Business Organisations Flashcards
What is a sole trader and the advantages and disadvantages associated with it
A company run and owned by one person. they are self employed
advantages
paying less tax
easy to form and close
low organizational costs
no registration required
minimal rules and regulations and more privacy
mainain complete and ultimate control
keep all income to yourself
disadvantages
sole trader is personally liable for any debts
unlimited liabilities
firm terminated if business dies
limited liabillity
your personal life is safe, however how much investment you’ve done in the business is how much you will be liable for
what is a partnership
where two or more people agree to set up a company together. These types of businesses are unincorporated which usually means each partner is liable for debts and take shares of the profit.
what is a fiduciary relationship
Fiduciary Duty of Good Faith and Fair Dealing.
Under this duty, partners must act with
honesty and show good faith and fairness to each other in their partnership interactions.
what are the advantages and disadvantages of a partnership
advantages
each partner can bring their skills, potential and experience to the team which can strengthen the business’s potentials.
share the burden of financial costs with other partners.
increased decision making and problem solving skills. Each partner brings their own expertize and innovative ideas.
less taxes
Flexible to amend circumstances to meet their needs.
Disadvantages
As profit is distributed the income they earn may be less than other business structures or a sole trader.
personal assets at risks if business cannot fulfil the debts. Each partner has responsibility to pay for debts and liabilities.
Disagreement as people may have different interests this could damage the business’s performance.
Vulnerable to tasks being incomplete if partners are not fulfilling their role.
advantages and disadvantages of corporation
Advantages
Limited liability
Exist even if the owner dies
access to various capitals
Increase reputation and popularity
tax benefits
Disadvanatges
Comply with more rules and regulations such as holding regular shareholder meetings, comply with the state law, detailed financial records
increased tax as there’s taxed involved at the general level and paying divdends to shareholders.
High costs setting up and running compared to other business structures for e.g. admin costs
Less flexibility
public scrutiny
what does unincorporation mean
Few administrative steps to be formed
what does incorporated mean
Formal registration process
what does unincorporated organisation mean
An unincorporated organization does not have a
separate legal identity. (The owners are responsible
directly for any debts); no/few administrative steps to
be formed
What does an incorporated organisation mean
n incorporated organization is one which is set up so
that the organization itself becomes a separate legal
entity. formal registration process (The incorporated
organization is responsible directly for its debts).
‘Unincorporated’ and ‘Incorporated’
Limited liability act 1907
Creditors can’t come after your personal assets if you are in debt however you may lose all your investments made
limited liability partnership act 2000
Personal assets and belongings are kept safe.
what is the partnership act 1980s
Provide clarity and structure to business relationships between partners.
Partnership act 1890
Reflects importance of clarity, trust and mutual understanding among partners.
Public limited companies
Shares can be selled to the public
