Understanding Business - Lesson 1 Flashcards
Private Limited Company
An incorporated business with its own seperate legal identity that is owned by shareholders. Run by directors. Shares are NOT traded on a stock exchange.
Public Limited Company
Like a Private LC where its an incorporated business with its own seperate legal identity. Owned by shareholders and run by directors. Shares ARE traded on the stock exchange.
Goodwill
Partnerships build up goodwill over time through loyal customers, a positive reputation or a good product. Intangible asset. Goodwill is the difference between the set value of it’s assets - liabilities and what it’s actually sold for.
Limited Liability Partnership (LLP - SE)
Set up through a processs of legal incorporation, documents submitted to the Registrar of Companies. Members agreement is not legal but advisory to set out the member’s obligations. All LLP’s must have two or more ‘designated members’ responsible that the legal requirements are carried out.
Ltd partnership
Similar to a LLP but it must have at least 1 general partner and one limited partner (different people). Ltd partners have limited liability but the general ptnr will have unlimited liability. General partner responsible for day-to day running. Used for short projects where the lrd partners provide investment for the project in return for a share of the returns.
Two types of LTD companies
Public and private
Who owns ltd companies?
shareholders
Who manages ltd companies?
Directors
When may a ltd company become a public liability company (plc)?
More than £50,000 of issued share capital
At least two members (shareholder)
At least 2 directors
Can shares of a public liability company (plc) be traded on the stock exchange?
Yes
A private ltd company is privaely owned with:
No minimum requirement for issued shared capital
At least one member (shareholder)
At least 1 director who can be the same person as the sole shareholder
What is an incorporated business?
Individuals are NOT LIABLE FOR DEBTS. An incorporated business has a separate legal personality. This detaches itself from the shareholders (owners) and directors (managers). Having a separate legal personality means that individuals are not generally liable for the business’s debts
What is an unincorporated business?
OWNERS ARE RESPONSIBLE FOR LIABILITIES. Unincorporated businesses do not have a separate legal personality. The lack of separation means the owners of the business are responsible (or liable) for its debts.
Advantages of incorporation
Liability for members and shareholders is limited to the amount invested.
Sounds more credible than a sole trader
Access to finance may be easier
Transfer of ownership is easier
Disadvantages of incorporation
Additional costs of setting up the business and extra record keeping.
Info filed on Companies House so made public.
Business finances must be kept entirely separate from the owner unlike a sole trader who can take drawings.
Non-profit organizations
Charities and public sector
Who are Limited Companies Governed by?
Companies Act 2006
Who governs non-profit organizations?
Charity Commission and Charities Act 2011
What are manufacturing businesses
Make and sell products
Key stakeholders of a business? (8)
Customers, suppliers, finance suppliers, shareholders, government, employees, professional bodies and the general public.
VARIABILITY
when a service is tailored to the needs of an individual customer
PERISHABILITY
when any unused services cannot be stored for the future
INSEPARABILITY
when a service cannot be separated from its consumption of the customer so it is consumed at the same time it’s provided
INTANGABILITY
the service is not a physical product
Funding using WORKING CAPITAL
Working capital is the difference between the current assets and current liabilities, so it changes daily as things are bought and sold. Good for short-term funding only e.g paying a VAT bill or staff bonuses.
Funding using RETAINED PROFIT
Retained profit should be used for long-term-funding to grow and expand the business.
Risk Tolerance
How much risk a stakeholder is willing to withstand
Risk Appetite
The level of risk a shareholder is willing to accept to achieve their goal
Risk threshold
The level of risk that is acceptable usually an amount of money that could be lost
3 internal stakeholders
Employees, directors, owners
