Ownership Status Flashcards
If a business owner has unlimited liability, what does this mean?
This means the business owner is personally liable/responsible for all business debts.
What is a sole trader?
A business that is owned and controlled by one person, although they may employ other workers.
What is a partnership?
A business owned by 2 or more people but not usually more than 20.
How many types of partnerships are there?
Two:
General partnership, and
Limited Liability Partnership (LLP)
What is the liability status of a limited liability partnership?
A limited liability partnership has limited liability.
What is the liability status of a general partnership?
A general partnership has unlimited liability.
Sharon wants to set up as sole trader selling her hand knitted hats from home. What are the advantages of setting up her business as a sole trader?
Easy to set up; Small start-up costs; You keep all the profits; You answer to noone but yourself; Freedom to make all decisions; Full control of the business; Flexibility; You can change the ownership status as the business expands.
If Sharon sets up as a sole trader, she would like to know what the disadvantages of this form of business ownership are. State the disadvantages of a sole trader business.
Unlimited liability;
Long hours mean you rarely get a break;
Unattractive to customers;
Difficult to secure business finance as it is seen as very risky form of ownership;
Responsibility for all decisions can cause the owner pressure.
Owners of a limited company are known as:
Shareholders
What are the formal documents required for incorporating a limited company?
Memorandum and Articles of Association
Which government agency must a limited company register with to pay corporation tax?
HMRC
Identify the two types of limited company.
Private limited company (Ltd)
Public limited company (Plc)
What are the characteristics of a Private limited company (Ltd)?
Its shares can only be sold to friends and family;
A minimum of two people is required to form a limited company but there is no maximum;
Private limited companies are normally medium sized businesses (50-249 employees).
Tesco is a Public limited company (Plc). What are the characteristics of a Plc?
It is a type of limited company;
It has limited liability;
Its shares can be bought and sold by the public on the Stock Exchange;
Public limited companies are normally large businesses (250+) employees;
What does a limited liability status mean for a business?
It means that the business and its owners are treated as separate legal entities so their finances are kept separate.
If a business has an unlimited liability status, what does this mean for the owners?
The owner(s) of the business are 100% responsible for the debts of the business.
Sharon has heard that franchises have a higher rate of success than other start-up businesses and so is considering buying a franchise. Identify the disadvantages of buying a franchise so Sharon can make an informed decision.
You will be entering a formal agreement with your franchisor;
The franchise agreement dictates how you run the business so can stifle creativity;
The franchise agreement can place restrictions on where you operate, the products you sell and suppliers you use;
You share the profits with the franchisor.
Jack and Jill share responsibility for the running of their business and they share profits too. What type of business ownership is this?
Partnership
What are the disadvantages of a Private limited company?
High legal costs due to having multiple owners;
Each director has a responsibility towards the business;
You have to be voted in to become a shareholder;
A shareholder can be removed from the business by a director.
What are the disadvantages of a Public limited company (Plc)?
Once a business becomes a Plc, the founder loses control over all of the business;
Once a public limited company, there’s no going back;
There is no privacy as financial documentation relating to the business has to be made available to the public.
