Unit 1.2 Types of Business entities Flashcards
Privately held companies
(limited or Ltd)
-A privately held company’s shares are owned by friends and/or family.
-These shares cannot be traded publicly on the stock exchange.
-Shareholders can only sell their shares if they have prior permission from other shareholders.
-Typically, privately held companies are also family businesses.
Publicly held companies
-A publicly held company can sell shares on the stock exchange.
-Shares are held by the general public.
-No prior permission by other shareholders is required for a shareholder to sell their shares.
Profit-based organizations
-These are revenue generating businesses with profit objectives at the core of their operations.
-Their goals are to:
-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
-These businesses are owned by individuals who own and run a personal business.
-This is the most common type of business ownership as it is relatively easy to set up.
-Start-up capital is usually obtained from personal savings and borrowing.
-Sole traders have unlimited liability.
limited liability
form of legal protection for shareholders and owners that prevents individuals from being held personally responsible for their company’s debts or financial losses.
Unlimited liability
business owners who are legally liable for any debt their business might accrue.
Advantages for Sole traders
-Few legal formalities
-Profit taking
-Being your own boss
-Personalised service
-Privacy
-Quicker decision-making
Disadvantages for Sole traders
-Unlimited liability
-Limited sources of finance
-High risks
-Workload and stress
-Limited economies of scale
-Lack of continuity
Partnerships
-Partnerships are owned by two or more persons (known as partners).
At least one partner must have unlimited liability.
-Start-up finance is raised mostly by personal funds which are pooled together by the partners.
-A 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.
Advantages for Partnerships
-Financial strength
-Specialisation and division of labour
-Financial privacy
-Cost-effective
Disadvantages for Partnerships
-Unlimited liability
-A lack of continuity
-Prolonged decision-making
-Lack of harmony due to disputes/disagreements
Limited liability companies
-These are businesses owned by their shareholders.
-Shareholders have invested money to provide capital for a company.
-Companies are incorporated businesses.
-In the eyes of the law, the companies are treated as a legal entities separate from its owners.
-This means they have limited liability.
-There are two types of companies – private held and publicly held companies.
Advantages for Limited liability companies
-Raising finance
-Limited liability
-Continuity
-Economies of scale
-Productivity
-Tax benefits
Disadvantages for Limited liability companies
-Communication problems
-Added complexities
-Compliance costs
-Disclosure of information
-Bureaucracy
-Loss of control
for-profit social enterprises examples
Private sector companies
Public sector companies
Cooperatives
For-profit social enterprises
-These are revenue generating enterprises with social objectives at the core of their operations.
-Their aims are to:
-Make a surplus (i.e. earn revenue greater than costs incurred).
-Use the surplus for the benefit of society.
Private sector for-profit social enterprises
-These enterprises operate in a similar way to traditional for-profit businesses.
-They aim to make a surplus instead of relying on donations to achieve social aims.
-These firms produce goods and/or services and compete with similar businesses.
-They often use the triple bottom line as an accounting framework for ethical business practises.
Public sector for-profit social enterprises
-These enterprises are state-owned to operate in a commercial way.
-They help to raise government revenues to provide essential services to society that may be inefficient and undesirable if left solely to the private sector.
Cooperatives
-Owners of cooperatives are called members.
-Members own and run cooperatives (i.e. they are also employees of the organization).
-Their aim is to create value for members by operating in a socially responsible way.
-All employees have a vote to contribute to decision-making.
-Any profits earned are shared between their members.
Advantages for coorperatives
-Incentives to work
-Decision-making power
-Social benefits
-Public support
Disdvantages for coorperatives
-Disincentive effects
-Limited sources of finance
-Slower decision-making
-Limited promotional opportunities
type of non-profit social enterprises
Non-governmental organizations (NGOs)
Non-governmental organizations (NGOS)
-An NGO operates in the private sector.
-They provide goods and/or services normally expected from the public sector.
-However, these goods/services may be underprovided by governments.
unincorporated
owner is the same lgeal entity as the business itself. there is no legal disteiction between the owner and the business
silent / sleeping partners
do not activley take part in the running of the partnership but have a financial stake. eligabe for any profits. investors
deed of partnership includes
- amount of finance contributed by each partner
- roles resposibilities and obligations of each partner
- how profit or losses are to be shared between each partner
-conditions for introducting new partners - clauses for the withdrawl of a partner
-proceedures for ending a partnership
Annual General meeting
all companies must hold an AGM to allow owners to have a say/vote in the running of a business
three main processes of AGM
-shareholders vote on resolutions (promises or declirations) and the reelection of the board of directors
-shareholders ask questions to the CEO o r chairsperson about various aspects of the company
-shareholders approve the previous years financial accounts after directors present the annual report containing information about its financial performance
memorandum of association
breif document outlining fundimental details of the company. such as its name the purpose and registered business address
articles of association
stipulating the internal regulations and proceedures of the company such as the rights and roles and the power of the BOD and shareholders. administerative issues is also covered
certificate of incorporation
license recognises business as a seperate legal entity from the owner/s allowing business to start trading as a limited liability company
floatation
when publically held company first sells all or parts of its business to external investors (initial public offering)
worker cooperative
set up owned and organised by their employee members
producer cooperatives
cooperatives that join and support eachother to process and/or market their products
operational NGOs
established from a given objectove or purpouse
advocay NGOs
take a more agressive approach to defend or promote a cause
