Chapter 4 Flashcards
Define sole trader
A business that is owned and controlled by just one person who takes all the risks and receives all the profit.
Define partnership
A business formed by two or more people who will usually share responsibility for the day-to-day running of the business. Partners will often invest capital into the business and will share profits.
What are the advantages of sole trader?
- It’s quick and easy to set up a business
- The sole trader makes all the decisions so has complete control over the business
- The business can often be set up with a small amount of start-up capital
- The owner keeps all the profit
What are the disadvantages of sole trader?
- Unlimited liability for the debts of the business, need to use wealth to pay
- Difficult to raise fund as business is small
- Difficult to compete with larger firms
- Lack some of the essential business skills needed for running a business
- Work for very long hours
- No continuity
What are the advantages of partnership?
- more capital than sole trader
- better dicisions as disicion making is shared
- Shared management and workload
- Easy to set up
What are the disadvantages of partnership?
- Unlimited liability for the debts of the business need to use wealth to pay
- Partners must share profits
- Business decisions are binding on all partners, even if they don’t agree
- difficult to raise capital as business is small
What are the forms of business?
Private sector
- sole trader
- partnership
- limited company (private and public)
- others (franchise and joint venture)
What are the advantages of private limited company?
- Limited liability
- Seperate leagal identity
- Continuity
- Control who buy shares
What are the disadvantages of private limited company?
- Cannot buy, sell or transfer shares without permission of other shareholders. (discourage others from investing in the business)
