legal structure / ownership Flashcards
What is a sole trader status?
A sole trader status is a simple and inexpensive form of business organisation.
What are the benefits of a sole trader status?
They can keep any profits they make while building a close relationship with customers on hours they can tailor themselves.
What are the drawbacks of a sole trader status?
Sole traders have unlimited liability which makes it a big risk, as well as the fact that capital and additional finance becomes hard to raise. Sole trades also have the responsibility of making all decisions -sometimes this can go wrong.
What is a partnership status?
A simple form of business organisation that allows 2 to 20 partners to go into business together.
What are the benefits of a partnership status?
A partnership status allows the workload to be shared between different areas of expertise. Capital can also be raised easier as more partners means more contribution of startup funds.
What are the drawbacks of a partnership status?
All partners have unlimited liability and have to share the profits earned. They must honour the decisions of others and when a partner resigns or dies- the partnership ends.
What are the features of a private limited company?
A business owned by up to 50 shareholders with shares that are sold to family and friends.
What are the benefits of a private limited company status?
Shareholders have limited liability and access to funding in a stable business structure -the business will still exist even if one of the shareholders resigns or dies.
What are the drawbacks of a private limited company?
Limited liability poses a risk to banks and lenders. The incorporated business structure while secure, is hard to set up.
What are the features of a public limited company?
A public limited company is a business organisation that is owned by shareholders who purchase shares that are open to the public.
What are the benefits of a public limited company status?
Opening shares to the public means large sums of money can be raised quickly. This is called flotation where are company’s shares are listed on the stock exchange for the first time. A plc is also a very stable structure.
What are the drawbacks of a public limited company?
Flotation is an expensive process and the plc must provide regular financial information. A plc is also at risk of takeover if a member of the public is willing to buy 51% + of the shares. There is also a separation of ownership and control -there can be conflict between shareholders and the board of directors.
