Choosing a Legal Structure Flashcards
what is meant by flotation?
Flotation is the process of changing a private company into a public company by issuing shares and soliciting the public to purchase them
name the 5 different types of structures that can be used when starting up a business?
- Sole traders
- Partnerships
- Private companies
- Public limited companies
- social enterprise
What can shareholders lose when there is limited liability?
only lose the value of their investment
limited liability is important for….
protecting shareholders in a company
What does limited liability not protect against?
- wrongful or fraudulent trading
- when personal guarantees have been given by directors
What is the most common type of business structure?
Sole traders
what is a sole trader?
an individual owning a business on his/her own
a sole trader can employ people but…
the employees do not share ownership
What is a sole trader responsible for?
responsible for all debts. They have unlimited liability
Adv of a sole trader?
- quick and easy to set up(business can always be transferred to a limited company)
- simple to run/ owner has complete control
- easy to close / shut down
- minimal paper work
Dis Adv of sole traders?
- unlimited liability
- harder to raise finance / often have limited funds
- pay more tax
- if owner is ill business suffers
what is meant partnership?
where a business is started and owned by more than one person
what legal partnership agreements may there be?
- how profits are shared
- what the partners have to invest into a business
- how decisions are taken
- what happens if partners want to leave or die
what type of liability is partnership?
unlimited liability
Adv of partnership?
- quite simple
- business benefits from expertise of more than one person
- partners can provide specialist skills
- greater potential to raise finance / each partner provides investment
- minimal paperwork
Dis Adv of partnership?
- unlimited liability
- a poor decision by one partner damages the interest of another
- complicated to sell or close
limited companies are…
separate legal entities to the founders
what can a legal entity do or have?
- can own things e.g assets
- can sue or be sued
who are limited companies owned by? who are they run by?
Owned by SHAREHOLDERS
Run by DIRECTORS
Shareholders own a ………. of the company but …………..
Shareholders own a share of the company, but they do not own the assets of the company
Shareholders are not
liable for debts of the company
who is responsible for the debts in a limited company?
Only the company pays off debts
What is an asset?
an item of property owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies.
who owns assets in a Limited company?
the company
Whats the most common type of Limited company?
Private limited company (ltd)
what is meant by a private limited company?
means the shares of the company are not traded publicly on a stock exchange
What does a public limited company tend to have and what happens to its shares?
tend to have a larger value of share capital and it shares may be traded publicly
Adv of limited companies?
- limited liability / protects the shareholders
- easier to raise finance through the sale of shares
- stable form of structure / business continues to exist even when shareholders change
- cant pay less tax
Dis Adv of Limited companies?
- greater admin costs
- public disclosure of company information
why are non profit organisations set up? what are their aims?
to help the community
- have social aims such as job creations and providing community services
what different type of social enterprise is there?
- community development trusts
- housing associations
- sport clubs
What legal structure may a business want to choose if maximizing profit is the main objective?
public limited company will help a business grow quickly
If an entrepreneur is investing a significant capital into a start up or if a business will have large debts,what liability should he choose?
Limited liability
