Business structure Flashcards

Question

disadvantages of public limited company

Answer 1

t can be expensive – setting up costs can run into millions for some businesses. Outside interests could take control as shares are on sale to the public. Greater divorce of ownership and control than in a private limited company. The company’s board may lose control. Accounts can now be inspected by the public or competitors who could use them to their advantage. Have to publish more information than private limited companies. Greater size may lead to slower decision making. Can be time consuming to gain listing. If they grow too big, they may become inflexible, e.g. they may find change difficult to cope with.

Answer 2

Reasons for becoming a PLC: large amounts of money can be raised for the business from the sale of shares to the public may gain economies of scale easier to raise loan finance helps growth – might give a business a bigger market share may motivate employees/managers brand recognition more capital for investing in new products. Arguments to remain as an LTD setting up costs for the business would be expensive there would be an even greater divorce of ownership for the business between ownership and control a business may lose control and be involved in a takeover the business accounts can be inspected by the public – used by competitors a loss of personal touch between the business and its customers the business may become inflexible because of its size

Answer 3

Arguments in favour of a partnership potentially more capital – ideal for example if the business needs to find new premises as the current one is becoming too small a new partner brings new skills possibility of specialisation more ideas/problems can be shared share workload – presents an opportunity to reduce working hours/take holidays avoids need to employ somebody – a risk – new staff need training – not sure of their capabilities. Arguments against forming partnership (staying as a sole trader): original sole trader will lose their independence will need to share profits – though possible to generate more could result in disagreements/quarrels - though many family businesses are successful others end in acrimony decision making potentially slower – need to consult/less flexibility by employing a new worker, the original sole trader could retain their independence and also reduce their own working hours If, after a short time, the new partner finds they want to leave the partnership, then the original sole trader is back to square one

Answer 4

A non-profit-making organisation established with the aim of collecting money from individuals and spending it on a cause, which is usually specified in its title: * not established to make profits but they can earn surpluses * charities can often have a narrow focus (single issue) in what they are trying to achieve * charities raise the majority of their finances through voluntary donations, but more and more charities now operate retail outlets as well.

Answer 5

potentially a lot more capital available for expansion greater protection for personal assets – benefit of limited liability easier to attract investors/shareholders because of security of limited liability becomes a separate legal entity likely to have greater continuity possibly greater credibility with financial institutions can still keep control shareholders may bring in additional business ideas. But: loss of certain advantages associated with being a sole trader e.g. keeping all of the profit, may now need to consult when making key decisions will need to consider the fact that they will need to publish accounts so that business affairs are less private possibly less control over business – separation of ownership and control – but the sole trader can remain majority shareholder cost of setting/private limited company settin

Answer 6

n: Social enterprises include for-profit and not-for-profit businesses (e.g. cooperatives) with primarily social objectives, trading for social and environmental purposes, whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners. Operating in what has become known as the “Third Sector” (neither public not private sector). They are usually charitable trusts, founded for a social purpose. They reinvest their profits in the company or the community, and attempt to change lives for the better.

Answer 7

A stakeholder is anyone with an interest in a business. Stakeholders are individuals, groups or organisations that are affected by the activity of the business.

Answer 8

Owner/Shareholder – they are interested in how much profit the business makes. Managers – they are concerned about their salary. Employees /workers – they want to earn high wages, have job security and a nice working environment. Customers – they want the business to produce quality products at reasonable prices and to have a variety of products/services to choose from. Suppliers – want the business to continue to buy their products at a fair price. Competition – they have interest in what the business is doing. If they do not “keep up” with them then they risk losing customers. Financiers/Lenders – want to be repaid on time and in full. Local Community – they have a stake in the business as employers of local people. Business activity also affects the local environment. For example, noisy night-time deliveries or a smelly factory would be unpopular with local residents. Government – they are concerned with whether or not the business is operating within the constraints of the law; how many jobs the business is providing and how much tax the business has to pay. Pressure Groups/Trade Unions – they will fight for the rights of their members and put pressure on the business to behave in a certain manner