Forms Of Business Flashcards
(23 cards)
What is a sole trader?
A single person who is the exclusive owner of a business
Advantages of a sole trader
- easiest type of business to set up
- sole trader gets to be their own boss
- sole trader decides what to do with the profit
- easy to change the legal structure if circumstances change
Disadvantages of a sole trader
- unlimited liability means that there is no legal distinction between the sole trader’s assets and the business’ assets
- hard to raise finance
- it can be hard to retain good employees as they aren’t necessarily given a share of the profits
What is the term used to describe the lack of distinction between a sole trader’s assets and their business’ assets?
Unlimited liability
Example of a sole trader
Hairdressers
What is a partnership?
A business owned by two or more partners who have an equal share of the profits and an equal say in the decision making process
Advantages of partnerships
- more people means more experience and more ideas
- easier to raise capital
- partners can specialise in their area of expertise
Disadvantages of partnerships
- unlimited liability
- shared profits
- could be conflict over business decisions
Example of partnership
Solicitors
What are not-for-profit organisations?
A business where profit is reinvested into the business
What objectives do not-for-profit organisations have
Social objectives
What is a social enterprise?
Make profit by selling goods or services but reinvest this profit to support their social aim
Example of a social enterprise
The Big Issue
What is an unincorporated association
Managers get no profit and are legally responsible for all of the organisation’s debt
What is a charity
A business that is eligible for tax relief and can apply for certain grants.
What is a franchise?
A business where the owner (franchisor) gives someone the right to sell its products and use its trademarks.
Advantages of a franchise
- can expand without needing large amounts of investment
- increases brand awareness
- business does not have to worry about some of the risks of becoming a larger corporation
Disadvantages of franchise
- franchisee does not have complete control over how they operate
- if a franchise is run badly, then a single store can negatively affect the brand image
What is a public limited company (PLC)?
A business that has raised capital by selling shares to the public on the Stock Exchange
Advantages of becoming a PLC
- can raise additional capital be selling shares
- PLCs are usually regarded as large and well-established businesses which can raise their reputation
Disadvantages of becoming a PLC
- have to comply with strict accounting and reporting procedures which can be complex and time-consuming
- face greater scrutiny from the public as a result of their size and influence
What is meant by ‘floating on the stock exchange’?
A business sells its shares to investors
Benefits of floating on the stock exchange
- can raise lots of capital
- access long-term investment
- become more well-established and well-known