1.5.4 Forms of Business Flashcards
What forms of business are there?
- Sole trader
- Partnership
- Private LTD company
- Public LTD company
- Franchise
- Social, Lifestyle & Online
What is a sole trader?
- A business that has a single owner (although they may still hire employees)
What are the advantages and disadvantages of being a sole trader?
Advantages:
* Easy and inexpensive to set up
* The owner has complete control over the business
* All profits belong to the owner
* Simple tax arrangements
Disadvantages:
* Unlimited liability, meaning the owner is personally responsible for any debts the business incurs
* Limited access to finance and capital
* Limited skill sets
What is a partnership?
- Where two or more people join together to form a business
What are the advantages & disadvanatges of a partnership?
Advantages:
* Easy to set up and inexpensive
* Shared responsibilities and decision-making
* More skills and knowledge are available
* Increased access to finance and capital
Disadvantages:
* Unlimited liability
* Potential for disputes between partners
* Profits are often shared equally, regardless of the contribution
* Difficult to transfer ownership
What is a private limated company?
- The ownership of the business is broken down into a specified number of shares
- These shares can be sold by the owner, usually to friends and family or to venture capitalists
- Decision-making often rests with the person appointed to run the company, often called the Managing Director or CEO
What are the advantages & disadvantages of a private limated company?
Advantages:
* Limited liability, meaning the owners are not personally responsible for the company’s debts
* Access to greater finance and capital
* Easier to transfer ownership
* Can have a professional image and reputation
Disadvantages
* More expensive and time-consuming to set up
* More complex legal requirements and regulations than sole traders
* Annual financial reporting and auditing are required
* Shareholders have little control over the company as the founder usually imposes their agenda
What is franchising?
Where an individual (franchisee) buys the rights to operate a business model, branding, & support from a larger company (franchisor) in exchange for an initial lump sum plus ongoing fees
What is social enterprise?
- A business that has the primary purpose to create social or environmental impact (in addition to generating profits)
What is a lifestyle business?
- Typically small, owner-operated businesses that prioritise a specific lifestyle or personal interest of the owner over profits or growth
e.g. a cooking lessons business
What are some of the benefits to becoming a public limited company?
Access to capital: Significant amounts of capital can be raised very quickly - often more of a cost effective way to raise capital than borrowing money from banks/ other lenders
Shared risks: The risks associated with ownership are spread among a larger group of shareholders- This reduces the financial risk to any individual
