Unit 4: types of business organization Flashcards
Sole Trader
is a business owned by one person.
• Advantages: few legal requirements, you are your own boss, freedom to choose holidays, hours of work and whom to employ, close contact with costumers and good incentive as every profit is for him.
• Disadvantages: no one to discuss business matters, have Unlimited Liability, sources of finance really limited, banks reluctant to lend large amounts of money, the business disappears after the owner’s death.
Unlimited Liability
the owners of a business can be held responsible for the debts of the business they own.
Limited liability
: the liability of shareholders in a company is only limited to the amount they invested.
Partnership
form of business in which two or more people (in many countries up to 20) agree to own and run a business together. Partners should create a Partnership Agreement, which is a written and legal agreement between business partners.
• Advantages: more capital, responsibilities of running the business are shared, any loses made by the business are shared among the partners, Liability is not lowered but it is divided.
• Disadvantages: partners still have Unlimited Liability, the business is an unincorporated business, and partners may disagree.
Unincorporated business
one that does not have a separate legal identity. (Sole traders and partnerships)
Limited Liability Partnerships
the same as a normal partnership but it offers the partners limited liability and transform the business in a separate legal unit which exists after the partner’s death.
Private Limited Company
: unlike sole traders or normal partnerships, a Company is an incorporated business, which means that it has separate legal status from their owners. This guarantees that the company will continue to exist after one of the owners die, enables it to create contracts or agreements and most importantly separates company accounts from owner’s accounts. Therefore, it is part of a Safer Zone. It is private because the state doesn’t allow anyone to check the business accounts and also because it can offer Shares privately, which cannot appear on the share market.
• Advantages: shareholders have limited liability which encourages people to buy shares, selling shares is a good way of obtaining finance, the owners are able to keep control of it as long as they do not sell to many shares.
• Disadvantages: significant legal matters, shares cannot be sold to anyone else without the agreement of the shareholders, and shares cannot be sold to the general public.
Public Limited Company
most suitable to very large businesses. They are not owned by the government, it is public because its accounts can be seen by anyone.
• Advantages: Limited Liability to shareholders, it is an Incorporated business, it has no limits to the number of shareholders that it can have, no restriction on buying or selling shares, higher status which gives them better Economies of Scale.
• Disadvantages: legal formalities are complicated, more regulations and controls to protect the interest of the shareholders, they might be so large that are difficult to control and manage, selling shares is expensive (hiring a specialist and printing the shares), and the original owners might lose control over the business.
Annual General Meeting (AGM)
As there are thousands of owners (shareholders), the company must do an Annual General Meeting, where shareholders may attend and vote on who they want on the Board of Directors for the coming year.
Dividends
payments made to shareholders from the profits of a company. They are the return to shareholder for investing in the company.
Joint Ventures
when two or more businesses start a new project together sharing capital, risks and profits. It’s happening between companies of different countries.
• Advantages: costs and risks are shared, and local knowledge is gained when the joint Venture Company is already based in the country.
• Disadvantages: Profits shared, disagreements might occur, different ways of running the business due to difference in culture.
Franchise
a business based upon the use of brand names, promotional logos and trading methods of an existing successful business. The franchise buys the licence to operate this business from the franchisor.
