Types Of Business Organisations Flashcards
What is a sole trader?
A business owned and run by one person who takes sole responsibility for decisions and profits or losses.
A sole trader manages all aspects of the business, including buying, selling, and hiring employees.
What is the financial responsibility of a sole trader?
A sole trader is responsible for all debts of the business and may have personal belongings pursued by creditors if debts cannot be paid.
This includes personal assets such as their house if business debts are unpaid.
What are drawings in the context of a sole trader?
Withdrawals of money from the business for personal use by the owner.
Sole traders can withdraw funds at any time without formal restrictions.
What is the legal requirement for a sole trader regarding financial statements?
No legal requirement to prepare financial statements but must file a self-assessment tax return.
This tax return is filed at the end of each financial year.
Define a partnership in business.
A business formed by two or more individuals who share profit or loss.
Typically involves between 2 and 20 individuals, but the actual number can be unlimited.
What is the financial responsibility of partners in a partnership?
Partners are equally and severally liable for debts, meaning any partner can be pursued for the entire debt.
If one partner cannot pay, the others may be responsible for covering the debt.
What are drawings in the context of a partnership?
Withdrawals of money from the business by the partners for personal use.
Similar to sole traders, partners can make withdrawals from the business.
What is a legal requirement for partnerships regarding financial statements?
No legal requirement to produce financial statements, but must file a partnership tax return and individual self-assessment tax returns.
Most partnerships prepare financial statements to determine profit distribution.
What are the common financing methods for a sole trader?
Financed from:
* Capital introduced by the owner
* Bank loan
* Bank overdraft
* Other private means
These methods help fund the business operations and expenses.
What are the common financing methods for a partnership?
Financed from:
* Capital invested by the partners
* Bank loan
* Bank overdraft
* Other private means
Partnerships often pool resources to fund their operations.
True or False: A sole trader must file a partnership tax return.
False.
Sole traders file a self-assessment tax return, while partnerships file a partnership tax return.
What is a limited company?
A business owned by shareholders with finances separate from the owners, acting as a separate legal entity
Shareholders have limited liability, meaning they are only liable for the amount invested.
What does limited liability mean for shareholders?
Shareholders are only liable for the amount of money invested into the business
This protects personal assets from business debts.
What are the two main types of limited companies?
- Private limited company
- Public limited company
Each type has different ownership and share issuance regulations.
What is a private limited company?
A company that may have one or more owners, with shares not available for public purchase
Must have at least one director, who can also be an owner.
What is a public limited company?
A company that must have at least two shareholders and issues shares to the general public
Must have at least two directors.
How can a private limited company be financed?
- Capital introduced by the owner
- Bank loan
- Bank overdraft
- Other private means
Financing options can vary based on the company structure.
How can a public limited company be financed?
- Sale of ordinary shares
- Debentures
- Bank loan
- Bank overdraft
- Mortgage
Public companies often have more options for raising capital.
What is required for both types of limited companies regarding registration?
Both must be registered with Companies House and file accounts
Accounts are available for public viewing.
What are dividends?
Profits distributed to shareholders each year
Dividends are paid out of the company’s profits.
What must financial statements comply with?
They must be prepared in a regulated format
These statements are filed with HMRC along with the corporation tax return.
