Types of business entities Details Flashcards

1
Q

Features of the public sector

A

-Controlled and owned by the government
-Provides essential goods and services to citizens(e.g. healthcare, emergency services, etc.)
-Financed by the government through taxes and other public funds
-Answerable to the public for any actions taken

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2
Q

Features of the private sector

A

-Private ownership and control
-Profits can be earned by owners
-Little to no government involvement
-Largely privately funded

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3
Q

Role of the private sector(and its markets) on the economy

A

-creating employment
-helping the development and growth of the economy
-providing a wide variety of goods and services

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4
Q

Constituents of the private sector

A

-Sole traders
-Partnerships
-Privately held companies
-Publicly held companies

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5
Q

Features of sole trader businesses

A

-Sole trader owns and runs the business
-No legal distinction between sole trader and business

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6
Q

Advantages of sole traders

A

-All profits belong to the sole trader
-Complete control over important decisions
-Flexibility(in terms of working hours, changes to operations, etc.)
-Privacy(sole traders generally only need to declare their finances to authorities for tax)
-Minimal legal formalities
-Easy, inexpensive and quick to set up
-Close ties to customers(can give a competitive advantage)

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7
Q

Disadvantages of sole traders

A

-Unlimited liability
-Limited sources of finance(hard to obtain loans)
-High risk
-Workload and stress(potential ineffectiveness)
-Limited scope for expansion
-Lack of continuity(in the event of serious illness/death)

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8
Q

Features of partnerships

A

-Two or more individuals(partners) create and run the business
-Governed by partnership agreements
-Have unlimitied liability
-Ownership/control/profits are not always split equally

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9
Q

Potential aspects of a partnership agreement

A

-The amount of money put in by each partner
-The sharing of profits and losses by each partner
-The roles and responsibilities of each partner
-The rules around accepting new partners/withdrawal of exisiting partners
-The procedures for ending the partnership

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10
Q

Advantages of partnerships

A

-Easy to set up
-Minimal legal formalities
-Greater access to finance(more people to invest in the business)
-Greater efficiency/productivity
-Financial records remain private

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11
Q

Disadvantages of partnerships

A

-Unlimited liability
-Longer decision-making/potential for disagreement
-Legal and financial responsibility(mistakes made by one partner can reduce profits for all partners)
-Lack of continuity

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12
Q

What happens if an individual dies while still in a partnership?

A

The deed of partnership(legal agreement) becomes invalid and will usually have to be made again(depending on the laws of the country)

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13
Q

Features of companies

A

-Owned by shareholders
-Are incorporated businesses(are registered with a state so they become legal entities separate from their shareholders)
-Shareholders have limited liability

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14
Q

Why is limited liability a benefit for shareholders

A

It means that they cannot lose more than the funds that they invested in the business in the event that the business incurs losses)

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15
Q

RIghts of shareholders of companies

A

-vote at the Annual General meeting(where decisions are made regarding the management of the company)
-receive a part of the company’s profits in the form of dividends if these are paid

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16
Q

Types of limited liability companies(corporations)

A

-privately held companies
-publicly held companies

17
Q

Features of privately held companies

A

-Are privately owned
-Shares are not sold to the wider public/traded on a stock exchange(without prior approval from all shareholders)
-Shareholders have limited liability
-Financial records are kept private

18
Q

Why would a privately held company not want to sell their shares to the wider public?

A

That way, they retain the ability to make decisions about the company and prevent hostile takeovers

19
Q

Documents required for privately held companies

A

-the Memorandum of Association(states the details of the company)
-the Articles of Association(states the internal roles and responsibilities of the board of directors and shareholders)

20
Q

Advantages of privately held companies

A

-Control and ownership
-Greater access to finances
-Limited liability
-Financial records are kept private

21
Q

Disadvantages of privately held companies

A

-Profits shared between several shareholders
-Lengthier decision-making
-Shares cannot be traded publicly to raise finances
-Privacy(businesses cannot be examined by external experts to receive advice)
-Expensive to start up and maintain

22
Q

How are shareholders usually represented in privately held companies?

A

They are represented by the board of directors(who are generally elected to run a company on behalf of them)

23
Q

Features of publicly held companies

A

-Business must publish financial accounts to the public
-Shareholders have limited liability
-Can be taken over by other companies(if they buy a large enough share of the company)
-Shares are sold to the wider public/traded on a stock exchange
-Is publicly owned(by shareholders)

24
Q

Purpose of initial public offerings(IPOs)

A

Turn the business into a publicly held company(public limited company)

25
Documents required for publicly held companies
-the Memorandum of Association(states the details of the company) -the Articles of Association(states the internal roles and responsibilities of the board of directors and shareholders)
26
What is the licence that makes a company: -recognisied as a separate legal entity -capable of trading stocks
A certificate of incorporation
27
What do shareholders of publicly held companies do?
They attend an Annual General Meeting to: -vote for and elect the board of directors -learn about the performance of the business from the CEO -evaluate the performance of the financial year
28
Advantages of publicly held companies
-Money can be raised through selling shares to the public -Risks shared among numerous shareholders -Separate legal identity(business continues operating even if a stakeholder dies) -Shareholders have limited liability
29
Disadvantages of publicly held companies
-Profits are shared between many shareholders -Expensive/time-consuming to set up/maintain -Loss of control -Financial accounts are publicly available to be viewed
30
Types of for-profit social enterprises
-Cooperatives -Private sector for-profit social enterprises -Public sector for-profit social enterprises
31
Features of cooperatives
-Owned by its members -Members use demographic governance to run the business -Have limited liability
32
Industries in which cooperatives are commonly found
-Agriculture -Housing -Utilities -Wholesale and retail trade -Heathcare -Education -Banking
33
Cooperatives can be owned by....
-Producers -Workers -Consumers -Residents, etc.
34
Benefits of cooperatives
-Make a positive impact on the planet(through their core work) -More economically sustainable than non-profit social enterprises -Attract increasing number of customers, investors and employees(who value sustainable businesses)
35
Drawbacks of cooperatives
-Potential issues with funding -Issues with credibility -Harder to remain true to purpose if business grows -Difficulty ensuring supply chains are aligned with business' values -Difficulties measuring social or environmental impact
36
Features of non-profit social enterprises
-Aims to improve social or environmental outcomes -May receive funding from grants and donations -May be involved in revenue-generating activities(e.g. selling goods/services) -Any surplus required by law to be reinvested into business -Have limited liability -Pay no tax on surplus -May rely on volunteers for help
37
Benefits of non-profit social enterprises
-Have limited liability -Pay no tax on surplus -May be able to rely on volunteers for help -May receive grants or donations
38
Drawbacks of non-profit social enterprises
-Issues with funding(less involved in market-based activities) -Hard to recruit and maintain talent(due to generally low salaries) -Significant amount of paperwork needed to set up