Lesson 2 Flashcards
(34 cards)
What is a sole trader?
A sole trader is the exclusive owner of a business who has full control over its operations.
What are the advantages of being a sole trader?
- Full control over decision-making
- Easy and inexpensive to set up
- Retain all profits
What are the disadvantages of being a sole trader?
- Unlimited liability for debts
- Limited access to finance
- Heavy workload
What is a partnership?
A partnership is when two or more people form a business together with the aim of making a profit.
What are the three types of partnerships?
- Ordinary partnership
- Limited partnership
- Limited liability partnership (LLP)
What is an ordinary partnership?
A partnership where all partners have equal authority, share management responsibilities, and are jointly and severally liable for debts.
What is a limited liability partnership (LLP)?
An incorporated entity with a separate legal identity from its partners, who have limited liability for business debts.
What are the advantages of a partnership?
- Shared workload and responsibilities
- More capital available than a sole trader
- Easier decision-making compared to larger companies
What are the disadvantages of a partnership?
- Shared profits
- Potential for disagreements
- Unlimited liability (except in LLPs)
What is a cooperative?
A democratically run organisation that is owned and operated by its members for mutual benefit.
What are the core values of a cooperative?
- Honesty
- Openness
- Democracy
- Care for others
- Social responsibility
What is a limited company?
A business with a separate legal identity from its owners and shareholders.
What are the two main types of limited companies?
- Private limited company (LTD)
- Public limited company (PLC)
What are the characteristics of a private limited company (LTD)?
- Can be privately owned by one director
- Shares not publicly traded
- Pays Corporation Tax on profits
What are the characteristics of a public limited company (PLC)?
- Must have at least two directors
- Can offer shares to the general public
- Managed by a CEO and Board of Directors
What is a state business?
A public sector organisation that implements government policy, such as the Environment Agency or Forestry Commission.
What are the advantages of a limited company?
- Limited liability for owners and shareholders
- Easier to raise capital through share sales
- Separate legal identity
What are the disadvantages of a limited company?
- More legal requirements and regulations
- Must file financial accounts
- Potential loss of control if shares are sold
What are the key features of a sole trader business?
- Owned and controlled by one person
- Unlimited liability
- Simple to set up and operate
What are the differences between a sole trader and a partnership?
- Sole trader is owned by one person; partnership has two or more owners
- Sole traders have full control; partnerships share decision-making
- Partnerships require a legal agreement
What are the key responsibilities of partners in a partnership?
- Contribute capital to the business
- Share profits and losses
- Manage the business operations
How is a partnership formed?
- At least two people agree to form a business
- A nominated partner registers the business with HMRC
- All partners register for Self Assessment
- A written partnership agreement is created
What are the benefits of a limited liability partnership (LLP)?
- Partners are not responsible for business debts
- Individual taxation rather than corporate tax
- Legal protection for personal assets
What are the disadvantages of a limited liability partnership (LLP)?
- Must be registered with Companies House
- More complex to set up than an ordinary partnership
- Requires financial records to be filed