(Types of business organisation) Unit 4 Flashcards
sole trader
a business owned by one person
legal regulations of a sole trader
> owner must register and send annual accounts to gov and tax office
a name must be registered
they must observe the laws
types of business organizations
> sole traders
partnerships
private limited companies
public limited companies
franchises
joint ventures
Advantages of being a sole trader
> few legal regulations
they are their own boss
freedom to choose own holidays
close contact with customer
incentive to work all profits go directly to them
doesn’t have to give information to anyone else
Disadvantages of being a sole trader
> no one to discuss business matters
does not have the benefit of limited liability
sources of finance are limited
business is likely to stay small / cannot benefit from economies of scale
if sick no one to take over business
Limited liability
the liability of shareholders in a company is limited to only the amount they invested
Unlimited liability
the owners of a business can be held responsible for the debts of the business they own. investment is not limited to amount they invested.
Partnership
a form of business in which two or more people agree to jointly own a business
Partnership agreement
written and legal agreement between business partners
Advantages of a partnership
> more capital can be invested/ allow expansion for the business
responsibilities are now shared
both partners are motivated to work both will benefit from profit.
Disadvantages of a partnership
> no limited liability/ creditors could then force them to sell their own property
no separate legal identity
partners can disagree
the other partner can suffer from loss if one partner is dishonest
Unincorporated business
one that has no seperate legal identity
incorporated business
companies that have seperate legal identities from their owners
shareholders
the owners of a limited company. they buy shares that represent part ownership of a company
private limited companies
businesses owned by the shareholders but they cannot sell shares to the public
Advantages of private limited company
> shares can be sold to a large number of people
all shareholders have limited liability/ shareholders can’t be told to sell their possessions
people who started the company are able to keep control of it
continuity
Disadvantages of a private limited company
> cannot sell shares to the public
legal formalities
accounts are available for public to see
not easy to transfer shares
Public limited company
businesses owned by shareholders but they can sell shares to the public and their shares are tradeable on stock exchange
Advantages of public limited company
> offers limited liability
continuity
can sell shares to the public
rapid expansion is possible/specialist managers appointed
Disadvantages of public limited company
> legal formalities
disclosure of accounts and other information
divorce between ownership and control
expensive to go public
franchise
business based on the use of brand names
advantages of franchise
to franchiser
> buys a license
> expansion is much faster
> management is the responsibility of the franchise
to franchisee
> chances of business failure are less
> franchisor pays for advertising
> training of staff provided by the franchisor
> all supplies are obtained from a central source
disadvantages of franchise
to franchisor
> poor management could lead to a bad reputation
> franchise keeps profit
to franchisee
> less independence
> may be unable to make decisions that would suit local area
> license fee must be paid
Joint venture
two or more businesses start a new project together
