Forms of business ownership? Flashcards
Whats a sole trader?
A sole trader describes any business that is owned and controlled by one person - although they may employ workers. Individuals who provide a specialist service like plumbers, hairdressers or photographers are often sole traders. Sole traders do not have a separate legal existence from the business. In the eyes of the law, the business and the owner are the same. As a result, the owner is personally liable for the firm’s debts and may have to pay for losses made by the business out of their own pocket. This is called unlimited liability.
What are the advantages of being a sole trader?
Easy to set up Small capital investment means reduced start-up costs Freedom to make decisions Make more money for themselves No qualifications needed necesarily You can't get fired
What are the disadvantages of being a sole trader?
Responsibility
Long hours
Unlimited liability
Other peoples perception of the business
What is unlimited liability?
Unlimited liability refers to the legal obligations general partners and sole proprietors because they are liable for all business debts if the business can’t pay its liabilities.
What is limited liability?
the condition by which shareholders are legally responsible for the debts of a company only to the extent of the nominal value of their shares.
Whats a partnership?
Partnerships are businesses owned by two or more people. Doctors, dentists and solicitors are typical examples of professionals who may go into partnership together and can benefit from shared expertise.
What are advantages of going into a partnership?
There is someone to consult on business decisions.
Bring more customers in (know more people)
More skilled
More money for business
Share the work
Less stressful
What are disadvantages of going into a partnership?
Disputes can arise over decisions that have to be made, or about the effort one partner is putting into the firm compared with another. Like a sole trader, partners have unlimited liability.
Potentially unreliable partnership
Business partner may leave
Whats a limited company?
A limited company has special status in the eyes of the law. These types of company are incorporated, which means they have their own legal identity and can sue or own assets in their own right. The ownership of a limited company is divided up into equal parts called shares. Whoever owns one or more of these is called a shareholder.
Whats a major advantage of being a limited company?
Because limited companies have their own legal identity, their owners are not personally liable for the firm’s debts. The shareholders have limited liability, which is the major advantage of this type of business legal structure.
Who runs the business in a limited company?
Unlike a sole trader or a partnership, the owners of a limited company are not necessarily involved in running the business, unless they have been elected to the Board of Directors.
What are the two main types of limited company?
Private Limited Company (ltd)
Public Limited Company (plc)
Whats a private limited company? (ltd)
A private limited company is controlled by a board of directors and is run by a managing director. Its owners are called shareholders and they’re family or friends. It has a separate legal existence from its owners. It is governed by two legal documents, The memorandum of Association and the Articles of Association.
Whats a public limited company? (plc)
A public limited company is controlled by a board of directors and run by a managing director. Its owners are called shareholders and the company has a separate legal existence from its owners. The shareholders are members of the general public. It is governed by two legal documents, The memorandum of Association and the Articles of Association.
What are the advantages of an LTD?
More reliable partners as you know them.
Limited liability
Continuity
What are the disadvantages of an LTD?
More complicated to set up due to legal formalities
Loss of individual control
Business accounts must be made public
What are the advantages of a PLC?
Make more money- greater investment
Increased publicity
What are the disadvantages of a PLC?
You don’t know how trustworthy your shareholders are
Shareholders may cause problems
Takeover
What is franchising?
An entrepreneur can opt to set up a new independent business and try to win customers. An alternative is to buy into an existing business and acquire the right to use an existing business idea. This is called franchising.
Why are franchises good?
Opening a franchise is usually less risky than setting up as an independent retailer. The franchisee is adopting a proven business model and selling a well-known product in a new local branch.
Whats a disadvantage of opening a franchise?
Buying a franchise means entering into a formal agreement with your franchisor. Franchise agreements dictate how you run the business, so there may be little room for creativity. There are usually restrictions on where you operate, the products you sell and the suppliers you use.
