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.
SSTI
Advantages of a Public Liability
It is easier to obtain finance.
Shareholders have limited
liability; Ownership and control
are separated.
Shares can be quoted on the
Stock Exchange and sold to
the public.
The company is able to grow
and obtain economies of
scale.
It has a separate legal
existence. Changes in
shareholders and directors do
no affect the continuity of the
company.
LBDC
Disadvantages of a Public Liability
The legal requirements may be
costly and time-consuming
The accounts have to be
made public
Because of the large size,
decision-making usually takes a
longer time
Differences of opinion may develop
because the ownership and day-to-
day administration of the company
are divided – The shareholders are
the owners and the directors run the
company.
Control of the company may be lost
if another company or other people
obtain sufficient shares in the
company.
Franchises
A franchise is a legal
agreement in which the
franchisor allows the
franchisee to use the
established name of the
business and to produce
products to the franchisor’s
standards.
Royalties are paid to the
franchisor.
Co-operatives
A cooperative is an organstion that is jointly owned and democratically controlled by its members.
Incorporated:
The business is registered as a separate legal entity from its owners. The
company can enter into contracts. Shareholders have limited liability.
Unincorporated:
The business and the owners are one and the same.
Liability:
Liability means the money a company owes to other people or a business.
One example is debt.
Limited Liability:
The liability or obligation of the owners or shareholders extends only to their
investment in the business.
Unlimited Liability:
The liability or obligation of the owners or shareholders can extend beyond
their investment in the business to their personal wealth and assets.
Nationalization:
A situation where the state or government assumes the assets of a business
entity to ensure that the products are available to citizens e.g. water and electricity.
Privatization:
A situation whereby the state sells the assets in a public sector entity to the
private sector.
Public corporation:
State owned organizations that may be profit oriented.
Memorandum of Association:
A document that outlines the external relationship of the company and
gives details of its existence e.g. company name, objects of the company, share capital and divisions,
whether the business is a public company, liability, guarantee
What information is included in the Memorandum of Association?
Business Name
* Business Location or address
* The objectives of the company
* Initial Capital Investment
* Declaration that the shareholders of the company
have limited liability.
Articles of Association:
A document stating the firm’s internal relationships (the running of the
company). This includes the voting rights, conduct of meetings, election methods, management’s
powers and how profits will be shared.
Prospectus:
A document prepared by a public company intended to provide details of new issues of
shares. It outlines what the intention of the company.
Where is the name of a Business registered?
The name of the business
is registered with the
Business Registrar
The legal responsibility of a Sole Proprietor to pay any money owed by the business is referred to as:
A)Risk
B)Insurance
C)Limited liability
D)Unlimited Liability
D)Unlimited Liability
Which of the following types of business environments are most typical of the Commonwealth Caribbean?
A)Corporate State
B)Mixed Economy
C)Centrally Planned
D)Perfectly Competitive
B)Mixed Economy
In a public limited company, the losses are borne by the:
A) Staff
B)Directors
C)Community
D)Shareholders
D)Shareholders
Private enterprise is run mainly to:
A)Provide jobs for more people
B)Distribute Goods and services
C)Reduce Inflation
D)Create Profits for its owners
D)Create Profits for its owners
Which of the following characteristics of the sole trader form of business NOT advantageous to the owner
A)Secrecy
B)Unlimited liability
C)Ownership of all profits
D)Low operational Costs
B)Unlimited liability
Which of the following is most likely to occur in a partnership when one partner dies?
A)The Business closes down
B)A new partner is brought in
C)The government takes over the business
D)The business becomes a joint stock company
B)A new partner is brought in
A MAJOR function of the public sector is to;
A)Inspire competition among business
B)Serve the interests of the shareholder
C)Serve the entire population
D)Make a profit
C)Serve the entire population
The policies of a company are formulated by:
A)Shareholders
B)Managers
C)Directors
D)Auditors
C)Directors
Which of the following is NOT an objective of the public sector?
A)Maximising profits
B)Regulating Essential Services
C)Regulating business activity
D)Promoting economic growth and development
A)Maximising profits
A MAJOR function of the public sector is to
A)Make profits
B)Serve the country
C)Serve the interest of the shareholder
D)Inspire competition among businesses
B)Serve the country
A person who has the ability to seek out and to take advantage of new opportunities in the market is called :
A) A producer
B)An inventor
C)An entrepreneur
D)A shareholder
C)An entrepreneur
Which of the following best defines a cooperative?
A)May have a silent or sleeping
partner
B)Owned and operated by the
members.
C)The owner assumes
unlimited liability
D)All profits belong to the
entrepreneur
B)Owned and operated by the
members.
Define Partnerships
A partnership is an agreement between two or more people to own, finance and run a busines jointly and to share any profits.
