Unit 4 : Types of Business Organization Flashcards
Define Unincorporated Business
a business that does not possess a separate legal identity from its owner ( unlimited liability )
Define Incorporated Business
business with a separate legal identity ( public/private companies )
( Limited Liability )
Define Unlimited Liability
the owner can be held responsible for the business’s debts. this has greater risk as the owner is putting his personal possessions and living at risk
Define Limited Liability
the liability of the shareholders in a company is limited to only the amount they invested. this has less risk as the owner is only risking the capital that they invested and legal charges won’t affect the owner directly
Define Sole Trader
a business owned and controlled by one person - the owner, who is the sole proprietor. this is a form of an unincorporated business
6 Advantages of being a Sole Trader
- fewer legal regulations ( easier to set up )
- complete control
- flexible working times
- ability to respond quickly to the needs and wants of customers
- all profits go to owner
- complete secrecy in business matters
6 Disadvantages of being a Sole Trader
- decisions are hard to make alone
- no separate legal identity / unlimited liability
- restricted funds, harder to expand business
- may have to work for longer hours
- harder to compete with larger firms
- may not have proper skills to run a business
Define Partnerships
a form of business in which two or more people agree to own a business jointly. it is a form of unincorporated business
Define Deal of Partnership
the written and legal agreement between business partners. It’s not essential but recommended
5 things a Partnership Agreement contains
- amount of capital invested by each partner
- tasks that each partner will do
- how profits will be distributed
- how long it will last
- arrangements for absence, retirement and how partners could be let known
4 Advantages of Partnerships
- easy to set up partnership deed
- greater access to funds
- shared decision making
- shared management and workload
5 Disadvantages of Partnerships
- unlimited liability
- sharing profits
- if one partner leaves, the business ceases to exists
- all partners may disagree on a decision and consultation takes time
- difficult to raise finance
Define a Private Limited Company
business owned by shareholders but cannot sell shares to the public (can only sell to family and friends)
Define Shareholders
owners of a limited company who buy shares represent part-ownership of the company
4 Advantages of Private Limited Companies
- raise capital from sales of shares
- limited liability for shareholders
- separate legal identity
- continuity of business
4 Disadvantages of Private Limited Companies
- can’t sell shares to public
- many legal formalities
- accounts are available for the public to see
- it’s not easy to transfer shares
Define Articles of Association
contains the rules for managing the company
Define Memorandum of Association
contains vital information about the company and the directors
Define a Public Limited Company
businesses owned and controlled by the shareholders, but they sell to the public, and their shares are tradeable on the stock exchange
4 Disadvantages of Public Limited Companies
- can sell shares to the public
- rapid expansion is possible
- limited liability
- continuity of business
4 Disadvantages of Public Limited Companies
- many legal formalities
- disclosure of accounts and other information
- separation between ownership and control
- expensive to go public
Define Annual General Meeting (AGM)
a yearly meeting where shareholders may attend to vote for a board of directors for the upcoming year
Define Dividends
payments made to shareholders from the profit of a company. they are the return for investing in the company
Define a Franchise
an agreement of a business based upon an existing brand/business
Define Franchisee
the company that received permission to conduct business using the company’s name and brand. has to pay an original fee to the franchisor and a percentage of its profit for the privilege.
Define the Franchisor
the company that allows another company to conduct business using the company’s name and brand
4 Advantages to the Franchisor
- franchisee buys the license which gives them another source of finance
- expansion is faster
- management is the franchisee’s responsibility
- percentage of the sale revenue is given to the franchisor every year
3 Disadvantages to the Franchisor
- bad reputation if one of their branches has poor management
- the franchisee keeps some of the profit
- training and advertising is paid for by the franchisor
5 Advantages to the Franchisee
- chances of business failure is reduced
- franchisor pays for advertising
- fewer decisions to make with the independent business
- franchisor provides training
- banks are more willing to lend to franchisees due to the low risk
4 Disadvantages to the Franchisee
- less independence
- unable to make decisions that suit the local area
- franchisor has power to withdraw agreement and prevent use of the premises
- license fee has to be paid to the franchisor
Define Joint Venture
when two or more business join together to create a new business
3 Advantages of Joint Ventures
- sharing costs
- shared experience and knowledge
- risks shared
3 Disadvantages of Joint Ventures
- profits are shared if project is successful
- conflicts in decision making may occur
- different methods of running the business creates conflicts
Define Public Corporations
a business in the public sector that is owned and controlled by the government
6 Advantages of Public Corporations
- government ownership could be essential to some industries
- consumers are not taken advantage of
- reduces wasteful competitiors
- can help in stabilizing failing businesses to create job opportunities
- allows access of essentials to everyone
- continued even if in losses
5 Disadvantages of Public Corporations
- profit objective is not as important compared to private sector industries
- managers rely too much on the government causing inefficiency
- can be unfair to private sector if subsidies are provided to the public sector
- lack of competition can decrease many activities
- can be used for political reasons like preventing business from opportunities like other profit making businesses
