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business chap 1 > Types of Business Organizations > Flashcards

Types of Business Organizations Flashcards

1
Q

Sole Trader/Sole Proprietorship

A

A business organization owned and controlled by one person.

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2
Q

Advantages of sole trader

A

ADVANTAGES:
- Easy to set up
- Full control
- Sole trader receives all profit
- Few legal regulations
- Flexibility
- Secrecy

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3
Q

Disadvantages of sole trader

A

DISADVANTAGES:
- Unlimited liability : owners held responsible for debts of company
- unincorporated: business has same identity as the owner
- Full responsibility
- Lack of capital
- Lack of continuity

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4
Q

Partnership

A

A partnership is a legal agreement between two or more (usually, up to twenty)people to own, finance and run a business jointly

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5
Q

Advantages of partnership

A
  • easy to set up
  • More capital
  • Responsibilities shared
  • Motivation
  • Shared losses
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6
Q

Disadvantages of partnership

A
  • Unlimited liability
  • Unincorporated business (no separate legal identity)
  • Risk of disagreement
  • Limited number of partners
  • Dishonesty/ inefficiency
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7
Q

Contents of Partnership Agreement:

A

Amount of capital invested by all partners

Tasks to be done by each partner

The way profits are shared out

How long partnership will last

Arrangements for absence, retirement and how partners could be let known

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8
Q

Dividend

A

Dividend is the amount of profit each shareholder gets. They are the returns to shareholders for investing in the company

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9
Q

LTD

A

Private limited companies are businesses owned by at least 2 shareholders but they cannot sell shares to the public. Shares are sold privately to friends and family

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10
Q

Article of Association
(def and contents)

A

Article of Association – must contain the RULES in which the company will be managed. Contains:

Rules for shareholder meetings

List of directors and their jobs

Voting rights of shareholders

Details of how accounts are recorded

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11
Q

Memorandum of Association
(def and contents)

A

Memorandum of Association – must contain important information about the company:

Company name, address

What the business does

Number of shares to be sold

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12
Q

Advantages of LTD

A
  • continuity of existence
  • Shares generate more capital
  • Limited liability
  • Incorporated company
  • Control isn’t easy to lose
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13
Q

Disadvantages of LTD

A
  • hard to set up: Many legal matters
  • Shares cannot be sold without the a greement of all shareholders
  • Less secrecy
  • Shares cannot be sold to general public
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14
Q

PLC

A

Minimum value of shares must be sold [50,000 pounds]
Accounts must be made public

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15
Q

Advantages of PLC

A
  • limited liability
  • Incorporated business
  • Much capital available
  • No limit to number of shareholders
  • No restrictions on selling of shares
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16
Q

Disadvantages of PLC

A
  • Legal formalities
  • Difficult to control and manage
  • Expensive to sell shares
  • Loss of control possible
17
Q

Joint venture

A

Joint venture is an agreement between two or more businesses to work together on a project.

18
Q

Advantages of joint venture

A
  • Costs are shared, good for expensive projects
  • Shared knowledge of two businesses
  • Risks are shared
19
Q

Disadvantages of joint venture

A
  • Profits have to be shared if project is successful
  • Might have disagreements over important decisions
  • Different methods of running business
20
Q

Franchise

A

A franchise is a business based upon the use of the brand names, promotional logos and trading methods of an existing successful business. The franchisee buys the license to operate this business from the franchisor

21
Q

ADV & DISADV to Franchisor

A

TO FRANCHISOR

Advantages:
- Rapid, low cost method of business expansion
Gets and income from franchisee in the form of franchise fees and royalties

  • Franchisee will better understand the local tastes and so can advertise and sell appropriately
  • Can access ideas and suggestions from franchisee
  • Franchisee will run the operations

Disadvantages:
- Profits from the franchise needs to be shared with the franchisee

  • Loss of control over running of business
  • If one franchise fails, it can affect the reputation of the entire brand
  • Franchisee may not be as skilled
  • Need to supply raw material/product and provide support and training
22
Q

ADV & DISADV to Franchisee

A

Advantages:
- An established brand and trademark, so chance of business failing is low

  • Franchisor will give technical and managerial support
  • Franchisor will supply the raw materials/products

Disadvantages:
- Cost of setting up business

  • No full control over business- need to strictly follow franchisor’s standards and rules
  • Profits have to be shared with franchisor
  • Need to pay franchisor franchise fees and royalties
  • Need to advertise and promote the business in the region themselves
23
Q

RISK

A

Risk - the uncertainty of profits or danger of loss, events that could cause business to fail

24
Q

OWNERSHIP

A

Ownership – who owns the business (partnership = partners, LTDs and PLCs = the shareholders)

25
Q

LIABILITY

A

Liability – how much the shareholders of a company are liable for the debts in the business

26
Q

Limited Liability

A

Limited Liability – liability of shareholders is limited to the amount of money they invested (PLC & LTD)

27
Q

Public sector

A

The public sector includes every business owned by the government.
Businesses in the public sector are public services, i.e. education, transport, hospitals, education and police

28
Q

Public corporations aim to:

A
  • to keep prices low so everybody can afford the service.
  • to keep people employed.
  • to offer a service to the public everywhere.
29
Q

Advantages of Puplic sector

A
  • Some industries are too important to be run by the private sector
  • Other businesses, considered natural monopolies, are controlled by the government. (electricity, water)
  • Reduces waste in an industry. (e.g. two railway lines in one city)
  • Provide essential services to the people
30
Q

Disdvantages of Puplic sector

A
  • Low efficiency due to lack of competition
  • Easily manipulated by the government to exploit citizens
  • Not flexible as profit is not a main aim

business chap 1 (5 decks)

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