Forms Of Business Flashcards
Definition of business form
• A business form is the legal structure that it takes (in the UK). It could be a sole trader, a partnership, a private limited company (Ltd) or a public limited company (PLC).
Definition of limited liability
Limited liability means that the owner of the business has no personal liability for business debts. The owner has a separate legal identity from the business and is NOT liable for payment of the debts from their own personal funds.
Unlimited liability
If a business gains debts, or goes bust or is sued this could be a problem for the owner
Keys roles to grow a business
1.sole trader
2.partnership
1.Sole trader
2.limited company
3.public limited company
What is a sole trader
▪Business owned by one owner, but they can take on staff
▪Also known as a sole proprietor
▪Can employ people but they will not be involved in control of business
Advantages of sole trader
• Easy to set up – no complicated forms
• Make decisions quickly
• Less capital needed
• All profits kept by the owner
• Can offer personal attention to customers
• Don’t have to make any information about the company public
• They are their own boss
Disadvantages of sole trader
Unlimited liability, this means that if the business has financial difficulties the sole trader could lose their own assets like their savings, house or car
• Difficult to raise money – seen as a risk
What are partnerships
Two or more people – ie the partners - share the risks, costs and responsibilities of being in business
• The profits and gains of the partnership are shared among the partners, unless the partnership agreement states otherwise
• Each partner is personally responsible for paying tax on their share of the profits and gains, and for their National Insurance contributions
Advantages of partnership
Easier than a sole trader to raise extra capital, as partners all have their own sources of finance e.g. savings
• Profits go to partners, which is very motivating
• Smaller business means good working relationships
Disadvantages of partnership
• Unlimited liability
• Partners may have disagreements
about;
• Controlofbusiness
• Sharingofprofits
• Withdrawal from the partnership
• Inviting new partners into the business
What is a private limited company
• Sole traders may grow and expand and want to become a ltd company
• Friends and family can buy shares in the business, this will make them part owners
• Shares cannot be bought by the public
• Owners control who buys the shares
• Expand by selling more shares, giving the business more capital
Advantages of private limited company
Limited liability
• Can raise extra capital by selling more shares, to friends and family, making it easier to expand
• Can employ managers to run business if the owners don’t want to do it themselves
• Has its own legal status – separate from the shareholders
Disadvantages of private limited company
Accounts of the company cannot be kept private
• Audited each year
• Copy sent to Registrar of Companies
• Available for public to see
• More difficult and expensive to set up - more administration
• Cannot sell shares on stock exchange, which limits the amount of capital that it can raise
What is franchising introduction
An entrepreneur may choose to set up with an established business name and buy a franchise
• For example an entrepreneur may wish to open their own sandwich bar and call it “Bob’s sandwiches” or they could buy the Subway franchise
What is a franchise
Imagine a company has a great and successful business. It wants to expand but it doesn’t want the problems and expense of opening more stores – so it sells the business idea.
