Topic Area 5: Factors To Consider When Starting Up & Running An Enterprise Flashcards
What is Unlimited Liability?
The business & the entrepreneur have the same legal identity.
If the business goes bankrupt, so does the entrepreneur.
If money is still owed to bank, personal belongings could be taken to pay back business debt.
What is Limited Liability?
The business & the entrepreneur have separate legal identities,
If business goes bankrupt, entrepreneur does not.
Personal belongings are safe & aren’t taken if outstanding debt owed.
If business fails, only lose amount of investment they initially put into the business.
What is a sole trader?
When there is one registered owner of a business.
Unlimited liability.
Advantages of a sole trader
They keep all the profits.
Make all the decisions for the business
Disadvantages of a sole trader
Unlimited liability.
One owner means there is a smaller amount of money put into the business.
Workload is higher compared to having multiple owners.
What is a Partnership?
When there are 2 or more registered owners of a business.
Unlimited liability.
Advantages of a partnership
More owners means more money can be raised between each partner to fund the business.
Workload is shared between each partner.
Disadvantages of a partnership
Unlimited liability.
Could be arguments & conflicts over decision making.
Profit has to be shared between each partner.
What is a Limited liability Partnership?
When there are 2 or more owners registered of a business, but with limited liability.
Advantages of a Limited liability Partnership
More money can be raised between each partner to fund the business.
Workload is shared between each partner.
Limited liability.
Disadvantages of a Limited liability Partnership
Could be arguments over decision making if the disagree.
Profit has to be shared between each partner.
What is a Private limited company (Ltd)
One or more owners.
Allows shares to be sold to raise more money for the business, but shares can only be sold to family & friends as they are not listed on the stock market.
Limited liability.
Advantages of a Private limited company
Limited liability
Current business owners can add more owners into the business by selling shares to family or friends.
Shares can’t be sold on stock market to strangers who may have different motives to become an owner of a business.
Disadvantages of a a Private limited company
It is a more expensive legal structure compared to sole trader & partnerships due to limited liability.
Ltd’s can’t sell shares on stock market to general public - may not be able to attract new investors easily.
What is a Franchise?
A business allows willing entrepreneurs to set up one of their stores for them.
The cost of setting up is split between the business & entrepreneur & profits are split.
(Often limited but can be either)
Advantages of a franchise
The business does not have to raise all the money as entrepreneurs have to share start-up costs. Cheaper & quicker way of growing due to shared costs with local entrepreneurs.
Most franchises have limited liability.
Disadvantages of a franchise
The business does not keep all the profits for each store - split with the local entrepreneur.
Local entrepreneurs are owners of their own store, but under the brand name of whole business & could make decisions that could give the business a bad reputation.
