Types Of Businesses Flashcards
Private sector
Businesses owned and run by private individuals, usually for profit often referred to as private enterprise
Public-sector
Businesses and organisations owned and run by local or central government, whose objective is to provide a service rather than make a profit e.g. BBC
NHS
Legal structure can have an affect on
Ownership and control of the business
Responsibility for any debt
Sources of finance available
Objectives pursued
Limited liability
Type of investment in which an investor can not lose more than the amount invested
Only lose what you put in
UnLimited liability
Type of investment where and investor can lose and unlimited amount of money e.g. personal possessions
What is a sole trader
This is the simplest form of a business organisation and involves the sole trader owning the business and making all the decisions e.g. hairdressers, plumbing
Sole trader conditions
Can’t have more than one person working there
Owner has overall control
Owner and business are inseparable (unincorporated)
Advantages of a sole trader
Few legal requirements but may need license
Quick and easy
Keep all profit after taxes
Cannot sell shares so company cannot be taken over
Financial state is private
Sole trader disadvantages
Unlimited liability
Must perform all business functions on their own
Capital for expansion can be hard to raise
Can be easily overworked
Its sole trader dies so does the business
Partnership
2 to 20 people that run a business together e.g. solicitors, accountants and dentists
Partnership conditions
Unincorporated as partnership is not an entity on its own the partners are the business
Deed of partnership should be drawn up this is a legal document which shows each partners investment, income, responsibilities etc
Partnership advantages
Easy to establish
More capital there for expansion is easier
Workload is shared and employees have different skills
Losses can be shared
Financial state is kept private
Partnership disadvantages
Unlimited liability so therefore liable for any debts
Decision-making is slower and more chance of disagreements
Legal number of partners is limited therefore hard to expand
Losses and profits can be shared
No continuity
What is a sleeping partner
A partner who invest money but has no say in how it is used
Limited liability
Limited companies
Incorporation: business exists in its own right
People who own the company are not necessarily the same as those who run it
Shares: raise funds via the issue of shares
Limited liability – if the company goes into liquidation, the shareholders don’t have to, cover the debt
Private limited company
Usually family run businesses, where shares can be brought by family and friends
Private limited company advantages
Access to funds through the issue of shares
Stable form of business structure
Limited liability is the benefit for the shareholders, who may see the risk as more acceptable than if the business were on Incorporated
Incorporations mean the businesses will still exist if the shareholders resign or die
Private limited company disadvantages
Banks may see the business as a risk
More complicated setup process than unincorporated business structures
Limited liability might be a benefit for shareholders but lenders may see it as a risk
Public limited company
Larger than private companies, where shares can be traded on the stock market
Public limited companies advantages
Scale of funds that can be raised from flotation allowing anybody to buy shares
Future funds can be raised because banks and lenders see the business as stable
Public limited company disadvantages
Process of floatation is expensive
Can’t control who owns shares in a plc as they are traded publicly
Financial information must be provided
A plc is owned by shareholders and run by managers making decisions hard to make
Limited liability partnership’s
Combine some features of partnership with some of those of limited companies, where it has separate legal entity, so owners have limited liability
Limited liability partnership conditions
The owners of a LLP are called members rather than partners
A creation of a LLP means it’s possible to have the advantages of a partnership combined with limited liability
However annual accounts can be seen by anyone
Franchises
Where a business with a well-known brand name let a person or a group set up their own business using the brand
