WHAT IS A BUSINESS?: Different Business Forms

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Private-sector Organisations: 

- owned and financed

- run by private individuals

- a large number of these are non-profitable organisations e.g. charities

Public-sector Organisations: 

- state-owned/government organisations

- owned and operated by the government

- provide services e.g. health care, education, police services etc

MOST businesses therefore are in the private sector. The private sector is then split into unincorporated organisations and incorporated organisations. 

Unincorporated organisations: have no distinction in law between the individual owner and the business itself. The identity of the business and owner are the same. 

Incorporated organisations: have a legal identity separate from the owners. They can therefore own assets, owe money and enter into other contracts in their own right.

Unincorporated organisations: (UNLIMITED LIABILITY)

- sole traders

-partnerships

Incorporated organisations: (LIMITED LIABILITY)

- private limited company

- public limited company 

UNLIMITED LIABILITY: is found in UNINCORPORATED organisations and is a situation in which the owners of a business are liable for all the debts that the business may incur. This means there is no distinction in law between the owners and the business. With unlimited liability, if the debts of the business are greater than the personal assets of the owners, the business may be forced into bankruptcy. 

LIMITED LIABILITY: is found in INCORPORATED organisations. If a business with limited liability goes into liquidation because it can't pay its debts - the shareholders have no responsibility for further payments as long as they have fully paid their purchased shares. Their personal assets can't be used to pay the debts of the business. This occurs when the identity of the owners and the business are separate in law (private limited companies and public limited companies). A limited liability is more appealing to shareholders as they know the extent of the risk they face in terms of loss and investment. 

UNINCORPORATED ORGANISATIONS: 

Sole Traders: a business owned by one person. Ther owner may operate on their own or may employ other people. A sole trader usually has little capital for expansion and is heavily reliant on the owner's personal commitment to make the business a success. Sole traders are usually found in the provision of local services e.g. plumbers, newsagents and hairdressers.These have unlimited liability and have no legal separation between the business and the owners.

Advantages:

- easy and cheap to set up

- few legal formalities

- respond quickly to changes in circumstances

- owner takes all profit (good motivation)

- independence and more privacy

Disadvantages:

- unlimited liability

- limited capital for investment and expansion

- difficulties if owner wants to go on holiday or is ill

- limited skills as the owner needs to be a 'jack of all trades'

Partnerships: (not included in AQA spec). These are another form of unincorporated organisation in which two or more people operate for the common goal pf making a profit. These can be ordinary partnerships where partners have unlimited liability, a limited partnership where at least one partner has unlimited liability or a limited liability…

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Bilal04

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this is so helpful because the a level aqa textbook is full of waflle and this narrows it down a lot and is easy to remember and make your own notes, thankyou for making this :)