Types Of Ownership Flashcards
Sole trader
Any business that is owned and controlled by one person. However a sole trader can employ other people to work in the business
Benefits if sole trader
Keep all profit
Make all the decisions and so they get made quicker
Can usually set up with little finance
Quicker and cheaper to set up as sole trader
Sole traders do not have to publish their accounts
Disadvantages of sole trader
Shortage of capital - difficult to get a bank loan
If the owner of the business is Ill there is nobody else to run the business
Sole traders have to work long hours
Continuity
Shortage of skills as sole traders may not be skilled in all aspect of the business
Unlimited liability
Unlimited liability
The owner of the business risks losing their personal possessions to pay off debts of the business if it fails or owes money
Partnership
A partnership is a business which is owned and controlled by a minimum of two people
Advantages of partnership
More skills to offer
More capital can be raised to help operate or grow
Workload and ideas are shared and in even if illness there is another to work
Easy and cheap to setup
Financial information remains private to the partners
Disadvantages of partnership
Profit has to be shared
May be disagreements
Decision making becomes slower
Partnerships with unlimited liability put the personal possessions of themselves and their partner at risk
Sleeping partner/limited partner
They invest money into the business but do not take part in the day to day running of the business or any decision making
LLP (limited liability partnership)
Least 2 people (like normal partnership )
If the business fails, partners in LLP have limited liability which means personal assets are somewhat safe
Profit still split (not often equally)
LLP have to publish their accounts, unlike normal partnerships
Main advantage is limited liability
More costly to set up
Has to be registered with companies house which costs money and is time consuming
Deed of partnerships
Partnership is a more complicated form if ownership than a sole trader. Therefore a deed of partnership needs to be drawn up which:
Provides information about the responsibilities of each partner
State how profit and losses will be shared
Details how much capital each partner has contributed
Companies
Businesses where the owners are shareholders
Shareholders
The owners of a private and public limited companies
Shares
A unit of ownership in limited companies
Limited liability
This is when the responsibility for the debts of the of the company is limited to the amount that the shareholder has out in.
E.g if the business gets into large debt shareholders only loose the money they invested and no other amounts of money of personal assets
Difference between sole traders and limited companies
Sole traders have unlimited liability whereas limited companies have limited liability
What does Ltd mean
Simply stands for limited
(As in private limited company)
What does PLC stand for
Public Limited Company
What is the difference between Ltds and PLCs
Anyone can buy shares of a public limited company whereas shares of a private limited company can only be bough by friends and family (by invite)
What are two things shareholders of limited companies get?
A say in the business (a vote in the annual meeting) and they get a dividend
What is a dividend
A share of the yearly profit
What percentage do you need to own to be a majority shareholder
51% or more of the shares
Disadvantage of limited companies
You have to pay dividends to your shareholders
They are expensive to set up
Accounts are not private
What is a major risk of public limited companies
Risk of company being taken over
This is because shares can be bought on the stock exchange without owners permission (only the shares they put for sale). If someone buys more than 50% of the shares they become the majority shareholder and owner of the business
What is the minimum amount of capital for a PLC
£50,000
Stakeholders
Anybody who has an interest in the business.
There are external and internal stakeholders
Internal stakeholders
Those inside the business such as:
Employees
Shareholders
External stakeholders
Those outside the business:
Competitors
Governments
Society/wider communities
