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Business 1.2 - Business ownership (Companies (What is it? (A business that…
Business 1.2 - Business ownership
Business ownership
What type of business they will have in the eyes of the law
Sole trader
What is it?
Owned and managed by one person
Easy, as you do not need to register with the government or fill in lots of forms
Although they are owned and managed by one person, they may employ other staff to help
Advantages
Quick and easy to set up
Make all the decisions for yourself, so decision-making is quick and everything would be done the way you want
Keep all the profits for yourself, so you do not have to share any rewards with anyone else
Disadvantages
Can be quite stressful on your won, as there is a lot of pressure
Needs to be able to handle all aspects of the business; finance, marketing and running the business itself
Unlimited liability, so if the business goes into debt, you can lose everything you own
Lots of work, so if you are ill the whole business would come to a standstill
If the sole trader dies, the business ends as well
It would be difficult to raise money to get the business going, so they would have to rely on their own finances or family and friends
Likely to be small and would not have much power, therefore there may be higher costs and lower profits
Partnership
What is it?
1890 Partnership Act states that a partnership is created when two or more people set up in a business to pursue a common purpose
Usually allowed a maximum of 20 partners
Deed of Partnership
A legal document that sets out the rules of the partnership
How to divide up profits
How decisions are made (voting rights)
How to value the business if someone wants to leave
How to decide whether someone else can join
Advantages
Share workload
More sources of finance than a sole trader
Share skills
Disadvantages
May disagree with other partners
Unlimited liability
Liable for the actions of the other partners and share profits
Companies
What is it?
A business that has its own legal idenitity
Can own items, own money, sue and be sued
Owned by its investors (shareholders)
Ordinary shares = one vote for every share each shareholder owns
Advantages
Limited liability
Better status in the eyes of some customers
Continues after the death of the founders
Can bring in investors
Disadvantages
Have to register
Have to disclose information on sales and profits
Have to have accounts independently checked
If there are other investors, the original founder is not in full control of the business
Company types
Private limited company (ltd)
Cannot publicly advertise its shares for sale
Often owned by family members
Possible to place restrictions on whom shares can be sold to
Public limited company (plc)
Can advertise its shares
Can be listed on the Stock Exchange
Must have a share capital of over £50,000
Not possible to place restrictions on whom the shares are sold to
Flotation: occurs when a private limited company decides to become a public limited company
Not-for-profit organisations
Set up to achieve objectives other than profit
Often has social objectives - to help society