1.4 Types of business organisation Flashcards
What is a ‘sole trader’?
A business that is owned and controlled by just one person who takes all of the risks and receives all of the profits.
Name the advantages and disadvantages of a sole trader.
Ads:
- Quick and easy to set up
- Makes all the decisions
- Has complete control
- Keeps the profit
Disads:
- Unlimited liability
- May not be able to raise funds to expand the business
- Maybe have to work long hours
- Difficult to compete with larger rival firms
- May not have the business skills to run a business
What is a ‘partnership’?
A business formed by two or more people who will usually share responsibility for the day-to-day running of the business
Name the advantages and disadvantages of a partnership.
Ads:
- Easy to set up a deed of partnership
- Partners invest in the business so greater access to funds
- Shared decision making
- Shared management and workload
Disads:
- Unlimited liability
- Share the profits
- Business ceases to exist if one partner leaves
- Decisions binding on all partners
- Difficult to raise finance
What are private limited companies?
Often a small to medium-sized company, owned by shareholders who have limited liability. The company cannot sell its shares to the general public
What are the features of private limited companies?
- Usually a very small number of shareholders
- Fairly small
- Can only be sold privately
- Often difficult to raise finance
- Limited liability
- Profit belongs to shareholders
- Legal documents must be completed when setting up the business
- Continues even if one or more shareholders die
- Vote on major decisions
What are public limited companies?
Often a large company; owned by shareholders who have limited liability. They can sell its shares to the general public.
What are the features of public limited companies?
- Usually a large number of shareholders
- Most common form of organisation for very large companies
- Shares can be offered to the public and other organisations
- Ownership and control are separated
- Setting up is very costly
- At risk of takeovers
- Legal requirements are stricter than for private limited companies
- Often successful in rising capital
What is a franchise?
A business system where entrepreneurs buy the right to use to the name, logo and product of an existing business
Name the advantages and disadvantages of franchises.
Ads:
- Less chance of failure
- Franchises often provides advice and training to the franchisee
- Franchisors finance the promotion of the brand through national advertising
- The franchisor would have already checked the quality of suppliers
Disads:
- Initial cost of buying into a franchise can be very expensive
- The franchisor will take a percentage of the revenue of profits made by the franchisee each year
- There are very strict controls over what the franchisee is allowed to do with the product pricing and store layout
- The franchisee doesn’t gain any personal recognition, they only gain recognition because of the existing brand
What is a joint venture?
Two or more businesses agree to work together on a project and set up a separate business for this purpose
Name the advantages and disadvantages of joint ventures
Ads:
- Reduces risks for each business and cuts costs
- Each business brings different expertise to the joint venture
- Market and product knowledge can be shared
Disads:
- Any mistakes made may damage the reputation of all firms in the joint venture
- The businesses may have different business cultures of styles of leadership, making decision-making difficult
What is the difference between unincorporated businesses and limited companies?
An incorporated business does not have a separate legal identity from its owners, whereas an incorporated business does.
What is the difference in risks, and ownership between types of business organisations?
Unincorporated business have a greater legal and financial risk than incorporated business because:
- Owners and the business have the same legal identity
- Owners have unlimited liability for business debts
What is limited liability?
When the owner is not personally responsible for the business’ debts
