Unit 4 Flashcards
Reasons for being sole-trader
1) May want to be their own boss and make own decisions.
2) Decide when and how many hours to work.
3) Have a business that uses their skills and interests.
Advantages of being a sole-trader?
a. Quick and easy to setup.
b. Can be set up with a small amount of start-up capital.
c. The owner keeps all profit.
d. Makes all decisions, no clash.
Disadvantages of being a sole-trader?
a. Owner has unlimited liability.
b. It is difficult to raise funds to expand the business.
c. Difficult to compete with larger firms in the same industry.
d. Owners often lack essential skills.
e. Have to work very long hours.
f. If the sole trader dies or retires, the business no longer exists.
Characteristics of Private limited company
1) Owners: Small in number.
2) Size: usually small.
3) Sale of shares: Can be sold privately to friends and family.
4) Control: Only a few shareholders.
5) Raising additional capital through sales: Hard to raise capital as shares cannot be sold to public.
6) Borrowing finance: Difficult to raise finance.
Characteristics of Public limited company
1) Owners: Large in number.
2) Size: Large companies.
3) Sale of shares: Quick and easy.
4) Control: Board of directors hold meetings.
5) Raising additional capital through sales: Raise large sums through sale of shares.
6) Borrowing finance: Large sums at good rates of interest.
Advantages of partnership?
1) Greater access to finance.
2) Decision-making can be discussed.
3) Reduced workload.
4) Easy to set up.
Disadvantages of partnership?
1) Partners usually have unlimited liability.
2) Partner share profit.
3) If one partner leaves, the business will stop existing and if someone else wants to join, the business needs to be re-formed.
4) Business decisions are binding on all partners.
5) Can be difficult to raise finance to expand business.
Features of public and private limited companies:
1) Legal documents: article of association and memorandum of association must be completed.
2) Shareholders invest by purchasing shares.
3) Ordinary shareholders are owners.
4) Shareholders have limited liability.
5) Business continues if shareholders die.
6) Company can raise finance by selling shares.
7) Profit belongs to ordinary shareholders.
8) Profit is shared between shareholders through payment of dividends.
9) Shareholders vote on major decisions taken by the company.
10) The public can look at the company’s financial accounts.
Disadvantages of public limited company?
1) Costly.
2) Decisions may be influenced by investors.
3) Company at risk of takeover.
4) Strict legal requirements.
What are the reasons for joint ventures?
Reasons:
1) Reduces costs for each business and cuts costs.
2) Each business brings different expertise to joint venture.
3) Market and product knowledge can be shared to benefit the business in the venture
Limitation of joint venture?
1) Mistakes will damage the reputation of all firms included.
2) Businesses may have different cultures, leaderships and activities, making leadership different.
Advantages of franchising?
1) Less chance of failure.
2) Training and advice is provided by the franchiser.
3) The franchisor will finance promotion through national advertising.
4) The franchisor will check the quality of the products, so, quality is guaranteed.
Limitations of franchising?
1) Initial cost is high.
2) The franchisor will take percentage from profit.
3) There are strict controls over what the franchisee is allowed to do with the product.
4) The franchisee will have to pay for any local promotions they decide to do.
Characteristics of public corporation
1) They are owned and controlled by the state.
2) Financed through taxation.
3) They have social objectives rather than profit objectives.
4) Services are provided at either no cost or less cost.
Define sole trader
A business that is owned and controlled by just one person who takes all the risks and receives all the profit.
Define partnership
A business formed by two or more people who will share the responsibility of the business.
Define unincorporated business.
A business without legal identity separate from the owner. The owner has unlimited liability.
Define Unlimited liability
If an unincorporated business falls, the owner might have to use their personal wealth to finance any debts.
Define Private limited company
Often a medium to small sized company that is owned by shareholders who have limited liability. The company cannot sell its shares to the general public.
Define Public limited business
Often a medium to small sized company that is owned by shareholders who have limited liability. The company can sell its shares to the general public.
Define Ordinary shareholders
The owners of a company.
Define Limited liability
The shareholders in a limited liability company have no risk of their personal wealth if the business fails.
Define Dividend
A payment out of profits to shareholders as a reward for their investments.
Define Collateral
non-current assets offered as security against borrowing.
Define Franchise
A business system where entrepreneur buy the right to use the name, logo and product of an existing business.
Define Joint venture
Two or more businesses working together on a certain project and creating a separate business for this purpose.
Define Public corporation
A business corporation that is owned and controlled by a state.
