forms of business organisation Flashcards
what is an unincorporated business
the owner is the business and has unlimited liability (sole trader, partnership)
what is incorporated business
there is a legal difference between business and owners with limited liability (private/public limited company)
what is a sole trader
individual who is sole owner of business they are personally liable for all debts of business
what are advantages of being a sole trader
low start up costs - few legal processes can begin trading almost immediately
profits - owner keeps all profits
have all the control over business make all decisions
disadvantages of being a sole trader
unlimited liability - if business occurs large debt owner is responsible
raising capital - banks reluctant to lend
very competitive - forced to charge higher prices as they are a small business no EOS
what is a partnership
between 2-20 people join together sharing the responsibility of running the business
what is deed of partnership
sets out the roles and input of each partner as-well as how profits are shared and how much each partner contributes both financially and labour
what are sleeping partners
business partners who put their money into the partnership but have no active role in business
what might cause disputes in a partnership
not agreeing on decisions
share profits
wages
advantages of partnership
low start up costs
profits divided equally
lots of experience
raising capital easier due to more partners
disadvantages of partnership
unlimited liability
loss of authority - partners have to consult each other
lack of continuity - business can dissolve
what type of tax does sole traders and partnerships pay
income tax
what two documents are required to set up as a limited company
memorandum of association and articles of association
what is the memorandum of association
document containing company name, what the business does and details of shareholders
what is the articles of association
document must contain list of directors and other powers, distribution of shares
what is a private limited company
company where sale of shares is restricted
owned and ran by shareholders (friends and family)
what are advantages of LTD (private)
limited liability - not personally reliable for debts
continuity - not impacted by death of shareholders
control - small number of shareholders means greater control
disadvantages of LTD (private)
lack of privacy - required to submit financial statements
set up costs - time consuming and costly
can’t sell shares to public
what is a public limited company (plc)
usually a large well known business which is owned by shareholders and ran by directors/shareholders
what are the advantages of a public limited company
raising capital
limited liability
continuity
disadvantages of plc
set up costs
lack of privacy
threat of takeover
what type of tax do plc and ltd pay
corporation tax
what is a franchise
agreement between two parties giving one the rights to market a product using their trademark in return for royalties
advantages of franchisor
growth opportunities - business expands quicker
profits automatically increase with these franchise
minimal administration work
