Form Of Ownership Flashcards
The term unlimited liability
If a business has a limited liability, the business and the owners are seen as one under the law. This is the case for a sole trader. This means that business debts become personal debts of the owner. Sole traders can be forced to sell personal assets like their home to pay off business debts. Unlimited liability comes with huge financial risk.
Define the term limited liability
Limited liability means that the owners are not personally responsible for the debts of their business. The shareholders of both public and private limited companies have limited liability because a limited company has separate legal identity from its owners. The most the shareholder in owl limited company could lose is money that they invested in the company.
What are three advantages of a sole trader?
They have full control and can make decisions quickly, they can keep all profits and don’t have to share with anyone and can open and close when they like
Define the term sole traders
Sole traders own and run their own business. The sole trader is the one who makes all decisions and provides the money in their business.
What are three disadvantages of a sole trader?
Unlimited liability means that you can lose your property to pay debts, it may be hard to compete with larger businesses and you may have to work long hours
Define the term partnership
A partnership is a business where between 2 to 20 people come together to set it up and share control of the business. The owners have unlimited liability. Partnerships are common in types of businesses such as private medical practices and solicitors. A set of rules and responsibilities for the company are agreed and written down in a partnerships deed.
What are three disadvantages of partnerships?
There’s unlimited liability, profit are shared rather than kept one individual and decision-making can be slow as all partners have to consult
What are three advantages of partnerships?
There’s more experts there to make decisions, extra money access in comparison to a sole trader and it is easy to set up
Define the term private limited company
A private limited company is formed on 1 to 149 people put together money to start a new business. The people who put money in are called shareholders. If the company makes a profit, the shareholders receive a dividend. The dividend depends on the amount of shares you invest. One share equals one vote. Shareholders have limited liability and the words LTD come after the company name.
What are three advantages of private limited companies?
They have limited liability mean they will only lose the money that they put into the business, they can raise the money by selling shares and as the company expands it can employ more experts
Identify three disadvantages of private limited companies
Profits are between members, many legal requirements e.g. documents to fill and the original founders can lose control of their business if they are bought out
Define the term public limited companies
A public limited company has 7+ shareholders and has directors who are voted by shareholders. These shareholders have limited liability. They must follow many laws rules and regulations. Shares can be bought and sold on stock exchange. The name of the company will end with PLC.
Identify three advantages of public limited companies
They have limited liability meaning they only lose what they put into business, when a shareholder dies the business keeps going and can raise money by selling shares.
Identify three disadvantages of public limited companies
Profit shared between members, they are subjected to take over as companies can buy PLCs and the original founders can lose control if they are bought out
Defined the term state owned companies
Formed by the Dáil and owned by the state with a Board of Directors appointed to rule them. When a government sells a state of company, it is called privatisation. If the government takes over a company, it is called nationalisation e.g. RTE on board biz
What are three advantages of state owned companies?
They create money jobs, they provide essential services eg. An Post and keep control over natural resources, e.g. oil and gas.
Identify three disadvantages of state owned companies
Lack of funding which turn lead to borrow more money from the government eventually if business is not making a profit, many of the firm suffer losses and tax pay have to help state bodies and there’s often a lack of motivation in workplaces
Define the term co-op
A co-op pool resources to achieve common goals, which is individuals they cannot achieve alone. The people who set it up are called members and all profits go to the members. Co-op have limited liability. Each member has one vote regardless of the amount of shares they own.
What are three disadvantages of co-op?
It is usually too small to compete with large companies, less of an interest to invest because one vote is one share and manager appointment sometimes based on popularity rather than ability
Identify three advantages of co-ops
They have limited liability, they create employment and all members have an equal say
Define the term franchising
Franchising is a businesses agreement where one person sells the right to use their name, idea or business to allow others to set up an exact replica of that business. A franchise is effectively a licensed to produce and/or sell another well-known companies products and use the company name. E.g. McDonald’s and Subway.
What are three advantages of franchising?
You have cost savings, e.g. marketing, you have ongoing support and you have a proven business model so you know your business will not fail
What are three disadvantages of franchising?
This controlled license agreement that they must follow, does not encourage entrepreneurship and royalties and fees go back to main franchise
Define the term limited liability
If a company goes bankrupt, the shareholders/owners of a company can only lose the money they invested in the company. The personal asset e.g. cars cannot be used to pay debts.
Outline two advantages of private limited company
Easier to get capital: with more people involved as easier to create ideas generating more sales and leading to more profits earned
Increased decision-making: as there is more than one owner meaning is easier to generate ideas and they have more of them to decide how to run their business due to having an increased amount of shareholders
