Introduction to business - type of business

Question 1

what are the 4 types of businesses?

Answer 1

sole trader, partnership, private limited company, public limited company

Question 2

what types of businesses are unincorporated?

Answer 2

sole trader and partnerships

Question 3

what types of businesses are incorporated?

Answer 3

Ltds and Plcs

Question 4

what is an unincorporated business?

Answer 4

• the owner is the business - no legal difference
• owner has unlimited liability for business actions
• most of these businesses operate as sole traders

Question 5

what is an incorporated business?

Answer 5

• legal difference between the business and the owners
• owners (shareholders) have limited liability
• most of these businesses operate as private limited companies (Ltd)

Question 6

what is a sole trader?

Answer 6

• individually owned
• owns all the business personally and is personally responsible for the debt incurred by the business
• UNLIMITED liability

Question 7

what are the advantages of operating as a sole trader?

Answer 7

• quick and easy to set up
• simple to run
• minimal paper work
• full control
• keep all the profit

Question 8

what are the disadvantages of being a sole trader?

Answer 8

• unlimited liability
• harder to raise finance
• higher tax rates

Question 9

what is a partnership?

Answer 9

• a business owned by two or more people
• legal partnership agreement sets out how the partnership is run
• partners between them own all the business assets and owe all the liabilities
• unlimited liability

Question 10

what are the advantages of operating as a partnership?

Answer 10

• more skills
• more ideas
• easier to raise finance (compared to ST)
• minimal paper work

Question 11

what are the disadvantages of operating as a partnership?

Answer 11

• unlimited liability
• disagreements can cause delays in profit
• have to share the profit made
• harder to raise finance than LTDs and PLCs
• complicated to sell/close

Question 12

what are limited liability partnerships?

Answer 12

• became legal in 2001
• combine features of partnership with those of a limited company
• separate legal entities (limited liability)
• owners are called members rather than partners
• like Ltds they are required to file annual accounts to Companies House

Question 13

what are the advantages of being a limited company?

Answer 13

• limited liability
• easier to raise finance than sole traders/partnerships
• benefits from continuity (if a shareholder falls ill or dies it doesn’t affect the business)

Question 14

what are the disadvantages of being a limited company?

Answer 14

• public exposure of business information (more limited info for Ltds)
• harder to set up than sole traders/partnerships
• more expensive to run than sole traders/partnerships

Question 15

what are the differences between PLCs and Ltds?

Answer 15

• a PLC sells shares on the stock market, a Ltd cannot
• a PLC can be taken over if an investor gains 51% of shares –> loss of control
• a PLC is required to have a share capital of over £50,000
• a PLC is required to include more detail in its annual reports –> Ltds are required to do this, but don’t need to provide as much information