Unit 1: Types of entities Flashcards
private sector
organizations owned and controlled by private individuals and businesses
main aim-to make profit
public sector
organizations owned and controlled by the government
main aim-to provide essential goods and services
Profit-based organizations
revenue generating businesses with profit objectives at the core of their operations
goals of profit-based organizations
make a profit
reward the owners with profits from the business
return some of the profits back into the business for capital growth
Sole traders
businesses owned and run by individuals
most common type of business ownership
easy to set up
start-up capital usually obtained from personal savings and borrowing
has unlimited liability
Unlimited liability
personal assets are at risk
limited liability
company is a separate legal entity so personal assets are protected
AD of sole traders
few legal formalities
profit taking
being your own boss
personalised service
privacy
quicker decision-making
DISAD of sole traders
unlimited liability
limited sources of finance
high risks
workload and stress
limited economies of scale
lack of continuity
partnerships
owned by two or more persons (partners)
at least one partner has unlimited liability
start-up finance is raised mostly by personal funds pooled together by the partners
legal document known as a deed of partnership is drawn up to formalise agreements such as how profits and losses are to be shared between partners
AD partnerships
financial strength
specialisation and division of labour
financial privacy
cost-effective
DISAD of partnerships
unlimited liability
lack of continuity
prolonged decision-making
lack of harmony due to disputes/disagreements
Private limited companies
shares owned by friends and/or family
shareholders can only sell their shares if they have prior permission from the other shareholders
typically also family businesses
