Business Structures and Shareholders

These flashcards cover key concepts related to business structures, the role of shareholders, and the implications of liability in various types of businesses.

What are the reasons for choosing different forms of business?

Choosing a business form is influenced by factors such as liability, taxation, and management structure.

What is the role of shareholders in a business?

Shareholders own shares in a company, representing a claim on assets and earnings, and influence decisions through voting rights.

How do changes in share price affect a business and its stakeholders?

Rising share prices reflect investor confidence and enhance capital-raising ability; declining prices may indicate poor performance impacting investment and employee morale.

What are the key differences between unincorporated and incorporated businesses?

Unincorporated businesses (like sole traders) have no separate legal identity and incur unlimited liability, while incorporated businesses (like corporations) have a distinct legal identity and offer limited liability.

How does unlimited liability impact sole traders and partnerships?

Unlimited liability exposes sole traders and partners to personal asset risk if the business fails, as they are fully responsible for business debts.

What is limited liability and why is it significant for shareholders in incorporated businesses?

Limited liability protects shareholders from being personally responsible for company debts, limiting their risk to the amount invested.

What are the advantages of being a sole trader?

Sole traders can keep all profits, make quick decisions, enjoy complete control, and keep financial accounts private.

How does unlimited liability affect a sole trader?

Sole traders are personally responsible for all business debts, risking personal assets like homes or savings if the business fails.

What challenges do sole traders face in decision-making and workload management?

Sole traders struggle with uncertainty and lack of guidance, leading to poor decisions and bear the entire workload, which can result in burnout.

What is the process of incorporating a business?

Incorporating involves registering the business as a company at Companies House, creating a legal separation between the business and its owners.