Please enable JavaScript.

Coggle requires JavaScript to display documents.

Chapter 4 - Coggle Diagram

- - - - Cons :
        
        Nobody to discuss business matters with
        
        Does not have the benefit of limited liability as the business does not have a separate legal unit therefore the owner is fully responsible for any debts, having unlimited liability
        
        Hard to find capital as banks are reluctant to lend money to small businesses and the main source of finance is their own savings
        
        Business likely to remain small as capital for expansion is so restricted
        
        Business unlikely to benefit from economies of scale
        
        If owner is ill then may not be anybody to take control of the business
      - Pros :
        
        Few legal regulations for them to worry about
        
        They are their own boss therefore they have complete control
        
        Has the freedom to choose their own holidays, hours of work, prices to be charged and who to employ
        
        Has an incentive to work hard as they are able to keep all the profits after they pay the taxes
        
        Does not need much capital to get the business going
    - - Pros :
        
        Can be setup very easily
        
        More capital can now be invested
        
        Responsibilities of running the business is now shared
        
        Partners are motivated to work as they both benefit from profits
      - Cons :
        
        Partners do not have limited liability so they are responsible for debt
        
        The business is an unincorporated business (a business that does not have a seperate legal identity) and therefore if one of the partners died the partnership would end
        
        Partners could disagree with business decisions
        
        One of the partners could be inefficient or dishonest which makes the other partner suffer
  - - - Private limited companies : Businesses owned by shareholders but they cannot sell shares to the public
        
        Pros :
        
        Shares can be sold to a large number of people which would make raising capital much easier for the business
        
        People who started the company can easily keep control of the company
        
        Shareholders have limited liability which means that if the business fails the shareholders would only lose what they have invested in the business, not being liable for the debts of the business
        
        Cons :
        
        There are significant legal matters which have to be dealt with before the formation of the company
        
        Shares of private limited companies cannot be sold or transferred to anyone else without the agreement of all the shareholders
        
        Accounts of the company is less of a secret than for either a sole trader or a partnership
        
        Cannot offer its shares to the public which means it would not be possible to raise really large sums of capital to invest back into the business
        
        Important documents that need to be sent to the Registrar of Companies
        
        The Article of Association - Contains the rules under which the company would be managed such as the rights and duties of the directors, rules concerning the election of directors and others
        
        Memorandum of Association - Contains very important information about the company and the directors. The official name and addresses of the registered offices of the company must be stated. Objectives must be stated as well as the number of shares bought by each of the directors
      - Public limited companies are businesses owned by shareholders but they can sell shares to the public and their shares are tradeable on the Stock Exchange
        
        Pros :
        
        Limited liability to shareholders therefore they are not responsible for any debts the company may have
        
        They are able to raise massive amounts of capital to invest into the business
        
        No restriction on the buying, selling or transfer of shares
        
        A business trading as a public limited company usually has a high status and banks will be more willing to lend money to these types of businesses
        
        Cons :
        
        Legal formalities of forming such a company are quite complicated and time-consuming
        
        Many more regulations and controls over public limited companies in order to try to protect the interests of the shareholders
        
        Selling shares to the public is expensive as a specialist merchant bank will be asked in order to help the directors with the selling of their shares. These merchants would charge a commition for their services
        
        There is a very real risk that the original owners of the business could be bought out and lose control of the business
        
        Annual General Meeting : A legal requirement for companies where shareholders may attend and vote on who they want to be on the board of directors for the coming year
        
        Dividends are payments made to shareholders from the profits a company makes