Forms & Types of Business Flashcards
BPSUDAW
Reasons for establishing a business
Be your own boss.
Pursue your interests.
Set your own deadlines and targets.
Unleash your creativity.
Diverse tasks.
A second career option.
Work from home, skip traffic.
BPSUDAW
Business organization types
In mixed economies like ours in the
English-speaking Caribbean,
businesses are classified into two
types depending on ownership.
They are: Private Sector and Public Sector
Define Private Sector
Organisations in the private sector of an economy are owned and controlled by private individuals.
SLF
What is private sector feature of firms?
Share profit among shareholders
or investors.
Little or no government control.
Owners are free to make their own
decisions.
Funded by owners. Funded by private
individuals.
Sole Traders
A sole trader is a business owned, financed and controlled by one person
SFPP
Advantages of Sole Trader
Simple Start-Up: Easy registration.
Full Profits: Owner enjoys all profits.
Personal Control: Independent decision-making.
Personal Service: Knows staff and customers, flexible hours.
NLU
Sole Trader Disadvantages
No Leisure Time: Long working hours, little family time.
Limited Finance: Limited capital, high personal risk.
Unlimited Liability: Personal assets at risk if the business fails.
NLU
L and G
Types of Partnerships
A partnership business is formed legally by a minimum
of two (2) and a maximum of twenty (20) persons in a
business. There are two types of partnership forms:
Limited Liability Partnership – all partners have
limited liability
General Partnership - all partners have unlimited
liability.
A deed of partnership must be drafted which set out
the terms and conditions of the partnership.
OSL
Types of Partners
Ordinary/General Partners :
take an active part in the
running of the business.
Sleeping Partners : invest in
the business but do not take
an active part in the business.
Limited Liability Partners :
assets will not be lost if the
business goes bankrupt.
WSC
Partnership Advantages
❑ Workload shared – Shared among
partners, thus partners maybe able to
enjoy more leisure and experience less
stress
❑ Shared Risk - The risk of the business
operation is also shared.
❑ Continuity – There is more continuity than in
the case of the sole trader. The business
may not be dissolved at the death or
bankruptcy of a partner.
WSC
BDCD
Partnership disadvantages
Binding – All partners stand to lose if one partner makes a bad
mistake.
Disagreement – There can be difficulty of management when
partners disagree
Concentrated risk – The risk is still concentrated on a few.
Decision making – Decision making may be slow and arguments
may arise
How many types of limited liability companies are there?
There are two types of limited
liability companies:
Private Limited Liability
Company
Public Limited Liability
Company
Limited Liability Company
Limited Liability Companies are companies in
which shareholders/investors are protected as
they will not lose their personal assets if the
business goes bankrupt.
They are not liable for the debts of the company
beyond their level of investment.
Therefore, if a shareholder buys shares in a
company valued at $5,000 then he will only lose
that $5,000 invested not his personal assets.
Characteristics of Private Limited Liability Company
Capital is obtained from private individuals, financial
institutions, Gov’t agencies or retained profits.
Limited Liability shareholders have limited liabilities
The company must be registered with the Registrar
of Companies
The word ‘Limited’ must be included in the name.
Membership is between two (2) to fifty (50) persons
Accounting statements must be prepared, and an
audit undertaken with a copy issued to the Registrar
of Companies
MCSL
Advantages of Private Limited Liability Company
More Capital: Larger capital base due to more shareholders.
Continuity: Easier access to loans, as the company has continuity.
Separate Identity: Company is legally separate from ownership.
Limited Liability: Shareholders are not personally responsible for the company’s debts
Disadvantages of a Private Limited Liability Company
Capital is limited since the
membership is limited to fifty (50)
The company must file its financial
reports with the Registrar of
Companies
Selling of shares is restricted to the
private grouping
Public Limited Company
A public limited company is a
company whose shares are traded on a
public stock exchange.
Management Structure of a Public Liability Company
Management Structure
The Board of Directors, which is elected by
the shareholders at the Annual General
Meeting, manages the Public Limited
Company.
The BOD appoints an Executive Director (ED)
or Chief Executive Officer (CEO) who heads
the company and reports to the board on
the operations of the company.
Characteristics of a Public Liability Company
Seven or More Shareholders: Requires a minimum of seven shareholders, no maximum limit.
Publicly Traded Shares: Shares are openly traded on the stock market.
Incorporated: Must go through the incorporation process.
Capital from Shareholders and Institutions: Can obtain capital from both shareholders and financial institutions.
Continuous Existence: The company has continuity.
