forms of businesses + entrepreneurial skills (P1) Flashcards
what is an unincorporated business
Occurs when there is no legal difference between the owner and the business
examples of unincorporated businesses
- sole traders
2. partnerships
what is an incorporated business
Occurs when there is a legal difference between its business and its owners
Examples of an incorporated business
- Private LIMITED company (LTD)
2. Public LIMITED company (PLC)
What’s a benefit of operating as an incorporated business
there is limited liability meaning personal assets can’t be seized if the business fails
2 benefits of operating as a sole trader
- Easy to set up as there is minimal paper work
- owner may have complete control and they can work on their own time
- take all the profits.
3 negatives of operating as a sole trader
- unlimited liability
- if the owner is unfit to work (COVID) the owner may make no money
- harder to raise finance as sole traders often have limited funds for security against loans
what is a sole trader
a business which is started and run by one person
what is a partnership
a business which is started and run by two or more people
2 benefits of a partnership
- greater ability to raise finance
2. the partner can offer expertise
3 negatives of a partnership
- Unlimited liability
- decision making can take longer causing delays in production and demand may not be met as a result
- profit must be shared
3 benefits of private limited companies
- limited liabilities
- easier to raise finance as it improves business reputation and more shareholder can invest in the business
- corporation tax (19%) is lower than the lowest rate of income tax (20%)
negatives of private limited companies
- financial documents are made public
2. shared profits
how is stock sold on the exchange market
a business commissions a bank to promote shares to potential investors such as other investment banks
the bank may act as a guarantor and buy any unsold shares
what happens when shares go up in value
the business does not benefit from the increase in share price
the business will get its initial price of shares
Advantages of operating as a plc
large amounts of finance can be raised
disadvantages of operating as a PLC
- risk of hostile takeover. may demotivate employees and output may decrease as a result
- need a minimum of £50,000 to set up
- shareholders expect a greater percentage of the profit
non financial objectives to starting a business
- want to be your own boss
- pursuing a hobby (may be putting skills to better use)
- major change in personal circumstances (divorce)
- to help people
Financial objectives to starting a business.
- to increase income (financial freedom)
entrepreneurial skills required to run business
Business management skills. Teamwork and leadership skills. Communication and listening. Customer service skills. Financial skills
why is creating a good business idea important for entrepreneurs
as start up firms have unlimited liability if the business is unsuccessful personal assets such as homes can be seized.
however this depends on the size of the original investment
why is financial management important for entrepreneurs
limits cash flow problems. potential expansion (mentioned in the case study) may fail if money is overspent the bank may seize the store
however in the long term financial managers can be hired
what is a mass market
Where a business sells into the largest part of the market, where there are many similar products on offer
advantages of a niche market
- can charge higher prices as consumers expect a diversified product which may finance further R and D
- may build links with suppliers and expertise
- face less competition
