choosing the right legal structure

HideShow resource information
  • Created by: amy
  • Created on: 17-05-13 09:11

key terms

  • UNINCORPORATED BUSINESS- there is no legal distinction between the owner and the business e.g. sole traders and partnerships
  • INCORPORATED BUSINESS- there is a clear legal distinction between the owner and the business e.g. private limited companies and public limited companies
  • UNLIMITED LIABILITY- where the owners of the business are legally responsible for the debts of the business
  • LIMITED LIABILITY- where the liability of the owner is legally limited to the value of their share ownership
  • SOLE TRADER- a business owned by one person
  • PARTNERSHIP- groups of between 2-20 people who form a business for the purpose of making profit
  • PRIVATE LIMITED COMPANY- a small to medium-sized business that is owned by shareholders
  • PUBLIC LIMITED COMPANY- a large business that must have a minimum of £50,000 in share capital and for which shares are freely available to the public
1 of 9

unlimited and limited liability

Unlimited Liabiltity -associated with businesses that are unincorporated (sole traders, partnerships..) -debts of the business are also the debts of the owner -when a sole trader or partnership business fails its called bankruptcy

Limited Liability

-associated with companies e.g. Plc's and Ltd's. they are incorporated types of businesses.

-owners are classified as being seperate from the business therefore the debts of the business are not the personal responsibility of the owners. personal posessions are not at risk...

-when a private limited or public limited company fails it enters liquidation

2 of 9

Sole Traders

Positives

  • financial affairs remain private
  • owners makes all decisions
  • keep all the profits
  • easy and cheap to set-up

Negatives

  • limited capital for growth
  • limited skills
  • unlimited liability
  • need to work long hours
3 of 9

Partnerships

Positivies

  • financial affairs remain private
  • greater freedom for holidays etc.
  • risks and costs are now shared
  • greater access to skills and capital

Negatives

  • risk of arguments
  • profits are shared
  • unlimited liability
  • partnership ends if a partnet leaves/dies
4 of 9

Private Limited Companies (Ltd)

Positives

  • Limited Liability
  • Often run by family and friends who can offer valued input
  • Continuity of the business should a shareholder leave
  • Can sell shares to raise capital

Negatives

  • There is a need for some financial disclosure
  • Shares cannot be sold to the general public
  • Profits are share between the shareholders via dividends
  • Lots of directors

Banks and other financial institutions will view Ltd's and Plc's as carrying lower levels of risk and therefore they are more likely to want to invest.

5 of 9

Public Limited Companies

  • sells shares to the general public which are traded upon the Stock Exchange
  • Must have a share capital in excess of £50,000
  • disclose their financial records and accounts

The floatation process for becoming a Plc is a long and expensive one which is why only large businesses seek to apply.

Owners of a Plc need to accept that they will now lose much of their former control as they are answerable to numerous shareholders.

6 of 9

Public Limited Companies

  • sells shares to the general public which are traded upon the Stock Exchange
  • Must have a share capital in excess of £50,000
  • disclose their financial records and accounts

The floatation process for becoming a Plc is a long and expensive one which is why only large businesses seek to apply.

Owners of a Plc need to accept that they will now lose much of their former control as they are answerable to numerous shareholders.

7 of 9

Not-for-Profit Organisations

An organisation with objectives other than the maximisation of profits! (charities, voluntary organisations..)

They often have social, environmental, cultural or ethical concerns...

Key Characteristics

  • They are value and not profit driven
  • They have an appointed governing body
  • They are non-governmental
  • They have volunteer and paid staff
8 of 9

Factors influencing the choice of legal structure

  • Their objectives e.g. profit or values
  • The need for financial investment
  • The size of the business
  • The level of risk the owners will accept
  • The degree of control wanted by the owner(s)
9 of 9

Comments

No comments have yet been made

Similar Business Studies resources:

See all Business Studies resources »