Forms of Business Ownership Flashcards
Why do businesses start?
People may want to be their own boss
Want to make money
Share a passion or idea
The fam of being successful
How do businesses start?
Decide on the product
Design a business plan
Study the market
Research prices of similar products
Work out costs of production
Market research
Research where the product is best sold
Advertise
Register the product
What is a micro business?
1 - 9 employees and less than £1.7m turnover
What is a small business?
10 - 49 employees and less than £5.6m turnover
What is a large business?
More than 249 employees and less than £22.8m
What is medium business?
50 - 249 employees and less than £22.8m turnover
What is the public sector?
Includes everything that is owned by the government
What is the private sector?
All businesses which are owned and run by private individuals
What are unincorporated businesses?
Sole trader (one owner)
Partnership (2-20 partners)
What are incorporated businesses?
Private limited company (owned by a few shareholders)
Public limited company (owned by many shareholders)
Unlimited liability meaning
If the business fails, the owner would have to sell their personal belongings if necessary in order to pay off debts owed.
Advantages of sole trader
Freedom to be your own boss
You get all the profits
Do not have to make your accounts public
More freedom from government regulation, so business can be more flexible
Disadvantages of sole trader
Amount of capital is limited - banks often are reluctant to lend
Long hours needed
Low level of expertise - multiple skills are required for some businesses
Unlimited liability
How do partnerships protect from unlimited liability
Deed of partnership -
amount of capital contributed by each partner
How much say each partner has
How profits are shared out
Advantages of partnership
Low start up cost
Shared workload
More capital available
More effective/ shared decision making - each person brings views and ideas
Financial privacy - financial affairs do not have to be published and therefore business dealing is left in private
Disadvantages of a partnership
Potential for conflict between partners
Unlimited liability
Lack of continuity- if one partner dies the partnership dissolves
Lack of capital - due to small number of partners
Advantages of private limited company
Not open to hostile takeover
Benefits from economies of scale
Shareholders will have limited liability
More access to capital - no limit to number of members
More privacy than PLC
More flexible than a PLC
Specialisation
Disadvantages of private limited company
Profits to be shared out among shareholders
Still limited in capital - not able to sell shares publicly limited capital for expansion and growth
On going costs of a Ltd.
Advantages of public limited company
Raise more capital if required - can issue shares for sale to the general public
Easy to borrow money from banks
Extra capital is useful in case of takeover
Disadvantages of a public limited company
Very expensive start up - time consuming due to official procedures with UK law
Many aspects of company affairs have to be made public which helps competitors - due to UK law
Have to concentrate on keeping shareholders happy.
What is a franchise?
An arrangement in which An established business name is sold to an individual who can start trading under that name.
What is a franchisor and franchisee?
Franchisor- the business or person selling the right to sell its branded product
Franchisee- the company of person paying the franchisor for the right to sell a branded good
Advantages for franchisor
Increased opportunities for faster growth
Economies of scale, they can buy in bulk which is cheaper
They get the % of franchisee’s revenue annually
They are not involved in the running of the business on day to day basis
Advantages for franchisee
Guaranteed high sales
Can benefit from global brand advertising
Quality of inventory will be high as they are supplied through contracts with franchisor
Disadvantages for franchisor
If franchisee does not provide a good service this could damage the whole reputation of the franchise
They do not have day to day control so they can’t interfere with the running of the franchisee’s business
Disadvantages for franchisee
Significant yearly fees to pay to franchisor
The franchisor will probably have significant input into how the business is run. My make the franchisee feel like a manager instead of owner
Public corporations definition
Market bodies that produce g/s for sale and at least 50% of its income comes from sales
Municipal enterprises definition
Organisations and activities run by local councils
What is a social enterprise?
An organisation that marries the social mission of a non-profit programme with the market-driven approach of business. It has social aims and reinvests a large proportion of its profits into the community.
What is the work of a social enterprise?
To provide employment
To provide a sense of community
To solve an environmental problem
