chapter 4 Flashcards
what are the types of business organizations
- sole trader
2.partnership
3.private limited company
public limited company
what are the advantages of being a sole trader
- full control over decision making->no conflict,faster decision making process
2.owner keeps all profit->motivated to invest more
3.few legal requirments ->fast to set up
disadvantages of being a sole trader
- no one to share risk
2.limited capital->only one person is investing, less opportunities to expand
3.unlimited liability
4.no continuity
5.no shared responsibility
define a sole trader
business owned by one person
define a partnership
business owned by two or more people
advantages of having a partnership
1.more capital than sole trader
2.shared responsibility
3.shared risk
disadvantages of having a partnership
1.longer decision making process
2.conflicts may arise->can be solved with having a deed of partnership
3.unlimited liability
4.no continuity
define a private limited company
sell shares to friends and family
advantages of having a private limited company
1.larger capital
2.more control than public limited company
3.limited liability
4.continuity
disadvantages of having a public limited company
1.original owner might lose control
define a public limited company
sell shares to general public
what is an incorporated business
companies that have separate legal status from their owners
detached accountability->limited liability, continuity
what is an unincorporated business
company that has one legal status
no detached accountability->unlimited liability, no continuity
problems of ownership in public limited company and how to solve it
due to the presence of thousands of shareholders->divorce between ownership and control.
solved by having an annual general meeting where shareholders vote for board of directors
define franchising
use of brand names, promotional logos, and trading methods
advantages as a franchisor
1.franchisee buys license
2.faster expansion
3.franchisee responsible for management
disadvantages as a franchisor
1.if one branch is managed poorly it could lead to bad reputation for whole business
2.franchisee keeps profit
advantages as a franchisee
1.chances of business failure are lower
2.franchisor pays for advertising
3.fewer decisions
4.banks more willing to lend to franchisees
disadvantages as a franchisee
1.less independence
2.license fee paid to franchisor
3.unable to make decisions to suit local area
define joint ventures
two or more businesses agreeing to start a new project together
advantages of joint ventures
1.share risks
2.share costs
disadvantages of joint ventures
1.disagreements
2.sharing profit
