1.5.4 - Forms of Business Flashcards
(25 cards)
What is a sole trader?
A business that has one, single owner
What are the advantages of a sole trader?
- Easy and inexpensive to set up
- Owner has complete control over the business
- All profits belong to the owner
- Simple tax arrangements
What are the disadvantages of a sole trader?
- Owner is responsible for any debts the business incurs
- Limited access to finance and capital
- Limited skill set of the single business owner
- Unlimited liability
What is a partnership?
When two or more people join together to form a business
What are the advantages of a partnership?
- Easy to set up and inexpensive
- Shared responsibilities and decision making
- More skills and knowledge are available
What are the disadvantages of a partnership?
- Unlimited liability
- Potential for conflict between partners
- Profits are often shared equally, regardless of contribution
- Difficult to transfer ownership
What is a private limited company?
The ownership of a business is broken down into a number of shares, decision making rests with the person appointed to run the company
What are the advantages of a private limited company?
- Limited liability
- Access to greater finance and capital
- Easy to transfer ownership
- Professional image and reputation
What are the disadvantages of a private limited company?
- Expensive and time consuming to set up
- Complex legal requirements
- Annual financial reporting and auditing (checking) is required
- Shareholders have little control over the company
What is a franchise?
Where an individual buys the rights to operate a business model, branding and support from a large company in exchange for an initial lump sum plus ongoing fees
What are the advantages of a franchise?
- Can expand without large amount of investment
- Less need for concern for risks associated with business growth (e.g. diseconomies of scale)
- Increases in brand awareness
What are the disadvantages of a franchise?
- Franchiser does not have complete control over how the business is operated
- If a franchise is badly run, then a single franchise or store can negatively affect their brand image
- Difficult to transfer ownership, have to ask permission from franchisor
What is a social enterprise?
A business that has the primary purpose to create social or environmental impact
What are the advantages of a social enterprise?
- Develop creative and innovative solutions to social challenges
- Create jobs which support economic development
- Provide training and employment, leading to increased social mobility and better quality of life
What are the disadvantages of a social enterprise?
- Difficult to achieve financial sustainability
- Difficult to quantify and measure success of social enterprise activities
- Difficult to grow
- Difficult to obtain finance in order to expand into new markets
What is a lifestyle business?
Small, owner-operated businesses that prioritise a specific lifestyle or personal interest of the owner over profit or growth
What are the advantages of a lifestyle business?
- Greater freedom
- More control over salary
- Full control of life and business endeavours
- More excitement and fulfilment
What are the disadvantages of a lifestyle business?
- Lots of paperwork which can be time-consuming
- Can become lonely/isolated
- Increased stress
- Job uncertainty
What is an online business?
Businesses that can operate from anywhere with an internet connection
What are the advantages of an online business?
- More access to consumers internationally
- Longer trading hours as business is open 24/7
- Cheaper to run as lower fixed and variable costs
- Can collect data by tracking consumer behaviour
What are the disadvantages of an online business?
- High costs for website development and maintenance
- High levels of competition
- Lack of personal contact with customers
What is a PLC on the stock market?
When a business is growing rapidly it may require a significant amount of funding. To secure this funding, it may choose to convert from a private limited company to a public limited company (PLC). This involves undergoing a stock market flotation.
What are the advantages of a public limited company?
- Access to capital
- Risks associated with ownership are spread among a larger group of shareholders
- Greater public profile
What are the disadvantages of a public limited company?
- Expensive to set up
- More complex accounting and reporting requirements
- Shareholders may clash when making decisions about the business
