Chapter 3 - Business Structures Flashcards
What are the advantages of a sole trader?
- Quick inexpensive and easy to establish
- Not subject to company regulations
- Owner is entitled to all profits and all the after-tax gains if the business is sold
Define the term ‘sole trader’
An individual who controls and manages a business, and is solely liable for all business debts
Business is not a separate legal entity
What are the disadvantages of a sole trader?
- Unlimited liability
- Limited by skill, time and investment of owner
- Does not have perpetual succession
Define the term ‘partnership’
An association of two or more persons or entities that carry on as business partners
Advantages of a partnership
- Easy to set up
- Not required to prepare financial statements in accordance with the accounting standards
- Does not pay tax on the income earned
Disadvantages of a partnership
- Equal distribution of profit and loss
2. Limited life
What is ‘mutual agency’?
Each partner is seen as an agent for the entity and has a right to enter into contracts for that entity.
Define ‘companies’
A business structure with a separate legal identity from its shareholders and is taxed on its taxable income
What are shareholders?
They are part-owners of a company
What is a legal entity?
An entity that is separate for its owners and recognised at law
What is dividends?
Distribution of company profit to shareholders
