Type Of Business Organisation Flashcards
sole trader definition
A business that is owned and controlled by one person
But a Sole trader may employ other people
Partnership definition
A business that is jointly owned and controlled by more than one person
Limited Company definition
A limited company is a separate legal entity to the people who own and run it
- It is owned by shareholders who provide the capital
- It is controlled by directors who are appointed by shareholders
- (In smaller limited companies, the shareholders can also be directors)
- Profits are payable to shareholders in form of dividends
To set up a limited company, you must complete two detailed and complex documents. What are they called
The Memorandum of Association
The Articles of Association
Advantages of Being a Sole Trader
- The owner keeps all the profits
- The owner is her/his own boss
- It’s quicker and easier to set up than a partnership or limite company
Disadvantages of sole trader
- The owner (+ what they can borrow) is the only source of capital
- Longer working hours
- Unlimited liability: Owner must pay debts that the business is unable to pay. Even if it means selling their own possessions
Advantages of partnership
- More than one source of capital
- Shared workload
- Quicker and cheaper to set up than a limited company
Disadvantages of partnership
- Profits have to be shared between partnerships
- Disagrements can occur between partnerships
- Unlimited Liability
Advantages of being a limited company
- Capital can be raised easier -> selling shares on the stock market
- Shareholders have limited liability, less risk.
The most they can lose is what they paid for their share. No need to provide money to company debts
Disadvantages of limited company
Slower and more expensive to set up than a sole trader or partnership
More paperwork and additional costs each year than a sole trader or partnership
Profits have to be shared with shareholders
Lose control of business if you own less than 50% of shares
