Unit 4: Making the Business Effective

gcse edexcel business

unincorporated business

no distinction in law between individual owner and business itself. identity of business and owner is same

incorporated business

business has legal identity that is separate from individual owners. as a result these organizations can own assets, own money and enter into contracts in their own right

business startups can choose the ownership type they want from the following:

• sole trader

• partnership (incorporated/unincorporated)

• private limited company (LTD)

unlimited liability

business owners are reliable for any business debts and may have to use their own personal belongings to pay them back

limited liability

business has own separate legal identity from owner. if business gets into debt owners don't have to use their own personal belongings to pay it off

limited liability examples

• private limited company (LTD)

• public limited company

• limited liability partnership

• charity

• public sector organizations

unlimited liability examples

• sole trader

• partnership

sole trader:

• key features

• advantages

• disadvantages

• unlimited liability, one person owns and controls, income tax

• finances are kept private, independent, can keep profits

• have to spend own savings, pressure, high risk for banks (high interest rates), unlimited liability, fully responsible

partnership

• key features

• advantages

• disadvantages

• mostly 2-20 owners, national insurance, income tax, deed of partnership, unlimited liability

• increased knowledge, spread liability amongst owners, don’t publish accounts, personal assets are protected

• brings inequity, share profits, slow decision making

private limited company (Ltd)

• key features

• advantages

• disadvantages

• shareholders are invited, memorandum of association, articles of association, limited liability, pay corporation tax

• maintain control, easier to raise finance, limited liability

• accounts are public, shared profits, slow decision making

franchise

• key features

• advantages

• disadvantages

• franchise - business, franchisor - owner of main company, franchisee - buys rights to own business

• fast expansion, franchisee gets help from franchisor

• franchisee can’t sell many products, bad reputation for franchisor if franchisee messes up, expensive royalty fees

public sector

organisations owned/controlled by government

private sector

organisations owned/controlled by private individuals for profit/help others