dp1 Flashcards
define unlimited liability
unlimited liability requires business owners to be fully responsible of the business’ financial loss such as debts with their personal assets
define limited liability
limited liability refers ti when business owners are only personally responsible by law to the level of their original investment in the business, hence are not personally responsible by any financial loss.
define sole trader
a sole trader is a business owned by a single individual
what are sole traders’ legal liability?
unlimited liability as they is one staff member to be responsible for the business’ financial loss, hence owners have to pay off all debts incurred by the business
advantages of sole traders
- simple and inexpensive to establish as large offices and establishments are not required to be obtained, nor recruitment costs.
- owner is able to keep all the profits as there are no shareholders
-there is minimal government regulation as they are not required to comply to laws valid to public businesses such as releasing financial reports
disadvantages of sole traders
- unlimited liability for the owner, hence if any financial loss such as debts are incurred, the owner must be responsible via their personal assets
- harder for owner to obtain finance for the business as investments form others or shareholders are not present
- reliant on the knowledge and skills of the owner as there are no individuals to provide their own experience and opinions towards the business
define partnership
a business owned and operated by 2-20 people
what is the legal liability of partnership businesses
unlimited liability
define perpetuity
the property of lasting forever
perpetuity of partnership businesses
partnerships have no perpetuity as if a partner leaves a business, the business cannot operate until a new partnership is formed
advantages of partnerships
- simple and inexpensive to set up
-risk and workload is shared between partners - minimal government regulation as they are less strict laws the owners are compelled to abide by.
- broader access to capital, knowledge, skills and expertise as there are more individuals from varying backgrounds to input their perspectives into the business.
disadvantage of partnership
- unlimited liability
- owner may be liable for debts incurred by partner
- business could be threatened by one partner leaving due to no perpetuity
- potential for disputes and conflict within personality
define private limited company
a business with 1-50 shareholders
advantages of private limited company
- limited liability
- extra capital can be obtained by issuing more shares
- existence not threatened by death or removal of one of the share holders (perpetuity)
disadvantages of private limited company
- highly complex structure
- high establishment costs
- needs more accountability and compliance paperwork
-additional compliance costs
define public listed company
a business with an unlimited number of shareholders
advantage of public listed company
- limited liability
- ability to gain extra capital through selling extra shares
- seperate legal entity
- existence not threatened by death or removal of one of the shareholders (perpetuity)
disadvantages of public listed company
- highly complex structure
- high establishment costs
- needs more accountability and compliance paperwork
- must declare financial information to public
define social enterprise
social enterprise is a private sector business that distributes surplus funds to fulfil a social need.
define government business enterprise
a business that is government owned and operated
what is the main objective of a gbe
to provide a service
where do the profits from the gbe go to
the government
advantages of a gbe
-the money has significant money to invest in these businesses so they have large amounts of funding to exist
-provides health competition to private sector
disadvantages of gbe
- strategic directions can change with changing governments
- may be inefficiencies caused by the government issues such as politician and president changes
advantages of social enterprise
-beneficial for the community as it gives back to them and fulfils a social need
- prone to develop good reputation due to business objectives, hence increases sales.
- can open new markets as consumers may want to expand on the good or service offered by the business.
disadvantages of social enterprise
-significant operation costs, hence hard to operate and maintain from long periods of time
-capital is hard to obtain and may be inefficient to pay for employees due to profit not being guaranteed
-can be difficult to achieve both social and financial goals
