Types Of Businesses Organisation Flashcards
Give 2 advantages of being a sole trader
• the owner keeps all the profits
• the owner is his/her own boss
• it is quicker and easier to set up than a partnership or limited company.
Disadvantages of being a sole trader
• the owner (plus what he/she can borrow) is the only source of capital
• there may be long working hours
• the owner probably loses money if sick or on holiday
• the owner has unlimited liability - he/she has to pay any debts that the business is unable to pay, even if that means selling own possessions.
2 advantages of partnership
• there is more than one source of capital (not necessarily equal amounts)
• the workload is shared,
• partners can specialise (they can concentrate on what they do best),
• it is quicker and cheaper to set up than a limited company.
Disadvantages of a partnership
• profits have to be shared between the partners (not necessarily equally),
• there can be disagreements between the partners,
• the owners still have unlimited liability.
Advantages of a limited company
• more capital can be raised by selling shares,
• shareholders have limited liability, which means less risk. The most that shareholders can lose is what they paid for their shares. Shareholders do not have to provide any more money to pay the company’s debts.
Disadvantages of a limited company
• they are slower and more expensive to set up than a sole trader or partnership,
• there is more paperwork and additional costs each year than a sole trader or partnership,
• the profits have to be shared with theshareholders,
• the owner loses control of the business if they own fewer than 50 per cent of the shares,
• financial statements are no longer confidential as anyone can obtain them from Companies House or, for a ple, from the company’s website.
Explain why a business would benefit from changing from a private limited company to a public limited company.
A business would benefit from becoming a public limited company because large amounts of capital can be raised by issuing shares through the stock market. The extra capital can be used to expand the business, which leads to higher levels of profits.
Disadvantages of being a public limited company
• profits have to be shared with a large number of shareholders,
• the original owners probably lost control as they own fewer than 50 per cent of the shares,
• higher annual costs and more paperwork for auditing and submitting the accounts,
• the financial statements are freely available on the company’s website.
Which of the following is not an advantage of being a partnership instead of a sole
trader?
A) There is more than one source of capital.
B) The ability of partners to provide expertise in different aspects of the business.
C) The partners have limited liability.
D) The workload can be shared between the partners.
C
Which of the following statements about public limited companies is true?
A) The name of the company ends with PLC.
B) It is easier to maintain control of the company than staying a private limited company.
C) Shares in the company cannot be sold on the stock market.
D) It is harder to find out the financial position of a public limited company than a private limited company.
A
Which of the following statements about private limited companies is true?
A) They are owned by partners.
B) The owners have unlimited liability.
C) They are easier and cheaper to set up than partnerships.
D) They exist as a separate legal entity to the people who own them.
D
What are the names and contents of each of the six books of prime entry?
The six books of prime entry and their contents are:
• The sales journal lists the invoices for credit sales.
• The purchases journal lists the invoices for credit purchases.
• The sales returns journal lists the credit notes issued by the business.
• The purchases returns journal lists the credit notes received by the business.
received.
• The general journal records non-routine transactions.
• The cash book records bank receipts and bank payments, as well as cash discount allowed and cash discount
