1.5.4 Forms of Business Flashcards
(24 cards)
what’s a sole-trader
type of business structure where an individual owns and operates a business on their own.
has unlimited liability
unincorporated
what are the pros and cons of being a sole-trader
pros=
- make all of the decisions
- quick and easy to set up
= sole trader keeps all the profits
- financial information is kept private
- fully in control
cons=
- unlimited liability
- harder to raise money to start or grow the business
- a lot of pressure on one person
- no one to cover when sole trader is ill and takes time off
what is a partnership
a business structure where two or more individuals (partners) come together to operate a business.
unincorporated
what are the pros and cons of a partnership
pros=
- owners may have wider expertise and can share ideas and decision making
- owners share the risk
- could be easier to raise finance to establish or grow the business
cons=
- decisions made by the partner can affect all partners
- no longer exists if one partner leaves
- profits are shared
- partners may disagree/ conflict arises
whats a private limited company also known as
Ltd
what is a private limited company (Ltd)
a business structure that limits the liability of its shareholders, restricts the sale of shares to the public, and operates as a separate legal entity from its owners.
finance help through family and friends
incorporated
pros and cons of Ltd
pros=
- owners have limited liability
- customers may trust a ‘Ltd’ more than other businesses
- continues to trade even if the shareholders change
- could be easier to raise finance to establish or grow the business
cons=
- more complex to set up than a sole trader or partnership
- higher set up costs
- financial information is published and can be accessed by others
- more information must be reported to the government
- shares cannot be sold to the public, which may limit access to capital and flexibility in ownership changes.
whats a public limited company also known as
Plc
what is a public limited company (Plt)
type of business structure that allows shares to be sold to the public on the stock exchange, providing limited liability to its shareholders
incorporated
pros and cons of a public limited company
pros=
- raise significant funds by selling shares to the public, facilitating expansion and growth.
- has limited liability, protects personal assets
- Being publicly traded can enhance the company’s reputation and credibility with customers, suppliers, and investors.
- Shares can be bought and sold on the stock exchange, providing liquidity for investors.
- Employee benefits, PLCs can offer stock options and shares as part of employee compensation, helping to attract and retain talent.
Cons=
- subject to strict regulatory requirements and must disclose financial information, which can be time-consuming and costly.
- original owners may lose some control over the company as shareholders have a say in major decisions.
- High costs. The costs associated with going public, including legal, accounting, and marketing expenses, can be substantial.
- vulnerability to market fluctuations, share prices can be affected.
define a franchise
a business model where a franchisor grants the rights to an individual or group (the franchisee) to operate a business using its brand, products, and operational systems in exchange for fees or royalties.
whats the difference between the franchisor and franchisee
The franchisor is the original brand owner who grants the rights to use its business model and brand, while the franchisee is the individual or entity that purchases those rights to operate a business under the franchisor’s name.
pros and cons of a franchise
pros=
- already has an established brand reputation, which can attract customers more easily
- already has a tested business model and operational systems, reducing the risk of failure
- Franchisors typically provide training, ongoing support, and resources to help franchisees succeed.
- Franchisor provides access to marketing
- Lenders may be more willing to finance due to its established brand and business model.
Cons=
- Franchisees must pay initial franchise fees and ongoing royalties, which can reduce profit margins.
- Franchisees must adhere to the franchisor’s rules and guidelines, limiting their ability to make independent business decisions.
THEY HAVE LIMITED CONTROL, limited entrepreneurial traits
- A franchisee’s success is tied to the overall brand reputation; issues with other franchisees can impact all locations.
- Has contractual obligations they must obey too.
what does unincorporated mean
- the owner is the business - no legal differences
- owner has unlimited liability for business actions (including debts)
- most unincorporated businesses operate as sole traders.
SOLE TRADER
PARTNERSHIP
what does incorporated mean
- legal differences between the business and the owners
- owners (shareholders) have limited liability
- most incorporated businesses operate as private limited companies
PRIVATE LIMITED COMPANY (Ltd)
PUBLIC LIMITED COMPANY (Plc)
what does it mean to have unlimited liability
- a characteristic of a unincorporated business
- business owner personally responsible for the debts and liability of the business
- if the unincorporated business fails, the owners are liable for the amounts owed.
what are public sector organisations
businesses owned or controlled by the government
what are social enterprises
- they are not for profit organisations
- trade to benefit the community
- have social aims as well as trying to make money
- social aims= job creation, training, providing community services, fair trade with developing countries
what are 4 topics that business forms links closely with
shares and stakeholders
organisational structure
business objectives
stakeholders
why might a business decide to be a Plc
its grown in size and needs further investment which it can not get from its current pool of investors
if it intends to float shares on the stock market so they can be bought by anyone it will need to first issue a PROSPECTUS where potential investors are invited to purchase share before floatation
why is going public (Plc) expensive
- lawyers to draw up legal paperwork
- publications
- insurance against unsold shares
- advertising and admin
- company must have £50,000 in share capital
define the term opportunity cost
value of the next best alternative that is foregone when making a decision
it represents the benefits that could have been gained from choosing that alternative instead.
example= If an entrepreneur decides to start a sole trader business instead of forming a limited company, the opportunity cost could be the potential benefits of limited liability and easier access to capital that a limited company structure might provide.
define the term trade off
refers to the concept of giving up one thing in order to gain something else
example= A partnership may face a trade-off when deciding whether to invest profits back into the business for expansion (e.g., opening a new location) or distributing those profits among partners. Choosing to reinvest means the partners forgo immediate financial gain but may lead to greater long-term growth.
how to change from an entrepreneur to a leader
- learn to delegate
- trusting others
- learning from others
- listen to others
- have an open mind
- be less reactive
- develop an emotional intelligence
