planning a business and raising finance: forms of businesses and liability

articles of association

a document that provides details of the internal running of a limited company

certificate of incorporation

a document that declares a business is allowed to trade as a limited company

cooperatives

organisations owned by their members who have equal voting rights

deed of partnership

a binding legal document that states the formal rights of partners

franchise

a business model in which a business (franchisor) allows another operatore(franchisee) to trade under their name

lifestyle business

a business that aims to make enough money and provide flexibility needed to support a particular lifestyle for the owner

limited company

a business organisation that has a separate legal identity from its owners

limited liability

a legal status which means that is business owner is only liable for the orignal amount of money invested in the business

limited partnership

where some partners contribute capital and get a share of profit but dont run the business at least 1 partner needs to have unlimited liability

memorandum of association

a document that sets out the constituition and states the key esternal details about a limited company

mutual organisation

businesses owned by their customers not shareholders

e.g a group of organisations need a material so they form a business that produces that material and they buy it from the business they own

online businesses

businesses that use global communications infrastructure of the internet as a trading base

partnership

a business organisation owned by 2-20 people

primary sector

production involving the extraction of raw materials from the earth

secondary sector

production involving converting raw materials into finished and semi finished goods sl

sleeping partner

a partner that contributes capital an enjoys profit but takes no active role in running the business

social enterprise

a business that trades with the objective of imrpoving human or environmental wellbeing charities

sole trader/proprietor

a business that has a single owner

tertiary sector

the production of services in the economy

unlimited liability

the owner is personally llible/responsible for all business debts because they have the same legal identity

feature of a sole trader

• unlimited liability

• has one owner and can employ any number of people

advantages and disadvantages of a sole trader

advantages:

• complete control over the business

• easy and cheap tax arrangements

• all profits go to the owner

disadvantages:

• licence needed

• resposible for all debts

• limited access to finance and capital

features of partnership

a business owned by 2-20 people where a deed of partneship is signed and describes the formal rights of the partner

advantages and disadvantages of partnerships

advantages:

• no legal requirements

• partners have a wider range of skills that are specialised

• more capital

• no financial information needs to be uploaded

disadvantages

• unlimited liability

• shared profit

• partners create legal obligations

• limited growth potential

private limited companies

• separate legal identity from its owners

• can sell shares but consent of the other shareholders/owners needed

• corporate tax is paid

advantages of A PRIVATE limited company

advantages:

• have limited liability

• capital raised by issuing shares

• no chances of take-over

• owners have tax advantages

• higher status

disadvantages of A PRIVATE limited company

• they must publish financial information

• the setting up cost needs to be met

• time consuming to transfer shares

• cannot raise large amounts of money

• profit must be shared between members

franchising explanation

• licence to make a product that is tried and tested in the market

• a recognised brand name that consumers trust

• start up package (advice + equipment)

• provide raw materials

• provide marketing support

• on going training

• cheaper prices on raw materials and services

fees required in franchising

• initial start fee

• percentage of all sales go to the franchisor

advantages of franchising to the franchisee

• low risk

• financial support

• known set up costs

• national marketing campaigns

disadvantages of franchising to the franchisee

• shared profit

• lack of independance

• expensive

• strict opperating rules

advantages of franchising to the franchisor

• fast market growth

• cheaper

• less risk

• more motivated

disadvantages of franchising to the franchisor

• shared profit

• damage brand reputation

• may get supplies elsewher e

• increased cost of support

social enterprises

• cooperatives

• worker cooperative

• mutual organisations

• charities

lifestyle business features

• one owner

• nature of the business is aligned with the owners interests

• less stress

• home based

• simalar to a sole trader

• alternative to retiremet

  e.g:plumbers,electricians, consultants

online business features

• uses the internet

• payment collected electronically

• no formal prcedures or legal requirements

• low set up costs

• no business premise needed

advantages of growth to public limited companies

• limited liability

• large amounts of money can be raised through selling shares

• low production costs → economies of scale

• dominate the market and creat barriers to entry

disadvantages of growth to public limited companies

• high set up costs

• anyone can buy shares → leads to take over

• all financial information needs to be published

• less customer satisfaction

• increased legislation + company acts that take up time

• divorces of ownership when the shareholders cannot exert enough pressure on the owners

stock market flotation

the process of a company making shares available to the public for the first time using a propectus and advertisements

prospectus

• brief history of the business

• list of directors

• outline of money raised

• future financial strategy of the company

• historic accounts

• possible risks

• information on how to buy shares

limitations of going public

• lawyers need to be hired

• prospectus needs to be widely available

• large investment in the bank needed

• advertising and administrative expenss

unlimited liability

a legal status which means that the owner is responsible for all business debts usually in unincorporated businesses

advantages of unlimited liability

• easier to raise finance because it can be repaid if it defaults

• percieved as more trustworthy by banks and investors because personal assets are at risks

• attract more investors

• keep all profits

• less taxes

disadvantages of unlimited liability

• personal possesions get sold if the business defaults

• liable for any unlawful acts

• additional financial reports

• difficult to attract shareholders

finance appropiriete for unlimited liability

• personal savings

• retained profit

• mortgage

• unsecured bank loans

• crowd funding

• grants

• overdrafts

limited liability

where the owner is only liable for the original amount of money they invested usually in incorporated businesses

advantages of limited iability

• a financial liability is limited

• can not be forced legally to sell assets to meet business debts

• easier to raise finance

• less taxes

• Shareholders can sell shares

finance appropriate for limited liability

share capital

debentures

retained profit

venture capitalists

business angels