AQA AS Business Studies - Legal Forms of Business

AQA AS Applied Business Studies Revision

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  • Created on: 03-01-13 09:35

Sole Traders

Sole traders trade in either thier own name or a suitable trading name.

-They have full control of the business and how it is run.

-They earn all of the profits within the business and don't have to share it with anyone.

- It's quick and easy to set up and there is less form filling.

-There are no legal costs like in Partnerships.

- They have Unlimited Liability, so they have full responsibility for debts.
- They have to work long hours to meet all thier deadlines.
- They have limited skills within the business as they are the only ones running it.
- If the sole trader is ill, the business is vunerable as there is no one to cover them.

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Partnerships can have between 2 and 20 partners.

They have to operate according to the partnership agreement which includes;
- The amount of capital made by each partner
- The procedure needed to be taken incase of disputes
- How the profits will be shared

- More partners, bring more capital to the business.
- New skills and expertise are added to the business.
- If one partner is ill, the others can cover them to save the business from becomming vunerable.

They have to share all of the profits.
Partnerships still have unlimited liablity - responsible for all debts.

- Each partner is responsible for the decisions made by other partners even if they had no say in the decisions made.

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Private & Public Limited Companies

There are two kinds of Limited Liability companies;
Ltds - private limited companies
Plcs - public limited companies

- Can't sell thier shares to the public. People within the company own all the shares.
- They don't sell thier shares on the stock exchange.
- They may not be able to sell shares without everyones agreement.
- They are often small family businesses.
- They always end thier name in Ltd.

-They can sell thier shares to the public, but they must issue a prospectus to inform people about the company before they buy.
- Thier share prices can be quoted on the stock exchange.
- They usually start as private companies but go public later to raise more capital.
- They need over £50,000 of share capital.
- They always end thier name in PLC.

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Limited & Unlimited Liability

Unlimited Liability:

- This is when the business and the owner are seen as one in the law.

- The business debts become the personal debts of the owner.

- Sole traders and partnerships can be forced to sell thier personal assets e.g thier house to pay off debts.

Limited Liability:

- The owners are not personally responsible for the debts of the business.

- Private and public limited companies have limited liability.

- The most the shareholders can loose is the money they put into the business.

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