(PAPER 1) 1.5.4 Forms Of Business Flashcards
Sole trader definition
When one person sets up a business on their own. They are a sole owner
- unincorporated business (owner and business treated like the same thing)
+&- of sole trader
+ they get all profits
+ have complete control of business and decision making
+ independent
- unlimited liability- can take personal assets if business goes into debt
- difficult to raise finance
- no additional inputs= sometimes bad decisions made
Private limited company definition
A business that is owned by shareholders. These shareholders must be family or friends
Shareholders are investors who are part owners of a business. They invest in the business in return for a share of the profits and voting rights
+&- of private limited company
+ limited liability
+ shares only sold to friends and family= people you can trust and less likely to have conflict with
- could loose some control- depends on how many shares are sold
- have to pay shareholders for investing- paperwork and cost of setting up
partnership definition
a business that is owned by a group of two or more people (unincorporated)
+&- of partnership
\+ more ideas and contributions \+ share responsibility and workload = less pressure - unlimited liability - share profits - conflict
other forms of businesses
- franchising
- social enterprise
- lifestyle businesses
- online businesses
franchise definition
a licence to use another businesses name and business model in return for a payment
franchisor definition
a business that sells the rights to use its name and logo to another business or entrepreneur
franchisee definition
a business or entrepreneur that buys the rights to use the name and business model of another business
social entrepreneurship
started with the aim of improving human and environmental well-being, rather than making profit for the owner. e.g. cooperatives, charities
features:
- small
- local businesses
lifestyle businesses
making enough money but also provide flexibility needed to sustain a particular lifestyle
features:
- likely to be a lifestyle/ hobby of the owner
- small and local
online businesses
technological advances allowing for business opportunities - lower costs - higher potential revenues
features:
- cheaper to operate
- location not important
growth of PLC and stock market flotation
- listing on a stock exchange and so allow the general public to purchase shares
- a business must have a minimum of £50000 share capital
- there are considerable regulatory requirements involved both to float on the stock market and every year afterwards
reasons for floating
- to access big amounts of finance (share capital)
- brand image and reputation
advantages and disadvantages for the franchisee
+ established brand name
+ support and advice from franchisor
- royalty payments and initial fee
- not 100% in control
advantages and disadvantages for the franchisor
+ rapid growth
+ regular payment through royalty payments
- loss of control (reputation)
- regular training and support given to franchisee
public limited company definition
a business owned by shareholders and listed on the stock exchange
advantages and disadvantages for a public limited company
+ access to substantial finance
+ credibility/ status
- cost- expensive to set up and remain
- poor press/ reputation
what is meant by sock market flotation
listing a company on the stock exchange so allowing general public to purchase shares
reasons why businesses may decide to return to private limited company status
- take back control of the business ( buy back shares)
2. reduce diseconomies of scale (as the business has grown too large)
assess the impact of changing from a sole trader to a private limited company
> definition: a private limited company is a business that is owned by shareholders- have have to e family and friends
+ you get limited liability so if the business were to fail, their personal assets would be safe, you would only loose what was invested- less risky
- could loose control of the business and not able to make all the decisions yourself or be your own boss- wrong decisions could be made- loss of independence that he has built up. - feel lack of motivation and his feel like his skills are not acknowledged enough
> conclusion: positive impact because less pressure and input from other to make right decisions
although their is potential to loose control, if they don’t mind sharing some of the decision making then extra input could benefit the business. The most important factor for ______ is
