Understanding business activity Flashcards
Types of business organisations
List and Explain the difference types of business organisation
1.Sole trader
(i)The most common form
(ii)It is a business owned & operated by one person even if other are working for owners
(iii)The owner is called the sole proprietor
Advantage of sole trader
(i)Few legal regulations
(ii)You are own boss
(iii)You have freedom to make decision
the
disadvantages of sole trader
(i)No one to discuss
(ii)Do not have limited liability
(iii)Fully responsible for any debts
Explain limited liability
The liability in a company is only limited to the amount they invested
Explain Unlimited liability
The owner of a business can be responsible for the debts of the business they own. Their liability is not only limited to the business
Explain partnership
(i)A form of business in which two/more people agree to jointly own a business
(ii)It will contribute to the capital of the business will usually have to say in the running of the business and will share any profits made
(iii)Can be set up very easily
the advantages for partnership
(i)More capital invest in business
(ii)Additional good/services is available
(iii)The responsibility of running the business is shared
the disadvantages of partnership
(i)Do not have limited liability.
(ii)Do not have a separate
identity.
(iii)Slow-decision-making
explain Limited partnership
(i)LLL(limited liability partnership)
(ii)Offers partners limited liability but shares in business cannot be brought and sold
(iii)A speaker legal unit which still exists after a partner’s death unlike ordinary partnerships that end with the death of one of partners
Explain partnership agreement
It is the written and legal agreement between business partners
Explain unincorporated business
One that does not have a separate legal identity
Explain private limited companies
(i)Companies that have separate legal status from their owners
(ii)Exists separately from owner and will continue to exist if one of the owner dies
(iii)Can make contracts/legal agreement
the advantages of private limited companies
(i)Share could be sold to large number of people
(ii)No need to sell personal possession to repay debts
(iii)The owner are able to control the business as long as they don’t sell too many shares to people
disadvantages of private limited company
(i)Long and complicated procedure
(ii)Can’t offer share to the public
(iii)Account have to be made public
Explain public limited companies
(i)Most suitable for very large business
(ii)They are not in the public sector of industry and are not owned by government but by private sector
advantages of public limited companies
(i)Still offers limited liability to shareholders
(ii)continuity
(iii)Opportunity to raise very large capital sum to invest in business and no limited amount of shareholders
Disadvantage of public sector companies
(i)The legal complicated formalities
(ii)Regulations and control over it in order to protect interest of shareholders
(iii)Some are so large that it is difficult to manage and control
Explain Annual general meeting
A legal requirement for companies
Shareholders
Explain dividends
It is a payment made to shareholders from the profit of a company. They are the return to shareholders for investing in company
Explain risk ownership and limited liability
Sole trader-by sole owner(one person own),no limited liability
Partnership-have several people owner,no limited liability
Shareholders own limited liability
Explain joint venture
When two or more business agree to start new project together,sharing capital,risk and profits
Advantage of joint venture
(i)Sharing of cost
(ii)Local knowledge
Disadvantage of joint venture
(i)Profits have to be shared
(ii)Disagreement over important decision might occur
Explain franchise
A business based on the use of brand name,promotional logos method of an existing successful business. The franchisee(The owner) buy the licence to operate business from the franchisee(The original owner)
Advantage to franchisor
(i)Franchisee buy license from from them to use the brand name
(ii)Expansion of business is much faster
(iii)All product sold must be obtained from them
Disadvantage to franchisor
(i)Poor management-lead to bad reputation for whole business
(ii)The franchisee keep profits from outlets
Advantage to franchisee
(ii)Low of chance of business failure as well-known products are sold
(ii)Franchisor pay for advertising
(iii)All supplies are obtained from a centre source
Disadvantage to franchisee
Less independent than with operation a non-franchised business
Explain public corporation
They were nationalised which mean that they were once owned by private individuals but were purchased by government
They are owned by the government but it does not operate business
Advantage of public corporation
(i)Some industries are considered to be so important that government ownership is thought to be essential
(ii)Industries are controlled by monopolies because it would be wasteful to have competitor
(iii)If an important project is failling and is likely to be collapse,government can step into nationalise business,it will keep the business and secure job
Disadvantage to public corporation
(i)No private shareholder-insist on high profit and efficiency
(ii)Profit motive are lower
(iii)Government subsidies
Explain other public sector enterprises
(i)local government authorities/municipalities usually operate some trading activities
(ii)some of these services are changed for and expected to break even at the least
