Topic 1 - The Legal Forms of a Business

This are short and quick revison cards that give you the defintion of each form of ownership, some advantages, disadvatages and a few examples.

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  • Created by: sskxo_
  • Created on: 10-04-16 10:33

1. Sole Trader

- a business that is owned and operated by one person although they can employ members of staff. Examples: small shopkeepers, market-traders, plumbers, electricians and hairdressers.

Advantages:

  • There are not many legal regulations that need to be taken care of when setting up this type of ownership.
  • The owner is entitled to keep all of the profit.
  • The owner can pick their own holidays, breaks and pay.
  • The owner has the ability to be able to create close realtionships with customers.
  • The owner has complete control of the business - full responsibility for meeting capital requirements, running costs and the financial control of the business. 

Disadvantages:

  • There is not somebody who the owner can discuss business matters with.
  • The business has unlimited liability.
  • There is a lack of continuity due to events such as illness or death.
  • There is not a lot of specialist skills and this is due to the business being small.
  • Hard to raise finance because there is no owners to put in capital.
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2. Partnership

-a group or association of two to twenty people who agree to own and run a business together. Examples: lawyers, accountants and doctors.

Advantages:

  • Expenses, responisbility and decision-making is all shared.
  • More capital can be invested into the business.
  • Continuity- partners can cover each others absences.
  • They all have complete control over the business.
  • Each partner offers specialism.

Disadvantages:

  • The partners can disagree with each other.
  • They have unlimited liability.
  • The ownership is an unincorparated business.
  • One or more of the partners could be dishonest and unreliable.
  • The business is limited to twenty partners.
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3. Private Limited Company (LTD)

-a campany in which shareholders (no more than 50) contribute funds to the company in exchange for share (that cannot be sold on the Stock Exchange). Examples: Virgin and Dyson

Advantages:

  • The business has limited liability.
  • It is easier to raise capital because shares can be sold to a large number of people.
  • Retained control - they don't have to sell too many shares
  • Management is shared
  • Amount of specialism is shared
  • There is continuty

Disadvatges:

  • It is expensive to set up
  • Share cannot be sold to the public
  • Less privacy - accounds can be seen by members
  • Shares cannot be sold without agreement from other shareholders.
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4. Public Limited Company

-a company in which an unlimited amount of shareholders contribute funds to the company in exchange for shares (that can be sold on Stock exchange). Example: Tesco, Vodafone and BP.

Advantages:

  • The business has limited liability and is an incorparated business
  • Finance can be raised easily (there are not restrictions to selling on Stock exchange)
  • Continuity - the business will still exist if a partner dies
  • There is a high degree of specialisation 

Disadvantage:

  • The company is vulnerable, as it can be taken over
  • The shareholders must receive some of the profit that is made
  • Annual accounts have to be published
  • Communication and management problems might occur
  • There are a few complicated legal issues that need to be taken care of
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