Forms of business(1.5.4) Flashcards
Forms of a business
sole trader
partnership
private LTD company
public LTD company
franchise
social lifestyle & online
What is a sole trader?
a business that has a single owner (although they may still hire employees)
Sole trader advantages
easy and inexpensive to set up
owner has complete control over business
all profits belong to the owner
simple tax arrangement
Sole trader disadvantages
unlimited liability
limited access to finance and capital
limited skill set of single business owner
What is a partnership?
two or more people joined together to form a business
e.g lawyers and accountants
Partnership advantages
easy to set up and inexpensive
shared responsibilities and decision making
more skills and knowledge available
increased access to finance and capital
Partnership disadvantages
partners have unlimited liability
potential for disputes between partners
profits are often shared equally regardless of contribution
difficult to transfer ownership
What is a private limited company?
when the ownership of the business is broken down into a specified number of shares
Private limited company
shares can be sold by the owner usually to friends and family or venture capitalists
decision making often rests with the person appointed to run the company often called the managing director or CEO
Private limited company advantages
limited liability
responsible for the companys debt
access to greater finance and capital
easier to transfer ownership
can have a professional image and reputation
Private limited company disadvantages
more expensive and time consuming to set up
annual financial reporting and auditing are required
more complex legal requirements and regulations than sole traders
shareholders have little control over the company as the founder usually imposes their agenda
What is franchising?
where an individual (franchise) buys the rights to operate a brand and business model from a larger company (franchiser)
e.g Dominos KFC Burger King
Franchising
the franchise operates the business under the franchisers established name/systems and receives training marketing support and ongoing assistance throughout te many fiscal years
What is social enterprise?
a business that has the primary purpose to create social or environmental impact (in addition to generating profits)
Social enterprise
profits are usually reinvested back into the business or used to create positive social change or address an environmental issue
What are lifestyle businesses?
are typically small owner operated businesses that priorities a specific lifestyle or personal interest of the owner over profits or growth
Lifestyle businesses
these businesses are often run from home or in a location that allow the owner to maintain a particular lifestyle or work life balance
What are online businesses?
often have low overhead costs and can operate from anywhere with an internet connection
Online businesses
these businesses are still required to have a legal structure such as a sole trade or private limited company
Becoming a PLC
when a business is growing rapidly it may require a significant amount of capital to fund its expansion
to secure this funding it may choose to transition from a LTD to a PLC
this is a complex process with many legal requirements and involves undergoing a stock market flotation
What is a stock market flotation?
when a business sells shares publicly on the stock exchange for the first time
What is initial public offering?
the initial sales of shares on the stock market
Becoming a PLC advantages
access to capital
shared risks
increased liquidity
extended decision making
greater public profile
Becoming a PLC disadvantages
can be taken over
flotations are expensive
