Types of Business Organizations - 2 Flashcards
What is a sole trader?
A sole trader is a business owned and managed by one person
This is the simplest and most common form of business organization.
What are the key details of a sole trader?
- Full control over decision-making
- Keeps all profits
- Responsible for all debts (unlimited liability)
- No legal formalities or costs involved in setup
What is an advantage of being a sole trader?
Full control over business operations and profits
This allows for flexible decision-making and quick adaptation to changes.
What is a disadvantage of being a sole trader?
Unlimited liability—personal assets are at risk if the business fails
What defines a partnership?
A partnership is a business structure where two or more individuals share ownership and responsibility for the business
Often governed by a partnership agreement.
What are the two main types of partnerships?
- General partnerships
- Limited partnerships
What is an advantage of a partnership?
Shared responsibility and workload
This can lead to more capital available than a sole trader.
What is a disadvantage of a partnership?
Unlimited liability for general partners
What is a Private Limited Company (Ltd)?
A business owned by shareholders who have limited liability
Shareholders are only liable for the value of shares they own.
What are the key details of a Private Limited Company?
- Ownership is divided into shares
- Shares cannot be sold to the public
- The company has legal identity
What is an advantage of a Private Limited Company?
- Limited liability protects the personal assets of shareholders.
- Easier to raise capital through the sale of shares (though restricted to private buyers).
- Perpetual existence—business continues even if ownership changes.
What is a disadvantage of a Private Limited Company?
1.More legal requirements and regulations than sole traders or partnerships.
2.Shares cannot be sold to the public, limiting the ability to raise funds.
3. Greater administrative costs and paperwork.
Fill in the blank: A sole trader has _______ over decision-making.
[full control]
Fill in the blank: In a partnership, some partners have _______ liability.
[limited]
True or False: A Private Limited Company’s shares can be sold to the public.
False
