Choosing The Appropriate Legal Structure (Starting a Business) Flashcards
What is a sole trader?
Anyone who sets up a business on their own. They do everything from paying the bills to running the stores
What is a partnership?
A partnership is only between 20 and 20 people
What is a private limited company?
A small to medium sized business that is usually owned by its founders
What is a public limited company?
A type pf organisation that is owned by a shareholder and has floated on the stock market
Facts about a sole trader?
- illness can cause problems because there is no one to cover for them
- profits are kept
- limited funding usually from a loan or own savings
- privacy
Facts about a partnership
- Tax advantages
- small start up costs
- legal document had to be produced to say how profits will be shared
- wider specialisation
Facts about private limited company
- any number of shareholders
- owners are protected and separate
- limited liability
Advantages of sole trader
You have total control
Profit retention- they keep all the profits made by their business
Decisions can be made quickly and they can act on them swiftly
Private data- Information about sole trader are kept private
Disadvantages of a sole trader
Liability- the owner and the business are seen as one
They can find it hard to raise finance. Which can lead to struggle with expansion in the future
Reverse economies of scale - They cant take advantage of economies of scale like bigger cooperations can. This can mean they charge higher prices for their products to cover costs
All decisions made are on one person so if the business fails it rests on one person
Advantages of a partnership
Easy to establish
Dont have to pay income tax
Increased ability to raise funds
Wider range of knowledge, skills and contacts
Improved management
Disadvantages of a partnership
Partners are are responsible for the other persons actions in the partnership
Each partner is responsible for the debts and obligations of the business
