U1.3 Forms Of Business Ownership Flashcards
What is a business?
An organisation of one or more people, which operates to produce goods or services that can be sold on to others.
What is the main objective for most businesses?
Profit!!
Maximise the owners investment
What is the definition of a sole trader?
A business that’s owned and controlled by one person.
Approximately what percentage of UK businesses are sole traders?
60%
What is the average number of staff in sole traders in the UK?
0
What do sole traders legally have to do within their first three months of trading?
Register with HMRC
What types of sole traders require special licenses?
Bars, restaurants, nursing homes and pet kennels.
When does a sole trader need a vat registration?
When they expect their yearly turn over to be more than 85k
What are some advantages of being a sole trader?
- Low start up costs
- Very few legal formalities
- All profits are retained by Owner
- Better Control; decisions are quicker
- Financial privacy
- There is less government regulation
- They can offer a more personal service
What are some disadvantages of being a sole trader?
- Unlimited Liability
- Difficulty raising capital to start up
- Long hours and lack of continuity
- Lack of expertise without third parties
- Lack of competitiveness
What is a partnership?
When two to twenty people combine to form a business.
How many partnerships are there estimated to be in the UK and what percentage have 0 staff
Estimated 540,000 with >60% have no staff.
What is the most common form of partnership?
General partnership
What are partners not involved in the day to day running of a business called
Sleeping partners
In a general partnership what type of liability do partners have
Unlimited liability
Why would a limited partnership be formed
When one or more partners want to invest without taking part in the day to day running of the business.
What makes it a limited partnership
Partners that don’t take part in day to day running have limited liability so can only loose the money that they have invested
What must there be one or more of in a limited partnership
A parter with unlimited liability
What’s the difference between a limited partner and a sleeping partner
A sleeping partner chooses to not be involved in the business
What is a limited liability partnership (LLP)
A partnership where by all partners have limited liability
What are some examples of LLP’s
PWC and KPMG
What are some advantages of a partnership
- Low start up costs
- Shared workloads
- Financial privacy
- More effective decision making
What are some disadvantages of a partnership
- Loss of autonomy
- Unlimited liability (not all the time)
- Lack of continuity
- Lack of capital
What is an Ltd
An Ltd is a company where shares can be sold to family and friends.
It is also a separate legal entity so all shareholders have limited liability.
What is a Ltd required to have in their name
Either the suffix Ltd. Or Limited
Eg. Goose and gander Ltd.
In an Ltd interview hat are part owners of the company called
Shareholders
Who can buy the shares of a Ltd
Family and friends of the original shareholder
What are the advantages of being a Ltd
- It’s easier to raise capital
- Limited Liability
- Continuity, business is not affected if a shareholder leaves/dies/retires
- By having more shareholders you gain more experience across different fields
- More control than a PLC
- No risk of a hostile takeover
What are the disadvantages of being a Ltd
- Lack of privacy, accounts must be published
- Set up costs are high and used to be time consuming
- Tax increases if tax planning isn’t put in place
- Limit on capital as shares aren’t sold on the stock exchange
What is a PLC
A PLC is an incorporated business and it is a separate legal entity from its owners.
In a PLC what liability do shareholders have
Limited liability
What must PLC’s have in their name
PLC or plc
Who can a PLC sell their shares to
The General Public hence the name Public Limited Company.
These shares can be bought on the Stock Exchange.
Where do UK registered PLC’s trade their shares
the London Stock Exchange
What are the advantages of a PLC
- To raise capital shares can be sold to the public when needed
- Shareholders have limited liability
- continuity, the day to day trading of the business is not affected if a shareholder leaves/retires/dies
- As there is more shareholders there will be an abundance of experience across all fields
What are the disadvantages of a PLC
- Set up is costly and time consuming
- Less privacy, PLC’s must publish their accounts
- Owners are divorced from managers
- There is a constant threat of take over
How much capital must a Ltd have to become a PLC
£50,000
What is a franchise
A franchise is an agreement between two parties, which one party gives the rights to market a product or service using the trademark of another business. In return the franchisee normally agrees to pay the franchisor certain fees and loyalties.
What are the two types of franchise agreement
- Business Format Franchising
- Product and Trade-name Franchising
What is Business Format Franchising
It is the most common type of franchising where the Franchisor provides support and assistance to the franchisee along with the trademark.
Eg. McDonald’s, Subway, KFC…
What is Product and Trade-name Franchising
What’s the franchisor provides trademarks, logos and national advertising campaigns among other things but not a complete business model.
Eg. Charles Hurst VW
