1.5 - Forms of business Flashcards
(33 cards)
What is the main difference between unincorporated and incorporated businesses?
Unincorporated businesses have no legal separation between the business and the owner; the owner has unlimited liability.
Incorporated businesses are legally separate from their owners and have limited liability.
What does unlimited liability mean?
Unlimited liability means the owner is personally responsible for all debts of the business. Their personal assets can be used to cover business debts.
What does limited liability mean?
Limited liability means the owners (shareholders) are only liable for the amount they have invested in the business. They are not personally responsible for the company’s debts.
What is a sole trader?
A sole trader is an individual who owns and runs a business alone. They have full control and unlimited liability.
What are the advantages of being a sole trader?
Quick and easy to set up
Full control over decisions
Minimal paperwork
Easy to close or transfer
What are the disadvantages of being a sole trader?
Unlimited liability
Difficult to raise finance
Business depends on the owner’s health and interest
May pay higher taxes
What is a partnership?
A partnership is a business owned by two or more people who share profits, responsibilities, and liabilities. It is unincorporated, so partners have unlimited liability.
What are the advantages of a partnership?
Simple to set up
Shared responsibility
Partners bring different skills
Easier to raise finance than a sole trader
What are the disadvantages of a partnership?
Unlimited liability
Conflicts between partners
Difficult to sell or close
One partner’s poor decision affects all
What is meant by incorporation?
Incorporation is the process of forming a company with a separate legal identity, meaning the business is legally distinct from its owners.
What is a limited company?
A business that is incorporated, has limited liability, and is owned by
What are the main features of a limited company?
Separate legal identity
Owned by shareholders
Run by directors
Shareholders have limited liability
Company owns assets and pays debts
What are the advantages of a limited company?
Limited liability
Easier to raise finance
Stable business structure (continues after ownership change)
What are the disadvantages of a limited company?
More paperwork and admin
Financial info must be made public
Directors have legal duties
What is a private limited company (Ltd)?
A company whose shares are privately owned (not traded on a stock exchange). It is the most common incorporated business form.
What is a public limited company (plc)?
A type of limited company that can offer shares to the public on the stock market and usually has a larger number of shareholders. Subject to stricter regulations.
How do private and public limited companies differ?
Private Ltd: Shares not traded publicly; fewer shareholders.
Public plc: Shares can be traded publicly; many shareholders; greater regulation.
Can a sole trader or partnership become a limited company?
Yes. Many businesses start as sole traders or partnerships and then incorporate later as they grow.q
Why is limited liability important for shareholders?
It protects shareholders by ensuring they only lose what they invested in shares if the company fails.
Are shareholders responsible for the company’s debts?
No, shareholders in limited companies are not responsible for business debts beyond their share investment, unless involved in fraud or wrongful trading.
What is a public sector organisation?
A public sector organisation is owned and operated by the government to provide goods and services for the public, often funded through taxes or public funding.
Give some examples of public sector organisations.
NHS
Highways Agency
TeachFirst
Network Rail
RBS (Royal Bank of Scotland – nationalised during the banking crisis)
Do public sector organisations always provide free services?
No, while they are funded by the government, some may charge for certain services.
What is a not-for-profit organisation?
A not-for-profit organisation is a business that trades to benefit the community. It aims to achieve social objectives, not to maximise profit for owners.
