Types Of Businesses Flashcards
Sole trader
A type of business owned and managed by a single person. It is the easiest business to set up as you don’t need to register and you have full control over the company but you have unlimited liability (take all the risk and could lose everything) and when you die the company instantly goes down.
Partnership
When two or more people set up business to pursue a common purpose like profit. Several people are involved so each person can contribute money. Partners can cover for each other. If even one partner makes a mistake every member is held at unlimited liability, and so they pay the price.
Company
A company has its own existence in the law, so it can own land and equipment. A company has limited liability so it can’t lose everything in an instant. It can bring in investors and has better status in the eyes of some customers. However they have to register before trading, they must have accounts independently checked and if there are other investors involved the founder doesn’t have full control over the company.
Deed of Partnership
When setting up a partnership, the partners are advised to write a legal document called the Deed of Partnership. The DP usually has details of how to divide profits among partners, how decisions are to be made (voting rights), how to value the business if someone wants to leave and how to decide on whether someone else can join the partnership. It is designed to keep all the partners happy. If there is no DP, the shares will be handed out equally regardless of what input each person had.
Private limited company
A very secure company that can restrict who owns their shares, and also restrict business decisions that are made without a vote. They cannot advertise their shares to anyone, and have a limit of up to 50 shareholders.
Public limited company
A company which can advertise its shares and sell them for a fast increase in money. They cannot restrict who buys the shares, and if there’s more than one shareholder, the founder has less control. It’s also possible to buy enough shares to gain complete ownership of the company, or gain more control than its founder.
Flotation
The process of offering a company’s shares for sale on the stock market for the first time. It also means that a private company can become a public one. It allows companies to obtain financing externally instead of using retained earnings to fund new projects or expansion.
What happens when one partner leaves or dies
The deed of partnership has to be dissolved and rewritten, as that partner may have had a major role within the partnership
