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Flashcards in Legal Structure Deck (24):

What are the 2 sectors businesses are divided into

Public sector
Private sector


Characteristics or public sector businesses

•Organisations that are owned by the public

•Controlled by the government

•Not run for profit

•Usually services

•Example: hospital, school, police etc.


Characteristics of private sector businesses

•Organisations that are privately owned

•Controlled by private individuals or groups

•Usually run for profit

•A high percentage of businesses are
in the private sector

•Example: Restaurants, supermarkets,
shops etc.


What are the 6 sections of the private sector

Sole trader
Private limited company
Public limited company


Sole trader

•Usually a small business within the private sector
•Owned by one person
Eg. •Plumbers, window cleaners, local shops, electricians etc.
. Unincorporated


Characteristics of a sole trader

What is a sole trader?
•Usually a small business within the private sector
•Owned by one person
•Controlled by the owner
•Managed by the owner
•Unlimited liability
•Finance is raised through personal savings, borrowing from friends and family or a bank loan
•All of the profit goes to the owner


Unlimited liability

• the owner is responsible for all of the debts of the business

•This means that if the business loses money, then the owner must pay the debts with their personal wealth



•Usually a small business within the private sector
•has between 2 and 20 owners
•Examples: doctors, dentists, accountants


Characteristics of a partnership

•Owned and managed by the partners
•Finance is raised by the partners through savings and borrowing
•All of the profit goes to the partners


Deed of partnership

•Legal contract between the partners
•States £ that each of them get
•States £ that each of them invest
•What they have to do within the business
•Silent partners


Limited company

.2 types – public and private

•These are larger businesses which are more expensive to set up.


Key features of a limited company

•Owned by shareholders
•Controlled by a Board of Directors
•Managed by appointed Managers
•Finance is raised through selling shares and borrowing from banks
•Profits go to shareholders (dividends)
•Limited liability


Limited liability

•Shareholders only lose the amount of money that they have invested in the company (shares)
•Personal possessions are not at risk



•Incorporated – This creates a legal entity, something that exists as far as the law is concerned.

•For example – if J. Smith is a sole trader and the business accumulates debts, or is sued by a customer, then it is J. Smith who will appear in court.

•If the business is J. Smith Ltd then it is the business that appears in court.



•People who invest money in a company
•They buy shares in and become part owners of the company
•They get a share of the profits each year called a dividend
•The amount of dividend depends on how well the company is doing and how many shares they have


Private limited company

•Has the letters Ltd after its name.
•Shares can only be sold privately.
•This means that you must be invited to become shareholders.


Public limited company

•Has the letters plc. after its name.
•Shares are bought and sold on the Stock Market.
•This means that they are available to the public and anyone can buy shares.


Advantages of a private limited company

. You can raise large sums of money.
. Limited Liability.
. You can choose who you want to be your shareholders.


Disadvantages of a private limited company

. The people you sell your shares to may not be the wealthiest.
. You often sell to friends and family, so if the business does not do well you could have problems.


Advantages of a public limited business

. You can raise large sums of money.
. Limited Liability.
. Anyone can buy your shares, so you can possibly make more money.


Disadvantages of a public limited company

. Controlled by people you might not know.
. They can sell their shares at any time.


The 2 types of co operatives

. Worker owned
. Customer owned (retail)


Advantages of co operatives

. United cause for the workers (or customers) than the profit of shareholders.
. Workers at John Lewis can earn up to 20% of salary in bonus.
. Co-op focusses on ethical trading and customers get dividends.


Disadvantages of co operatives

One vote per member can mean a long drawn out process.
Raising finance can be more difficult as banks reluctant to lend (profit not main objective)
May not lead to profit in the long run.