1.5.4 Forms of business (not complete)

What are the forms of business?

Sole trader

Partnership

Private limited company

Public limited company

What is liability?

Legal responsibility

What is a form of business?

The ownership structure of a business

What is unlimited liability?

Business owners have full responsibility for the financial position of the business. The owner(s) and business are seen as the same entity

What is limited liability

The business owner(s) have partial responsibility for the financial position of the business. The owner(s) and business are seen as different entities

How many owners are in a sole trader?

1

Does a sole trader have limited or unlimited liability?

Unlimited

What are the pros of a sole trader?

Owner gets all profit

Flexible

Full control over business

What are the cons of a sole trader?

Heavy workload

Constantly working or income falls

Unlimited liability

Need lots of business knowledge

Can’t take on many customers

How many owners are in a partnership?

2-20 legally

Does a partnership have limited or unlimited liability?

Unlimited unless it is made a limited liability partnership

What are the pros of a partnership?

Business can still run when you’re sick/away

More ideas

Less debt to pay each

Can take more customers

What are the cons of a partnership?

Disagreements occur

Share the profit

Can’t make all the decisions

Can’t change company details to suit them

Slower decision making

What else is there to know with a partnership?

Deed of partnership = a legal document that must be written at the start of the business

Who the partners are

Amount of capital each person puts in

Policy if there is a disagreement

Agreement of how to split profit (otherwise it’s split evenly)

How many owners are in a private limited company?

1 minimum

Does a private limited company have limited or unlimited liability?

Limited

What are the pros of a private limited company?

Owner doesn’t have to cover debt

More capital quickly through shares

What are the cons of a private limited company?

Some financial info must be released to the public (overall profits, who the owners are)

Can’t sell as many shares as public

Each shareholder has a vote and is interested in changing the business

Dividends need to be paid

Small fee to make it limited

How many owners does a public limited company have?

1 minimum

Does a public limited company have limited or unlimited liability?

Limited

What are the pros of a public limited company?

Shareholders are interested in getting profit, not changing the business

Able to quickly get a large amount of capital from lots of shares

What are the cons of a public limited company?

Lots to pay in dividends

Needs a minimum issued share capital of £50,000 which £12,500 already paid in shares to switch to public and start stock flotation

Can lose control of decision making (1 share = 1 vote at the Annual General Meeting)

Must release all financial accounts to benefit potential investors

Often founders walk away as business changes

What is the process of a new/existing business registering as a limited company called?

Incorporation

What is bankruptcy?

The legal process initiated when a person/business cannot repay outstanding debts or obligations to stop debt from piling up (an individual declares they have no more available finance)

What is liquidation?

Where a limited liability business closes down often as they have no more available finance