THEME 1.5.4 Flashcards
(25 cards)
what are the DIFFERENT FORMS OF BUSINESS?
sole traders
partnership
public limited company
private limited company
what is a sole trader?
An individual who owns and runs their own business. A sole trader has unlimited liability
what is unlimited liability?
when the business and owner are seen as 1 entity so they owner is personally responsible for all debts run up by the business. Therefore, their home and all of their assets might be used to pay off any debts that they may incur and are unable to pay
benefits of being a sole trader
\+ cheap and easy to set up \+keep all profits \+autonomy in decision making \+financial records are private \+motivation is high
benefits of being a sole trader
\+ cheap and easy to set up \+keep all profits \+autonomy in decision making \+financial records are private \+motivation is high
disadvantages of being a sole trader
negative
- unlimited liability
- little investment for capital
- little specialist skill
- difficult to cover when ill
what is a partnership?
A partnership is where two or more people share the costs, risks and responsibilities of being in business together
As with a sole trader, each partner will have unlimited liability
Benefits of partnership
Risks, costs and responsibilities are shared
More scope for specialist skills
Simple and flexible
Financial records remain private
More capital can be raised than as a sole trader
disadvantages of partnership
Unlimited liability
Arguments can occur with decision making
If a partner dies, resigns or goes bankrupt the partnership is dissolved
Trust becomes a significant element between partners – a written agreement between the partners should be drawn up
what is a limited company?
Limited companies exist in their own right
The owners and the company are separate legal entities
Therefore, the company’s finances are separate from the owner’s personal finances
Shareholders are the owners of limited companies
They have limited liability and are not responsible for the company’s debts
They can only lose the money that they have invested in the business in the form of shares
what is a private limited company?
Have Ltd. after the name
Owned by shareholders who are known to the company, often family and friends
Can only sell shares on to other shareholders i.e. they can not sell them openly on a stock exchange
This means that shares are often sold at a discount to the real value of the shares because the shareholders are ‘locked in’ and either sell at the price that they are offered, or do not sell at all
benefits of private limited company
Limited Liability
Separate legal identity
More flexible than a Plc.
Financial records remain relatively private
More capital can be raised through the sale of shares
disadvantages of private limited company
More complex to set up due to increased legal requirements
Some loss of control as shareholders have voting rights
Unable to sell shares to the public
what is a franchise?
A franchise is the replication of a successful business formula
Franchising occurs when the owner of a business, the franchisor, licenses the use of trademarks and proven business ideas to another party, the franchisee
Each business outlet is owned and operated by the franchisee
However, the franchisor retains control over the way in which products and services are marketed and sold, and controls the quality and standards of the business.
advantages of being a franchise? (franchisor)
Rapid expansion Optimum size Maximum profitability Cheap Investment Motivation – franchisee has own capital tied up in business Economies of scale Buying power Mass advertising
disadvantages of being a franchise? franchisor
Loss of control Have you good systems? Have you a tight contract? Managing growth Enough staff? Enough resources? Litigation A failed franchisee is a court case waiting to happen
benefits of a franchise?
franchisee
Benefits Lower risk Established product Experienced firm Brand awareness Proven operation Assistance At start-up Management Financial Marketing Training
negatives of being a franchisor?
franchisee
Pitfalls
Lack of control
You have to follow the rules
You cannot sell without the franchisor’s permission
You must buy supplies from the franchisor
Higher than expected costs e.g. start-up, royalties, supplies and franchise renewals can be expensive
what is a PLC?
A Plc is a public limited company.
As a business grows it may with to change business form from an Ltd to a Plc
Shares can be sold to the public via a stock exchange
Open to more public scrutiny
Risk of hostile takeovers i.e. if anyone can obtain 51% of shares in the company
The process of becoming a Plc is called floatation
what do you need to be a plc?
Must have a minimum of two shareholders and have issued at least £50 000 of shares to the public before they can trade
advantages of being a plc?
Limited Liability
Separate legal identity
More capital can be raised through the sale of shares
disadvantages of being a plc?
Lack of privacy as financial performance is available for all to view
More complex to set up due to increased legal requirements and ongoing administrative costs
Some loss of control as shareholders have voting rights
Risk of hostile takeovers
what is a social enterprise?
a business that is not for profit but instead for a social or ethical objective.
what is a lifestyle business
Life style business are when entrepreneurs run a business to suit and meet the needs of their own life styles e.g. parents working and bringing up a family or supporting hobbies
Objectives are likely to be based around profit satisficing, independence and work life balance
