how to set up a business Flashcards
What are the characteristics of a Sole Trader in terms of size?
Small - a single person, but they can have staff.
Sole traders operate independently and may hire employees.
What is the liability of a Sole Trader?
Unlimited liability. Risk of losing personal assets.
This means that personal assets can be used to settle business debts.
Who makes decisions in a Sole Trader business structure?
One person has full responsibility.
This eliminates conflicts but also means no support in decision-making.
How are profits distributed in a Sole Trader business?
One person takes all and pays income tax on earnings.
Sole traders retain all profits but are responsible for all the tax liabilities.
What is the access to finance like for Sole Traders?
Harder to get bank loans. No access to share capital or angel investors.
Sole traders often rely on personal savings or loans.
What is the size of a Partnership?
Small – medium. 2 or more ‘partners’.
Partnerships can range from small businesses to larger operations with multiple partners.
What type of liability do Partnerships have?
Depends – can be LLP or ‘ordinary partnership’ with full shared liability.
LLPs limit personal liability, while ordinary partnerships do not.
How are decisions made in a Partnership?
Depends on deed/agreement of all partners.
Shared expertise leads to diverse ideas in decision-making.
How are profits shared in a Partnership?
Shared between partners according to the deed/agreement.
The distribution of profits is outlined in the partnership agreement.
What is the access to finance for Partnerships?
Partners invest (low-cost finance) and can access bank loans, but not shareholder capital.
Partnerships can leverage their combined assets for loans.
What is the size of a Private Limited Company?
Large. Multiple shareholders, national and international market.
These companies can operate on a larger scale than sole traders or partnerships.
What is the liability of a Private Limited Company?
LIMITED by incorporation. Personal assets are not at risk.
Shareholders can only lose what they have invested in the company.
Who makes decisions in a Private Limited Company?
Made by the directors (shareholders) who must produce legal documents.
Accountability and legal compliance are critical in decision-making.
How are profits distributed in a Private Limited Company?
Dividends paid to shareholders according to % owned.
Shareholders receive a portion of profits based on their equity stake.
What is the access to finance for Private Limited Companies?
Can raise finance by selling shares or access low-risk bank loans.
This structure allows for greater financial flexibility and growth potential.
What is the size of a Public Limited Company?
Large, with multiple shareholders.
Public Limited Companies often operate on a national or international scale.
What is the liability of a Public Limited Company?
LIMITED by incorporation. Shareholders are not liable for business debts.
This protects personal assets from business liabilities.
How are decisions made in a Public Limited Company?
One share, one vote. CEOs are appointed and fired by shareholders.
Shareholder voting rights influence company governance.
How are profits distributed in a Public Limited Company?
Shared between all shareholders according to % of shares owned.
This incentivizes shareholders based on their investment.
What is the access to finance for Public Limited Companies?
Flotation can raise lots of finance for expansion.
Public companies can attract a wide range of investors through share sales.
What is franchising?
Occurs when one business sells the rights to another business to use its name and sell its products.
Franchising allows for rapid expansion with lower risk for the franchisor.
Fill in the blank: The risks, rewards and administration of business are essential for understanding _______.
[business ownership structures]
