mrs snow 13nth may Flashcards
What are the different types of organisations
sole trader, partnership, private limited company and public limited company
what is a sole trader
a business that is owned and controlled by one person
Advantages of being sole traer
The owner keeps all the profits.
The owner is his/her own boss.
It is quicker & easier to set up than a partnership or limited company
Disadvantages of being a sole trader
➢ The owner (+ what he/she can borrow) is the only source of capital.
➢ Long working hours
➢ The owner loses money if sick or on holiday
➢ The owner has UNLIMITED LIABILITY: he/she has to pay any debts that the business is unable to pay, even if that means selling his/her own possessions.
What is a partnership
a business that is jointly owned and controlled by more than one person. These people are called partners
Advantages of being a partnership
➢ More than one source of capital (not necessarily equal amounts)
➢ Shared workload
➢ Partners can specialise: they can concentrate on what they do best.
➢ It is quicker and cheaper to set up than a limited company
Disadvantages of being a partnership
➢ Profits have to be shared between the partners (not necessarily equally)
➢ There can be disagreements between the partners
➢ The owners still have UNLIMITED LIABILITY (the partners have to pay any business debts, even if that means selling their own possessions)
When setting up a partnership it is advisable to write
A deed of partnership
What is a partnership agreement
This is a document that allows the partners to agree in advance how profits will be split, partners’ responsibilities, what happens if one partner wants to leave, etc
What is a limited company
A limited company is a separate legal entity to the people who own it or run it
Who is a limited company owned by and controlled by
➢ It is owned by SHAREHOLDERS, who provide the CAPITAL.
➢ It is controlled by DIRECTORS, who are appointed by the shareholders.
What are the 2 documents you have to complete to set up a limited company?
Memorandum of Association and the Articles of Association
how are the profits payable in limited company
The profits are payable to the shareholders in the form of DIVIDENDS, although some of the profits are usually kept in the business for future use
Advantages of being a limited company
➢ More capital can be raised by selling shares
➢ The shareholders have LIMITED LIABILITY, which means less RISK.
The most that they can lose is what they paid for their shares; they do not have to provide any more money to pay the company’s debts
Disadvantages of a limited company
➢ They are slower and more expensive to set up than as a sole trader or partnership.
➢ There is more paperwork and additional costs each year than a sole trader or partnership.
➢ The profits have to be shared with the shareholders
➢ You lose control of the business if you own less than 50% of the shares
➢ Your financial statements are no longer confidential as anyone can obtain them from Companies House or, for a plc, from the company’s website
