Econ Sectors/ Legal Structures Flashcards
What is a sector?
A sector is an area of the economy in which businesses share the same or related business activity,
product, or service. Dividing an economy into different sectors helps economists analyze the economic
activity within those sectors.
What are the main features of a sector?
raise finance, appropriateness of legal structures, problem from changing from one legal structure to another.
What are the features of an incorporated businesses?
*An incorporated business has a legal identity that is separate from the individual owners.
* The private sector includes: private limited companies (Ltd.), public limited companies (PLCs),
cooperatives and friendly societies.
* These firms can own assets, owe money, and enter into contracts in their own right as they are
recognised legally as a separate entity.
* They have limited liability.
What are the features of unincorporated businesses?
- In an unincorporated business, there is no distinction in the law between the owners and the business itself.
- These businesses include sole traders and partnerships.
- Liability is unlimited.
What is a sole trader? Please provide examples
A sole trader is a type of enterprise owned and run by one person and in which there is no legal distinction
between the owner and the business entity. Examples: Doubles vendors, tailors, palours, handimen
What are the advantages and disadvantages of a sole trader?
Advantages -
* Easy to form
* There is a closer relationship with customers
* Owner can react immediately to customers’ needs
* Owner is flexible; decision-making is quick
* Owner is motivated to work hard, as he is working for himself
* Profits are not shared
Disadvantages -
* Limited capital
* Expansion is restricted because of lack of capital
* Owner cannot easily take a holiday
* Unlimited liability; if owner cannot pay debt he may lose personal assets as well as the business
What is a partnership?
A partnership is a formal arrangement by two or more parties to manage and operate a business and
share its profits. Present amongst lawyer
Advantages and disadvantages of partnerships
Advantages - *new ideas as there are more partners
* easy to expand
* there is shared responsibility
* simple to establish
* there is more capital as there is more partners
Disadvantages -
* Personal unlimited liability
* Decision-making can be slower because of the number of partners
* A decision made by one partner is binding on the rest of the partners
* Disagreement among partners
What is a private limited company?
A private company is owned entirely by a relatively small group of individuals or other entities providing
capital. Any limited company that is not a public limited company. Such a company is not permitted to
offer its shares for sale to the public and it is free from the rules that apply to public limited companies. Examples :
What are advantages and disadvantages?
Advantages -
* Shareholders have limited liability
* If a shareholder dies the business continues
* It is a separate legal personality
* Division of labour, less burden on each owner
Disadvantages -
* Legal formalities are involved in setting up the firm
* Capital is limited as shares cannot be sold on the open market
* Shares are not easily transferable
* Limited contact with employees
What is a public limited company?
A Public Limited Company is a limited liability company whose shares may be freely sold and traded to
the public. A public limited company is public, that means that anyone can buy shares in the company. It
is managed by directors and owned by shareholders.
What are advantages and disadvantages?
Advantages -
* It is a separate legal entity
* Limited liability for business debts
* Continuity
* Shares can be easily bought and sold
Disadvantages -
* Legal formalities are required in setting up the firm. High cost to the firm
* Legal requirements: information must be disclosed to shareholders and the public
* Over-expansion can lead to diseconomies of scale
* There is the possible risk of a takeover as shares are sold on the open market
