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BESY > Lesson 3 > Flashcards

Lesson 3 Flashcards

1
Q

What are the different types of business organisations ?

A
  1. Sole trader
  2. Partnership
  3. Limited liability partnership (llp)
  4. Limited liability
  5. Charity
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2
Q

What is a sole trader ?

A

An individual in business trading under their name or a trading name . They are the owner and manager of, and are responsible for the operations of the business

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3
Q

What are some characteristics of a sole trader ?

A
  1. Their investment is called capital
  2. Income tax is paid on profits
  3. No formal accounting regulations , usually only SOPL/ SOFP
  4. No need to file annual returns
  5. Financial statements are private
  6. No specific laws relating to sole traders
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4
Q

Advantages of sole traders ?

A
  1. The owner has full independence
  2. All profits belong to the owner
  3. Easy to establish legally
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5
Q

Disadvantages of sole traders?

A
  1. Owner had unlimited liability and personal assets can be used as security
  2. Expansion can be hard because it relies on reinvestment of profits
  3. Losses are the owners responsibility
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6
Q

What is a partnership ?

A

2 or more people who own , manage and are responsible for the operations of a business

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7
Q

What are the characteristics of a partnership ?

A
  1. Investment is referred to as capital
  2. Profit is shared amounts partners
  3. Income tax is payed on any profit entitlement
  4. No formal accounting regulations apart from SOPL/ SOFP
  5. No requirement to file returns
  6. Applied legislation is the partnership act 1890
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8
Q

Advantages of a partnership ?

A
  1. Cost effective and easy to set up
  2. Increased capital as there is more than one person to invest
  3. Potential for specialisation as there is more than one personal all with different skills
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9
Q

Disadvantages of a partnership ?

A
  1. Decision making is slower as there is more than one person to consider
  2. Each partner is jointly liable for actions and debts of the partnership and has unlimited liability
  3. Conflict can arise between partners if they do not agree on something
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10
Q

What is an incorporated business ?

A

This is where the business is a separate legal entity and can legally enter into contracts , quite assets and be held liable for debts in its own right.
The owners would only be liable for their investment.
1. Limited liability partnerships
2. Limited companies

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11
Q

What is a limited liability partnership ?

A

This is an incorporated form of partnership where the partners are not liable for any debts incurred by the business . They are only liable for their investments.

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12
Q

What are some key points about limited liability partnerships ?

A
  1. Each member is still liable to pay income tax on profits earned
  2. Financial statements are the SOPL/ SOFP , supporting notes and possibly the auditors report
  3. Required to file any al reports in the form of conformation statements and annual accounts
  4. Financial statements are filled at companies house and are available for the public
  5. Laps are bound by the llp act 2000 and the lllp regulations 2009
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13
Q

What are some advantages of trading as an LLP ?

A
  1. Each partner is limited in their liability for the actions and debts of the partnership. They can only loose the amount they have invested
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14
Q

What are some disadvantages of a limited liability partnership ?

A
  1. The initial set up and reporting requirements are more complicated than a traditional partnership
  2. The financial statements are available to the public to view
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15
Q

What is a limited company ?

A

Another incorporated business where it is owned by shareholders and run by directors. The total investment Kent’s are known as equity and the shareholder investments are known as capital

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16
Q

What are the two main types of limited company ?

A
  1. LTDS
  2. PLCS
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17
Q

What is a LTD

A

This is a privately owned limited company where shareholders are invited to buy shares , they are usually smaller and family owned

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18
Q

What is a PLC

A

This is a publicly owned limited company , the shares are available to the general public are often traded in financial markets such as the stock exchange

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19
Q

What are some key points on limited companies ?

A
  1. Shareholders appoint directors , who are responsible for day to day running of companies. This is known as a stewardship.
  2. Profits are payed out by way of dividends
  3. Companies pay corporation tax on any profits
  4. Companies must prepare annual accounts in accordance with The companies act 2006 and IFRS
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20
Q

What are the advantages of a limited company ?

A
  1. Each shareholder is limited in liability to their investment amount , they can only loose upto that amount
  2. Limited companies are in a better position to obtain funds , they can get loans more easily
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21
Q

What are the disadvantages of a limited company?

A

1.The setup and running is more complex because of reporting requirements

  1. Financial statements are in the public domain
  2. Larger companies are required to have an annual audit
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22
Q

What are some key points about not for profit organisations ?

A

Not conducted to make profit

Do not have to report shareholders but do have to report financial statements

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23
Q

What are some examples of not-for-profit organisations ?

A
  1. Charities
  2. Clubs and societies
  3. Housing associations
  4. Non-governmental organisations
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24
Q

What do unincorporated businesses pay tax on ?

A

Owners pay income tax on profits made

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25
Q

What tax does an Incorporated business pay ?

A

It will pay corporation tax on profits, as it is a separate legal entity

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26
Q

What tax will a not for profit pay?

A

It will not pay tax as it does not exist to make profit

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27
Q

If a business has employees , what additional taxes will have to be paid and who to ?

A

PAYE
National insurance

Both paid to HMRC on behalf on the employee

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28
Q

If a business has turnover of more than 85,000 in a 12 month period , what must they do ?

A

They will have to add VAT to the cost of their products and pay this , less any VAT they claim to HMRC

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29
Q

What is the entity concept ?

A

This is where the business is seen as a separate entity and the accounting records must be kept separate from the owners affairs

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30
Q

What will a a person have to do to operate as a sole trader?

A

They will have to register as a self employed individual with HMRC

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31
Q

When must the sole trader register ?

A

By the 5th of October after the end of the tax year

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32
Q

What will a partnership agreement state ?

A

1.How disputes are resolved
2. Proportions of ownership
3. What happens if a partner does prematurely

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33
Q

When must Partnerships register with HMRC ?

A

By the 5th of October after the end of the tax year it was formed in

34
Q

What must an LLP be registered with and what must be used to do so ?

A

Must he registered with companies house

Must use an LLP registration document

35
Q

What else must an LLP do to register?

A
  1. Choose a name
  2. Have a registered address that will be publicly available
  3. Have 2 designated members
  4. Have an LLP agreement
  5. Register the business with HMRC
36
Q

What else do LLP owners have to do ?

A
  • keep company accounts
  • register with HMRC for self assessment and pay income tax on profits
37
Q

What is required when setting up a Ltd company ?

A
  1. Application form
  2. Articles of association
  3. Statement of proposed officers
  4. Name of one director ( two if it’s a public company )
  5. Statement of capital
  6. Memorandum
38
Q

What are articles of Association ?

A

These are articles detailing the directors , the power they hold and how the dividends are payed to shareholders

39
Q

What is the statement of proposed officers ?

A

This is a list of people who are legally responsible for running a company and maintaining the legal documentation

40
Q

What is a statement of capital ?

A

This is the details of all shareholders and the shares they own

41
Q

What is an off the shelf company ?

A

A pre exiting , ready made business that is purchased

42
Q

Advantages of off the shelf companies

A
  1. Cheap and simple , no need for legal or financial help
  2. Can trade immediately
  3. No issue with pre incorporation contracts
43
Q

Disadvantages of off the shelf companies ?

A
  1. May need to be amended
  2. Bake may need changing
  3. Shareholders, director names will need to be changed
44
Q

What is a pre incorporation contract ?

A

This is where a person enters into a contract before the business is incorporated, meaning that they are fully liable for the pre incorporation contract as the business has not been established and incorporated yet so it can’t legally legally enter into contracts .

45
Q

What are the rules around company names ?

A
  1. Can’t be too similar to other names
  2. Cent contain sensitive words or expressions
  3. Cannot suggest a connection with the government
  4. Cannot be offensive
46
Q

Under the companies act 2006 , where must company names be displayed ?

A
  1. Registered office and premises
  2. Business documents
  3. Websites
47
Q

What is the purpose of displaying company names under the companies act 2006?

A

To allow anyone who wishes to have dealing with that company , the ability to recognise the organisation

48
Q

What are the rules around company signage ?

A
  1. Must be displayed wherever the company carries out business
  2. Displayed in a way that visitors can easily and regularly see it
49
Q

What are the rules around business stationary ?

A

Any document that is outbound wether electric , hardcopy must have company registered name

50
Q

Rules around websites ?

A

Every company must disclose its name on its website. It must be visible and easy to read

51
Q

What do incorporated businesses need to file with HMRC and companies house ?

A
  1. Confirmation statements
  2. Annual accounts
  3. Statutory books
  4. Company tax returns
52
Q

What do unincorporated businesses need to file ?

A

Sole traders need to file tax returns which includes profit from the business and any other income or gains

Partnerships need to do the same for each partner of the business , plus a partnership tax return

53
Q

What does Uk company law require every incorporated business to submit ?

A

A confirmation statement , which is basically an annual return

54
Q

What is included on a confirmation statement ?

A
  1. Details of the directors , registered office and registered address
  2. Information on the statement of capital
  3. The standard industry classification
55
Q

What information is found in the stauatory books ?

A
  1. Reg of directors & Reg of directors home addresses
  2. Reg of secretaries
  3. Reg of shareholders
  4. Reg of people with significant control
  5. Reg of PSC home addresses & Reg of shareholder transfers
  6. Register of mortgages and charges
56
Q

What statutory books must an LLP Keep?

A
  1. Reg of members and of their addresses
  2. Reg of people with significant control and of their addresses
  3. Register of mortgages and charges
57
Q

What must a limited company prepare and file at the end of the financial year.

A
  1. Full annual accounts
  2. Company tax return
58
Q

What financial statements are included in the annual accounts and what do they mean ?

A
  1. SOP/L
  2. SOFP
  3. Supporting Notes
  4. Directors Report
59
Q

What must the statutory accounts meet ?

A
  1. International financial reporting standards (IFRS)
  2. Generally accepted accounting practice (GAAP)
60
Q

What is the purpose of the IFRS and the GAAP ?

A

Ensures financial statements in the uk and globally are prepared the same way using the same measurements

61
Q

Do unincorporated businesses have to file Financial statements ?

A

No , there is no requirement

62
Q

How long do PLCs have to file their accounts ?

A

6 months from the end of the tax year

63
Q

How long do limited companies like LTDs and LLPs have to for accounts ?

A

9 months for the end of the financial year

64
Q

What is the deadline for submitting a corporation tax return ( ct600) ?

A

12 months from the end of the accounting period it covers

65
Q

What must unincorporated and LLPs complete ?

A

Individual income tax return ( sa800)

66
Q

What are the deadlines for submitting tax returns ?

A

31st October : if by paper
31st January : if filling electronically

67
Q

What are the different functions of a business ?

A
  1. Human Resources
  2. Information technology
  3. Distribution and logistics
  4. Finance
  5. Operations and productions
  6. Sales and marketing
68
Q

What are the 2 classifications of business function ?

A
  1. Line function
  2. Staff function
69
Q

What is meant by line function ?

A

This related to roles that involve responsibilities surrounding revenue making activities and carrying out the primary objectives that a business has

70
Q

What is meant by staff function ?

A

This is related to roles in which employees support and provide information , resources and systems to the line function employees to ensure smooth and effective operations

71
Q

What are some organisation structures?

A
  1. Hierarchical
  2. Horizontal
  3. Functional
  4. Divisional
  5. Matrix
72
Q

What is meant by outsourcing?

A

Where a smaller business will outsource important tasks to professionals to lighten the burden on themselves and to avoid employing more people

73
Q

What are areas that may be outsourced ?

A
  1. Bookkeeping , payroll and accounting
    2.IT
  2. Marketing
  3. Distribution
74
Q

Activities of the finance function ?

A
  • Sales order processing
  • purchasing
  • cashier
  • payroll
  • costing
  • inventory
75
Q

What are the other roles within the finance function ?

A
  1. Financial accountant & assistant
  2. Management accountant and assistant
  3. Accounts payable
  4. General ledger clerk
  5. Accounts receivable
  6. Payroll clerk
76
Q

Who are the internal stakeholders ?

A
  1. Directors
  2. Managers
  3. Colleagues
  4. Shareholders
77
Q

Who are the external shareholders ?

A
  1. Customers
  2. Suppliers
  3. Governments
  4. Banks and financial institutions
  5. The public
78
Q

What is meant by operating efficiently

A

The ability for an organisation to reduce waste in time , effort and materials

79
Q

What can happen if regulations are not followed ?

A

Punishments can include , fines , prohibitive ( forced closure) or imprisonment

80
Q

Why will investors be concerned with the solvency of a company ?

A

Because it allows them to understand the position of that organisations debts and what returns they can expect to receive

81
Q

Why will payables be concerned with the solvency of an organisation ?

A

It suggests the companies ability to repay what is owed to them

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