Legal Structures (Sole Trades and Partnerships) Flashcards
What is a sole trader?
Business in which one provides the permanent finance of a business and, in return, has full control of the business and is able to keep all of the profits
Advantages of being a sole trader?
Keep all profits
Keep full control
Flexibility
Disadvantages of being a sole trader?
Raising finance (unable to expand) Can work long hours Risk taking with no gain No holidays Unlimited Liability
What is a partnership?
a business formed by two or more people
to carry on a business together, with shared capital
investment and, usually, shared responsibilities
Advantages of a partnership
Shared risk Less indiviual work hours Easy to set up Extra capital Partners can specialsie
Disadvantages of a partnership?
Disagreements may occur May lose some control Unlimited liability Profits are shared Reduction in job satisfaction of being your own boss
What is a sleeping partner?
An uncommon form of partner, they invest their money, they take no part in running the business, they dont have unlimited liability
What is Unlimited Liability?
The liability- or potential loss- a shareholder as if the company fails is the wealth of the shareholder
What is limited liability?
the only liability – or potential loss – a
shareholder has if the company fails is the amount invested
in the company, not the total wealth of the shareholder
What is a deed of partnership?
Document containing:
Names and addresses of the firm and each partners
Nature of business to be carried on and the locally where business is to set up
Duration of partnership
Capital contribution by each partner
Profit sharing ratio
Interest on capital, if any to be paid to partners
What is a legal personality?
When a firm is recognised as having a legal identity separate from its owners
What is Continuity?
In the event of the death of a owner or a director the business is not dissolved but instead ownership continues through inheritance of shares
