1.4.1 The options for start-up and small businesses Flashcards
What is liability?
The legal responsibility that a business owner has to pay their business debts
What are the two types of liability?
Limited liability
Unlimited liability
What are the characteristics of limited liability?
Legal difference between the business owner and the business
Debts belong to the business not owners
Only lose money if invested into the business
A private limited company has limited liability
What are the characteristics of unlimited liability?
No legal difference between the owner and the business
Debts belong to the owners
May need to sell their own personal belongings if in debt
Sole traders and partnerships have unlimited liability
What is a sole trader?
The business is owned by one owner who has full control
Has unlimited liability
What are the advantages of being a sole trader?
Easy to set up - no fees
Owner keeps all profits
The owner is their own boss
Financial info does not have to be made public
What are the disadvantages of being a sole trader?
Personal belongings are at risk
Difficult to raise money
Earnings are lost if the owner is sick or takes a holiday
What is a partnership?
Business owned by two or more partners
Partners share control and decision making
Unlimited liability
What are the advantages of a partnership?
More capital can be raised by partners
Partners can bring a range of skills
Financial info does not need to be made public
Problems and decisions are shared
What are the disadvantages of a partnership?
Unlimited liability
Partners may have disagreements
Profits are shared
If a partner dies or becomes bankrupt, the partnership will have to close
What is a private limited company (ltd)?
Created by people who know each other
Owners are called shareholders
Must register the business as a company with Companies House
Have ‘ltd’ after its name
Shareholders each have limited liability
What are the advantages of a private limited company?
Limited liability
Shares can be sold to friends and family to raise money
Managers can be employed to run the business
What are the disadvantages of a private limited company?
It is a legal requirement to file the company’s accounts and this information is public
More administration involved to get started as a private limited company
Shares cannot be sold to the public
What is a franchise?
An arrangement between an established business
What is a franchisor?
Allows other business or individuals franchisee the right to sell goods and services using its name, trademark and business processes
