THEME 1.5.4 Flashcards
what are the DIFFERENT FORMS OF BUSINESS?
sole traders
partnership
public limited company
private limited company
what is a sole trader?
An individual who owns and runs their own business. A sole trader has unlimited liability
what is unlimited liability?
when the business and owner are seen as 1 entity so they owner is personally responsible for all debts run up by the business. Therefore, their home and all of their assets might be used to pay off any debts that they may incur and are unable to pay
benefits of being a sole trader
\+ cheap and easy to set up \+keep all profits \+autonomy in decision making \+financial records are private \+motivation is high
benefits of being a sole trader
\+ cheap and easy to set up \+keep all profits \+autonomy in decision making \+financial records are private \+motivation is high
disadvantages of being a sole trader
negative
- unlimited liability
- little investment for capital
- little specialist skill
- difficult to cover when ill
what is a partnership?
A partnership is where two or more people share the costs, risks and responsibilities of being in business together
As with a sole trader, each partner will have unlimited liability
Benefits of partnership
Risks, costs and responsibilities are shared
More scope for specialist skills
Simple and flexible
Financial records remain private
More capital can be raised than as a sole trader
disadvantages of partnership
Unlimited liability
Arguments can occur with decision making
If a partner dies, resigns or goes bankrupt the partnership is dissolved
Trust becomes a significant element between partners – a written agreement between the partners should be drawn up
what is a limited company?
Limited companies exist in their own right
The owners and the company are separate legal entities
Therefore, the company’s finances are separate from the owner’s personal finances
Shareholders are the owners of limited companies
They have limited liability and are not responsible for the company’s debts
They can only lose the money that they have invested in the business in the form of shares
what is a private limited company?
Have Ltd. after the name
Owned by shareholders who are known to the company, often family and friends
Can only sell shares on to other shareholders i.e. they can not sell them openly on a stock exchange
This means that shares are often sold at a discount to the real value of the shares because the shareholders are ‘locked in’ and either sell at the price that they are offered, or do not sell at all
benefits of private limited company
Limited Liability
Separate legal identity
More flexible than a Plc.
Financial records remain relatively private
More capital can be raised through the sale of shares
disadvantages of private limited company
More complex to set up due to increased legal requirements
Some loss of control as shareholders have voting rights
Unable to sell shares to the public
what is a franchise?
A franchise is the replication of a successful business formula
Franchising occurs when the owner of a business, the franchisor, licenses the use of trademarks and proven business ideas to another party, the franchisee
Each business outlet is owned and operated by the franchisee
However, the franchisor retains control over the way in which products and services are marketed and sold, and controls the quality and standards of the business.
advantages of being a franchise? (franchisor)
Rapid expansion Optimum size Maximum profitability Cheap Investment Motivation – franchisee has own capital tied up in business Economies of scale Buying power Mass advertising
