Topic 1.4.1 - Options for start-up Flashcards
What are the two types of small private business ownerships?
- Sole Trader/Proprietor
- Partnership
What is a sole trader/proprietor?
A “one person” business. Only one person has ownership of the business.
What is a partnership?
It is between 2-20 people sharing ownership of a business with the aim of making a profit
Which type of ownership is the most common?
Sole trader - In Britain 63% of businesses
Do all sole traders work by themselves?
No - some will need to employ people
Examples of sole traders?
- Plumbers
- Florists
- Hairdressers
- Newsagents
- Electricians
- Photographers
Do sole traders have limited or unlimited liability?
Unlimited liability
What is unlimited liability?
If a business fails:
- The owners would have to sell their personal assets to pay off the debt by the business
- The owner is legally responsible for any problems
What are some types of debts that are incurred in a business?
- Capital borrowed from the bank
- Money owed to suppliers
- Employee wages
What happed to sole traders if a debt in not repaid?
Sole trader can be taken to court and made bankrupt
Which type of business is at a greater risk when they put their own money into a business
Small-business owners
What happens when the business is successful for a sole trader?
The owner gets all of the profits
What is a required to do for a sole trader?
- Register as self-employees with the Inland Revenue
- Complete annual self-assessment tax forms
What are two things that are helpful for a sole trader but are not legally obliged?
- A business plan
- On -going accounts
What are some of the qualities of a limited company?
- Shares
- Team work
- More help
- Trust
- Security
What does it mean by a limited company having shares?
More people are responsible for the business
What does it mean by a limited company having team work?
More people care if your business succeeds
What does it mean by a limited company having more help?
The government are better equipped to help your business
What does it mean by a limited company having trust?
Studies show that customers find limited companies more trustworthy
What does it mean by a limited company having security?
The banks are keen to prevent a limited company from falling
What are some qualities of a sole trader?
- Liability
- Simplicity
- No staff
- Less rules
- Risks
What does it mean by a sole trader having liability?
The individual is the business
What does it mean by a sole trader having simplicity?
The individual is in complete control
What does it mean by a sole trader having no staff?
The individual keeps all of the profits
What does it mean by a sole trader having less rules?
The individual has less legislation to deal with
What does it mean by a sole trader having risks?
This individual has less of a safety net
What is shared among partners in a partnership?
- The control
- Running the business
- Profits
What are some types of partnerships?
- Dentists
- Solicitors
- Estate agents
- Building firms
- Accountants
What is the Partnership Act of 1890?
Partners are equally responsible for each other’s actions and all the debts of the business
Which type of liability does a partnership have?
Unlimited liability
What happens when one partner runs up a big debt?
The other partners can be asked to pay it off
What is a Deed of Partnership?
Partnership businesses set up this agreement to protect themselves from big debts to repay
What matter does a Deed of Partnership set out?
- Amount of capital contributed by each partner
- How much say each partner has in decisions
- How profits are shared
- What’s to be done if partner leaves or enters
- How to settle disputes
What are sleeping partners?
Partners who put money into the partnership, but DON’T play an active role in running the business
Is it essential to have a Deed of Partnership?
No - but it can help the business run smoothly by setting out how disputes an be settled
What are some advantages of a partnership over a sole trader?
- Finance is easier to control
- More skills/expertise
- Sickness and holiday time can be covered
- Simple to set up
What are some disadvantages of partnerships?
- All profits have to be shared (TIP: think selfish)
- All partners are liable for any debts
- Owners share control = disagreements/problems
- Poor decisions = affects other partners
What are limited companies?
- Owned by shareholders
- Run by directors
- Set up as a separate body from owners
What is a shareholder?
People who invest money in shares of the company
What are directors?
People appointed by shareholders to control and make strategic decision for that company
Does a limited company have limited or unlimited liability?
Limited
What is limited liability/
You can’t lose any more money you invested in your business
Does setting up a limited company have a high or low risk?
Low risk
When setting up a limited company, what is required?
Register with the Registrar of Companies at Companies House
What does the Companies House issue you after registering?
A Certificate of Incorporation
What is a Certificate of Incorporation?
Official document which shows that the business have come into existance
What must a limited company produce?
- Memorandum of Association
- Articles of Association
What is a Memorandum of Association?
Stares who they are, where they are based and what they do
What is an Articles of Association?
An internal ‘rulebook’ which sets out how the business will be run
What does Ltd stand for?
Private limited company
What does PLC stand for?
Public limited company
What is the difference between private limited companies and public limited companies/
The ownership of their shares
What happens to shares in a private limited company?
- Restricted ownership
- Shares in the company can only be sold if all shareholders agree
What happens to shares in public limited companies?
- Sold on the London Stock Exchange
- Can be bought by members of the general public
How much money does a private limited company need to start up?
As little as £2 in sure capital
How much money does a public limited company need to start up?
At least £50,000 worth of shares
Which is tends to be smaller: Ltd or PLC?
Ltd (Private Limited Company)
What are some examples of private limited companies?
- Recruitment
- Consultants
- Building firms
- Estate agents
- Caterers
- Family-run businesses
How do private limited companies become public limited companies?
Floating their shares on their stock market to be bought and sold by the public = raises capital for expansion
Why are public limited companies more vulnerable?
Shares can be bought by anyone so they are vulnerable to takeovers. Director must have over 50% of the company to stay in charge.
Why do public limited companies grow at a faster rate than private limited company?
There are a greater number of shareholders
Do shareholders in a public limited company have more influence over the company than a private limited company and why?
No - there are more shareholders in total
What meeting should all public limited companies hold?
Annual General Meetings - shareholders are given the opportunity to ask questions to the board of directors and take votes on company decisions
What are the two main types of co-operative business ownerships?
- Consumer co-operatives: owned by customers
- Workers’ co-operative - owned and run by their workers
What are co-operative businesses?
- They have important objectives other than making profit.
- Aim to support the wider community
- Encourage ethical business practices
What are the two types of business sectors?
- Private sector
- Public sector
What are examples of private sectors?
- Sole traders
- Partnerships
- Limited companies
(All owned by private individuals or companies)
What are examples of the public sector?
Tend to be service providers:
- Local sports centres
- Libraries
- Job centres
- State schools
Who runs and owns the public sector?
Central government or local authorities
What is a similarity between public sector organisations and private businesses?
The way they operate on a day-to-day basis
E.g. run by managers who make decisions on behalf of organisation
Difference between public sector organisations and private sector businesses.
- Don’t usually operate to generate profit
- Funded from taxes such council tax rather than shareholders
The government does own and operate some profit-seeking organisations such as…
BBC and Royal Mail
Why were these public corporations set up?
To provide with public with a service. Any profit goes back into organisation or government to fund things (schools and NHS)
What are some companies that have been privatised?
British Telecom (BT), British Gas and British Gas
- Used to be government owned but sold/privatised
- Public sector -> Private sector
Advantages of a sole trader
- Makes own decisions
- Quick and easy to set up
- Keep all profits
- Financial info is private
Disadvantages of a sole trader
- Unlimited liability
- Difficult to raise money to establish/grow business
- One person = PRESSURE
- Difficult if owner is ill of takes time off
Advantages of a partnership
- Wider expertise/share ideas + decision making
- Shared risk
- Easier to raise finance
- Financial info is private
Disadvantages of a partnership
- Decision by one partner affects all partners
- If partner leaves = no business
- Shared profits
- Disagreements between partners
Advantages of a private limited company
- Limited liability
- Ltd = more established
- Easy to raise finance
- Business still runs if shareholders change
Disadvantages of private limited companies
- Complex to set up
- Disagreements between shareholders
- Financial info is published
- Required to report info to HMRC + Companies House
What is a franchise?
One business gives another business permission to trade using its name and its products in return for a fee and a share of its profits
What is a franchisor?
Established business that allows an entrepreneur to trade using its name and products
What is a franchisee?
An entrepreneur who pays a fee to trade using the name and products of an established business
Examples of franchises
KFC, McDonalds
Advantages of franchising
- Lower risk that setting up independently (business model = successful)
- Support/training provided by franchisor
- Franchisees benefit from national marketing campaigns
Disadvantages of franchising
- Franchisees have to pay initial fee + ongoing fees + share of profits
- Franchisees can’t make decisions
- Brand reputation can be damaged by other franchisees if standards aren’t maintained
