of continuity: The partnership may end upon the retirement or death of a partner
What are the features of sole trading
Unlimited liability
Only one owner
Capital is brought in by owners only
Owner bears all risk and keeps all profits
What are the features of a partnership
Capital is contributed by all partners
Joint ownership of the business
All partners share the risks and rewards of the business
