Introduction to business - type of business Flashcards
what are the 4 types of businesses?
sole trader, partnership, private limited company, public limited company
what types of businesses are unincorporated?
sole trader and partnerships
what types of businesses are incorporated?
Ltds and Plcs
what is an unincorporated business?
- the owner is the business - no legal difference
- owner has unlimited liability for business actions
- most of these businesses operate as sole traders
what is an incorporated business?
- legal difference between the business and the owners
- owners (shareholders) have limited liability
- most of these businesses operate as private limited companies (Ltd)
what is a sole trader?
- individually owned
- owns all the business personally and is personally responsible for the debt incurred by the business
- UNLIMITED liability
what are the advantages of operating as a sole trader?
- quick and easy to set up
- simple to run
- minimal paper work
- full control
- keep all the profit
what are the disadvantages of being a sole trader?
- unlimited liability
- harder to raise finance
- higher tax rates
what is a partnership?
- a business owned by two or more people
- legal partnership agreement sets out how the partnership is run
- partners between them own all the business assets and owe all the liabilities
- unlimited liability
what are the advantages of operating as a partnership?
- more skills
- more ideas
- easier to raise finance (compared to ST)
- minimal paper work
what are the disadvantages of operating as a partnership?
- unlimited liability
- disagreements can cause delays in profit
- have to share the profit made
- harder to raise finance than LTDs and PLCs
- complicated to sell/close
what are limited liability partnerships?
- became legal in 2001
- combine features of partnership with those of a limited company
- separate legal entities (limited liability)
- owners are called members rather than partners
- like Ltds they are required to file annual accounts to Companies House
what are the advantages of being a limited company?
- limited liability
- easier to raise finance than sole traders/partnerships
- benefits from continuity (if a shareholder falls ill or dies it doesn’t affect the business)
what are the disadvantages of being a limited company?
- public exposure of business information (more limited info for Ltds)
- harder to set up than sole traders/partnerships
- more expensive to run than sole traders/partnerships
what are the differences between PLCs and Ltds?
- a PLC sells shares on the stock market, a Ltd cannot
- a PLC can be taken over if an investor gains 51% of shares –> loss of control
- a PLC is required to have a share capital of over £50,000
- a PLC is required to include more detail in its annual reports –> Ltds are required to do this, but don’t need to provide as much information
