Forms of Business Organisations

Comprehensive flashcards covering classifications, characteristics, advantages, and disadvantages of private sector business organisations including sole traders, partnerships, and limited companies.

What are the two major categories of business organisations based on the sector in which they operate?

Private sector businesses and public sector businesses.

How are private sector businesses defined?

Business activities or entities that are owned and managed by individuals without government involvement.

Which three forms of private sector businesses are identified in the notes?

Sole traders, partnerships, and limited companies.

What is a sole trader?

A business entity that is started, managed, owned, and controlled by just one person.

What are examples of sole traders given in the lecture?

Unit shops, canteens, hawkers, market stalls, boutique owners, gardeners, freelance photographers, and dog walkers.

What are the major characteristics of a sole trader?

Easy to start (few legal requirements), requires little capital, owner is their own boss, may use family labour, profit/loss belongs to the owner only, direct customer relationships, quick decision making, unlimited liability, difficulty in raising extra capital, and lack of continuity.

What are the advantages of operating as a sole trader?

Easy to start, privacy of accounts (secrets of business kept), little government control, quick decision making, little operational costs, and all profits go to the owner.

What are the advantages of partnerships?

Benefit from several/many business ideas, ability to raise more capital from partners, loss is shared by the partners, work is shared reducing workload, continuity in the business, greater chances of business growth, more personal attention to the business, and flexibility in management.

What are the disadvantages of partnerships?

Profit is shared among partners, certain legal requirements (e.g. when registered as a limited partnership), secrets/information are not kept confidential, slow decision making, no single partner has full and direct control, risk of disownership by a partner, partners may have different business goals, and business continuity is less certain.

What is a limited company?

A type of business in which the liabilities of the owners are confined only to their contributions as capital, meaning their personal property or assets cannot be sold to repay business debts.

Why are owners of limited companies referred to as shareholders?

Because they own shares in the company, where a share is a unit of ownership representing their capital contribution.

What are the two main types of limited companies?

Private limited companies and public limited companies.

What are the defining characteristics of a private limited company regarding ownership and shares?

It is owned by individuals (such as 2–20 people) who are not allowed to sell shares to the public and cannot sell shares on the stock exchange.

What are the key advantages of private limited companies?

They have continuity, losses are shared among shareholders, easy access to skilled employees, professional management, networks/links with other businesses, limited liability, enhanced credibility, easier capital access, and separate legal identity.

What are the disadvantages of private limited companies?

High set-up costs, restricted share sales, large amounts of paperwork to complete, owners may expect dividends, and competitors may find out information that allows other businesses to gain a competitive advantage.