What is a business? - 1.2 Flashcards
Why do businesses change different forms?
Mainly growth. As a sole trader grows they may decide they need access to more capital and protection of limited liability. Accessing more capital and achieving a higher profile may result in companies going public.
Why do businesses choose different forms?
Based on what type of liability they want, funding needs or management style.
What is a sole trader?
Individuals establishing and operating a business on their own. Sole traders work for themselves.
What are the advantages of operating as a sole trader?
- Easy to start up
- Freedom to make own decisions
- Profits are not shared
What are the disadvantages of operating as a sole trader?
- Pressure of responsibility
- Raising finance to set up and expand
- Unlimited liability so responsible for any losses
What is a private limited company (LTD)?
Owned by shareholders although LTDs can place restrictions on who shares are sold to.
What are the advantages of an LTD?
- Cheap to set up
- Limited liability
- Sell shares privately
What are the disadvantages of an LTD?
- Regulations and laws which can be time consuming and costly
- File certain information with government which reduces privacy for owners
What is a public limited company (PLC)?
Company which sells shares through the stock exchange. Raising large sums of capital. Often in the media due to size and importance. Generating free and low-cost publicity
What are the advantages of a PLC?
- Limited liability
- Easier to secure funding through shareholders
- Credibility enhances with customers, suppliers and potential investors
What are the disadvantages of a PLC?
- Regulations and laws which are time consuming and costly
- Loss of control as shareholders influence decisions
- Market fluctuations can change share prices which may not reflect company’s true performance
What is a public sector business?
Businesses owned by national or local government. Examples include airports, NHS, leisure centres.
What is a private sector business?
Owned by shareholders or individuals. Most businesses are private sectors.
What is a not-for-profit business?
Business set up with a different objective from profit. Social enterprises aim to benefit the community or society in general.
What are the advantages of a not-for-profit organisation?
-Tax exemptions allow businesses to operate without paying taxes
- Community support as they work towards social causes