Choosing The Right Legal Structure For The Business Flashcards
Incorporated businesses
Privates limited company (LTD)
Public limited company (PLC)
Unincorporated business definition
The identity of the business and owner is the same.
Incorporated business definition
A firm with a legal identity that is separate from the individual owners.
Unlimited liability definition
In which the owners of a business are liable for all the depts that the business incur
Limited liability definition
In which the liability of the owners of a business is limited to the fully paid-up value of the share capital
Sole trader definition.
A business owned by one person, but owner may employ other people
Features of a sole trader
Unlimited liability
Limited capital to expand
Advantages of a sole trader
Easy and cheap to set up
Few legal formalities
Owner takes all profit
Greater independence
Disadvantages of a sole trader
Unlimited liability
Limited capital for investment and expansion
No sick pay
Difficulties If wanted to go on holiday
Partnership definition
Is a form of business in which two or more people operate for the common goal of making a profit
Features of a partnership
Normally unlimited liability but can be limited
Has potential for more capital
Decisions and responsibilities are shared
Advantages of a partnership
May have a wide range of skills and knowledge between each other
Able to raise greater amounts of capital than sole traders
The pressure on owners is reduced as decisions are made jointly
Disadvantages of partnership
Control is shared among partners
Arguments are common among partners
Can mostly be unlimited liability
Private limited company definition
Is a small to medium-sized business that is usually run by the family or the small group of individuals who own it.
Private limited company features
Can keep its affairs reasonably private
Tend to be limited in size
Limited liability
Advantages of private limited company
Limited liability
more flexible than a Plc
Has access to more capital than unincorporated businesses
Disadvantages of private limited company
Shares less attractive as can’t be traded on stock exchange
Less flexible of expansion needs finance
More legal formalities than for an unincorporated business
Public limited company definition.
Is a business with limited liability, a share capital of over £50,000, two shareholders +, two directors and a qualified company secretary & usually a wide spread of shareholders
Features of a public limited company
Shares cab be traded on the stock exchange
Easier for these to raise finance
Has to have Plc after the consent name
Advantages of a public limited company
Has limited liability
Easier to raise finance
Greater scope for new investment
Can gain positive publicity as a result of trading in stock exchange
Disadvantages of public limited company
Greater scrutiny of its activities
Has to publish a great deal of financial info about its performance
Founders of firm may loose control in their shareholding falls below 50%
Not-for-profit organisations features
Aim to break even financially
They are non-governmental organisations
Have a governing body responsible for managing their affairs
Many use volunteer staff
Unincorporated businesses
Sole trader
Partnership
