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.
