1.4.1 - Options for start-up and small business'

Define the term limited liability

The business owners are only responsible for business debts, limited to the amount of their financial investment in the company.

Define the term unlimited liability

The owners are fully responsible for all debts owed by the business

What are the implications of limited liability

The owners don’t lose their personal belongings, it encourages shareholders to invest money\

What are the implications of unlimited liability

if the business needs to pay off debts the owner can lose their personal belongings, if business gets into debt, so does the owner

What are the types of business ownerships

sole traders, partnerships, Private limited companies (LTD)

Describe a sole trader

a business owned and run by one person

What are the advantages of a sole trader

Low start up costs, owner keeps all of the profit, owner makes all of the decisions, owner can keep their finances private

What are the disadvantages of a sole trader

Unlimited liability, lack of continuity, lots of responsibility for only one person, skill shortage, shortage of capital

Describe a partnership business

a business owned and run by 2-20 people

What are the advantages of a partnership business

low start up costs, each partner brings a different speciality skill, workload is shared, easier to raise finance, owners can keep their finances private

What are the disadvantages of a partnership business

unlimited liability, have to share profits, shared decision making/control

What is a sleeping partner

partners that provide capital for the business but take no part in the running of the business

describe an private limited company (Ltd)

a business owned by shareholders, where the shares are sold privately to friends and family

What are the advantages of a private limited company

limited liability, finance can be raised by selling shares, there is continuity, owners have control of share sale, higher prestige

What are the disadvantages of an private limited company

No access to stock exchange, has to legally publish its accounts every year, have to have shared profits, higher set up costs

What is franchising

where a business acquires the right to use the name and products of another business

What are the 4 P’s

Promotion, Price, place, product

Describe how the franchisee benefits : promotion

the franchisee doesn’t have to pay for additional advertising as its done by the franchisor

Describe price

if its a known brand, then the franchisee can charge more for the product

describe place

the franchisor can help set up the new business in a good location and can help with research

describe product

the product that is unique to the company will already be well known because of all the advertising the franchisor has done

What are the advantages of franchising to a franchisee

Group advertising on a national basis, market research is done at Head Office level - no need to carry it out themselves, less competition as territories are divided up, well known brand name and reputation is already set up

What are the disadvantages of franchising to a franchisee

Less control over what to sell, have to pay royalties to use the product