Forms of a business Flashcards
What does unincorporated?
- the owner is the business
- owner has unlimited liability for business actions
- most unincorporated business operate as sole traders
What is corporated?
- there is a legal differnace between the business and owners
- company has seperate legal identity
- owners has limited liability
- most incorporated businesses operate as private limited companies
What does unlimited liability mean?
this means the owners of the business are personally responsible for all debts run up by the business
What are sole traders?
- individuals who owns and runs their own business
- registered as self employed
- legally required to keep a record of information
- has unlimited liability
advantages of being a sole trader?
- sole trader has full control
- sole trader gets all profit
- easier to set up as dont have to go through government
- flexible working times
- minimal paperwork
- simple to run
What are the disadvantages of sole traders?
- if debt is owed can go into sole traders assets
- hard to raise finance
- lack of support
- time consuming as soletrader
- if ill or cant work, no income
- has to pay income tax
What is a partnership?
- two or more people share costs, risks and responsibilities of being in business togetjer
- register as self employed
What are benefits of being in partnership?
- risks, costs and responsibilities are shared
- more scope for specialist skills
- simple and flexible
- financial records remain private
- more capital can be raised then a sole trader
Drawbacks of a partnership?
- unlimited liability
- arguements can occur with decision making
- if a partner dies, resigns or goes bankrupt the partnership is dissolved
- have to have trust
What is limited liability?
a shareholder can only lose the value of their investment in the share capital of the company
What are the disadvantages of being a company?
- owners have to make documents
- has to register
Advanatges of being a company?
- own legal identity which is separate from its owners
- has limited liability
What is the process of forming a company called?
incorporation
How do shareholders benifit from a company?
- share from profits (dividends)
- when sell share, worth more then bought for
Explain private limited companies?
- have LTD after name
- cheap to set up
- have limited liability
- owners can place restrictions on who the shares are sold to in the future
- shares not sold publicly, private sales only
advantages of private limited companies?
- limited liability
- easier to raise finance
- stable form of structure
Disadvantages of private limited companies?
- greater administration costs
- public disclosure of company information
- directors legal duties
describe public limited companies?
- have PLC after the name
- usually larger then LTD
- shares are traded publicaly
- minimum capital requirement of £50000
- accounts published in more detail than a LTD
- flotation on the stock market provides sudden, huge injection of cash
How can you measure the size of a plc?
market capitalization
What is market capitalisation?
total value pf all the issued shares in a public limited company
share price X number of shares issued
what is a franchise?
when a franchisor grants a licence to another business (franchisee) to allow it trade using brand/ business format
Benifits of the franchisor
- can accelerate the growth of a proven service business format
- enables rapid geographical growth for minimum investments
- still have an option to open solus branches
- can get above normal profits
Benifits to a franchisee?
- still your own business
- tested and developed format and brand
- advice, support, trianing
- easier to raise finance
- no industry expertise required
- buying power of franchisor
- lower risk method of market entry
Drawbacks for the franchisee?
- not cheap, initial fee
- restrictions on actions, inculding selling
- problems selling business on
- what happens if franchisor fails
