1.4.1 - The Options For Start-up And Small Buisnesses Flashcards
Limited liability
The level of risk is limited to the amount of money that has been invested in the business or promised as an investment.
Incorporated
A business that is registered as a company so the business and the owners are separate in the eyes of the law.
Unlimited liability
The level of risk goes beyond the amount invested, so the personal assets of the business owner can be used to pay off the business debt
Unincorporated
A business that is not registered as a company so the owners and the business are the same body in the eyes of the law
Soul trader
One person sets up a business on their own, which is an unincorporated business and therefore has unlimited liability
Partnership
A business that is owned by a group of two or more people who share the financial risk, the decision making and the profits
Deed of partnership
A legal document that defines the terms of a partnership
Private limited company
An incorporated business that is owned by shareholders which are known to the entrepreneur.
Advantages of being a sole trader
The sole trader can make all the decisions by themselves, quickly and it doesn’t need to lead to disagreements
Quick and easy to set up
They can keep all of the profits
Financial information is kept private
Disadvantages of being sole trader
The owner has unlimited liability
It may be difficult to raise enough money to establish or grow the business
It puts a lot of pressure on just one person
Can be difficult to run if the owner is unwell or take some time off
Advantages of a partnership
The business owners may have a wider expertise and can share ideas and decision-making
The risk is shared
Can be easier to raise finance to establish or grow the business
The businesses financial information is kept private
Disadvantages of a partnership
Decisions made by one partner can affect all partners
If a partner leaves the business no longer exists
The profits are shared
There may be disagreements between partners
Advantages of a private limited company
The owners have limited liability
The term ‘ltd’ after the business name may make it appear to be bigger or more long established business
Can be easier to raise finance to establish or grow the business
The business continues to trade, even if shareholders change
Disadvantages of a private limited company
More complex to set up
There may be disagreements between shareholders
The businesses financial information is published
More requirements to report information to organisation such as HMRC and companies house
Franchise
When a business gives another business permission to trade using its name and products in return for a fee and share of profits
