1.4 - types of business organisations Flashcards
types of business organisations
what is a sole trader?
a business owned and operated by one person. they have Unlimited Liability.
benefits and drawbacks of a sole trader
- get to keep all the profits
- owner is in complete control - can make all the decisions
- few legal requirements - cheaper and easier
- unlimited liability
- limited source of finance - must use their own savings - limited money for resources
what is a partnership?
when two or more people jointly own and run a business together. they have unlimited liability
benefits and drawbacks of a partnership
- more finance can be invested in the business from all partners
- less stress as responsibilities are shared
- more ideas from partners leads to better customer services
- profits must be shared
- disagreements can occur - decrease focus in customer service
- unlimited liability
what is a private limited company (LTD)?
a business owned by shareholders. they cannot sell shares to the public, they sell them to family and friends
benefits and drawbacks of an LTD?
- can raise more capital from selling shares
- all owners have limited liability - less risk
- can maintain control of business as they approve who they sell shares to
- cannot sell shares to public - limited capital
- expensive - lots of legalities and paperwork to be completed.
what is a public limited company (PLC)?
a company owned by shareholders. shares can be sold to the public on the stock exchange
benefits and drawbacks of a PLC?
- can raise more capital from selling shares to public
- all owners have limited liability - less risk
- risk that original owners may lose control of business when it goes public
- need to pay shareholders dividends - less profit for original owners
- expensive - lots of legalities and paperwork to be completed
what is a franchise?
a business with a strong brand name. the franchisor (owner) sells the rights to use the brand name to a franchisee e.g. McDonalds
benefits and drawbacks of a franchise
- franchisor receives a portion of the profits of each branch, known as royalties
- less stress for franchisor - responsibility passed on to franchisee
- poor management + reputation of one branch can ruin the entire brand image
- cannot keep 100% of the profit from each branch
what is a joint venture?
where two or more businesses start a new project together, sharing risks and profits
what is a public coorporation?
a business in the public sector that’s owned and controlled by the government. usually were initially owned by the private sector and now owned by the public sector.
benefits and drawbacks of a joint venture
- both businesses share costs of new project
- risk is shared
- each business may benefit from other businesses knowledge
- profits must be shared
- disagreements may occur - distraction from improving quality/service
benefits and drawbacks of a public coorporation
- ensures consumers are not taken advantage of by privately owned monopolies
- important for providing non profitable but important services
- no huge profit motive as they care more about providing service - may not be as efficient as a private company
