Types of Business Structures Flashcards
A business owned and operated by 1 person.
Sole Trader
Unlimited liability - the owner is personally responsible for business debts. Their personal assets may need to be sold to meet outstanding business debts.
Sole Trader Liability
- Simplest and cheapest to establish.
- Owner has control over all decisions. - Owner keeps all profit.
- Fewer government reporting requirements.
Sole Trader Advantages
- Unlimited liability.
- Owner suffers all losses.
- Difficult to take holidays or leave.
Sole Trader Disadvantages
A business owned and operated by 2 to 20 partners.
Partnership
Unlimited liability - the partners are jointly responsible for business debts. Their personal assets may need to be sold to meet outstanding business debts.
Partnership Liability
- Simple and inexpensive to set up.
- Partners bring more money and skills.
- Share of losses.
Partnership Advantages
- Unlimited liability.
- Profits must be shared.
- Disputes between partners.
- Ceases if a partner dies, leaves or retires.
Partnership Disadvantages
A business which has a seperate legal entity from its shareholders. A public… has a minimum of 1 shareholder. A private… has 1 to 50 shareholders.
Company
Limited liability - shareholders are limited to the value of their shares for any business debts. No personal assets can be sold.
Company Liability
- Limited Liability.
- Can raise lots of money through shareholders.
- Unlimited life - change in shareholders doesn’t cease business.
- Run by board of directors not the shareholders.
Company Advantages
- Expensive to set up and operate.
- Complex reporting requirements.
Company Disadvantages
A business person buys the right to use the name, products and services of an existing business.
Franchise
Depends on if the franchise is set up as a sole trader, partnership or company.
Franchise Liability
- Established reputation, products or service, and store layout.
- Advertising and marketing support.
- Franchisor provides training.
Franchise Advantages
