Making the business effective Flashcards
What is limited liability, and which types of businesses have it?
Limited liability means owners are only responsible for debts up to their investment. It applies to private limited companies.
What does unlimited liability mean for business owners?
Unlimited liability means owners are responsible for all the debts of the business
Why is unlimited liability riskier than limited liability?
Because owners may lose personal assets if the business has debts.
What are the main benefits of e-commerce and m-commerce?
The benefits are lower costs, flexible hours, access to a larger market, 24/7 availability, and low-cost marketing.
How do creditors recover debts in businesses with limited liability?
Creditors can only take the company’s assets, not the owners’ personal assets.
What is the main benefit of limited liability for business owners?
Limited liability protects owners’ personal finances and limits losses to their investment.
What does having a separate legal identity mean for limited liability businesses?
It means the business is responsible for debts, not the owners personally.
What are the risks for owners in unlimited liability businesses?
Owners are responsible for all debts and may lose personal savings or possessions.
Why is unlimited liability riskier than limited liability?
Because owners’ personal assets can be used to pay off debts.
Give an example of the implications of unlimited liability.
Sarah, a sole trader, must pay £60,000 of debt using her personal assets if her business fails.
What is a sole trader?
A sole trader is a business owned and run by one person, but they may have employees.
What type of liability does a sole trader have?
A sole trader has unlimited liability and is personally responsible for all business debts.
What are the advantages of being a sole trader?
It is quick and easy to set up, gives full control, low set-up costs, and allows the owner to keep all profits.
What are the disadvantages of being a sole trader?
It has unlimited liability, long work hours, stressful conditions, and high responsibility, with the owner handling many roles.
What kinds of businesses might operate as sole traders?
Examples include photographers, electricians, hairdressers, small online clothing brands, and beauty therapists.
What is a partnership?
A partnership is a business owned and run by two or more people.
What kinds of businesses often operate as partnerships?
Professional services like law firms, medical practices, and accountancy businesses.
What is a deed of partnership, and what does it include?
It is a legal document outlining rules about profit sharing, ownership, roles, and debt responsibilities.
What are the advantages of partnerships?
They are quick to set up, allow shared decision-making, and distribute responsibility for debts.
What are the disadvantages of partnerships?
They may involve long hours, conflicts among owners, unlimited liability, and issues if a partner fails to meet responsibilities.
What is the difference between partnerships with limited and unlimited liability?
Limited liability separates owners from the business’s legal entity, while unlimited liability makes owners personally responsible for debts.
What is a private limited company?
It is a business with limited liability that has “Ltd” after its name.
What are shareholders, and how do they acquire shares?
Shareholders are owners of the business who must be invited to purchase shares, which are portions of the company.
What type of tax does a private limited company pay?
It pays corporation tax on profits.
What are the advantages of being a private limited company?
Limited liability, protection from external influence, ability to sell shares, and opportunity to be one’s own boss.
What are the disadvantages of being a private limited company?
More paperwork, time-consuming set-up, possible visibility of financial information, and the need for professional financial help.
What are the registration requirements for a private limited company?
It must register with Companies House and file annual financial reports.
What is a franchise?
A franchise allows one business to sell goods or services under another business’s name for a fee.
Who are the franchisee and franchisor?
The franchisee buys the rights to operate under the franchisor’s brand. The franchisor is the original business granting these rights.
What are the advantages of setting up a franchise?
The franchisee gets free training and marketing, is part of a known brand, and has lower risk.
What are the disadvantages of setting up a franchise?
Franchisees must pay royalties, have high set-up costs, limited decision-making, and may face local competition.
Why is buying into a franchise safer than starting a new business?
The franchisee gets to use an established brand, making it less likely to fail.
What is a royalty payment?
It is a percentage of the franchisee’s profits paid to the franchisor.
What is proximity to the market, and why is it important?
Proximity to the market means being close to the business’s customers. It is important for businesses like takeaways and shops because being close to customers increases sales and makes the business accessible.
Are all businesses affected by proximity to the market?
No, businesses like online design companies and car manufacturers don’t need to be close to their market because they can sell and deliver products anywhere.
Why is proximity to labour important for highly skilled roles?
Businesses with highly skilled roles, like engineers or computer scientists, need to be located near big cities or university towns where there are more skilled workers.
