Business revision, Forms of businesses (1.5.4)

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What is a sole trader?
A sole trader is a business which is usually owned and operated by a single person. The finance to operate usually comes from savings, loans and family/friends. The owner is seen as self employed and is taxed on the profit they make.
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What must the owner do in regard to finance?
Keep proper and accurate financial records of all income and outcome. Also they will need to complete a self assessment tax return for HM Revenue and Customs.
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What don't sole traders have to complete/do/publish?
They don't have to publish their business accounts
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What are the advantages of being a sole trader?
The owner keeps all the profits to themselves, The owner makes all the business decisions, Relatively simple to set up and run.
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What are the disadvantages of being a sole trader?
Owner is responsible for all the debts and losses of the business - they have unlimited liability, Owner must take total responsibility for the efficient and effective running of the firm, Owner has limited ability to raise capital for expansion.
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What are partnerships?
This is when a relationship which subsists between persons carrying on business with a common view to profit.
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What is the Partnership or Partnership Agreement?
A legal document detailing, with the agreement of al partners, how the partnership is to operate. In the absence of this deed the provisions of the Partnership Act are enforced.
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How is finance often raised in partnerships?
Often raised by the partners themselves or from private sources or loans.
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How is a partnership similar to a sole trader in terms of employment status etc?
Each partner is classed as self-employed and is taxed on their share of profits. Each partner is responsible for their National insurance contributions and the partnership must keep records of incomes and outcomes.
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What are the advantages of being in a partnership?
Start-up and expansion capital, risks and ideas can be shared between partners. Each partner can specialise in the business tasks for which they're suited to. Can raise capital easier and quicker than sole trader.
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What are the disadvantages of being in a partnership?
Profits must be shared between the partners, Each partner is equally responsible for the debts of the partnership, Decision making can be slow as all partners have to be consulted.
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What is a Private limited company (Ltd)?
A type of privately held small business entity, in which owner liability is limited to their shares, the firm is limited to having 50 or fewer shareholders, and shares are prohibited from being publicly traded.
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What are the advantages of Private Limited Companies?
A less risky investment than sole traders/partnerships as their shareholders are protected by limited liability. Protection of limited liability 8h
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What are the disadvantages of being a Private Limited Company (Ltd)?
They cannot offer shares for sale to the public, only private investors. Some profits are distributed to shareholders and debenture holders-reduces the retained profit. Must file annual accounts with the Registrar of Companies at Companies House.
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What is franchising?
This allows small entrepreneurs to have his/her own business and compete with larger competitors in the market. For instance, McDonalds is a franchisor and there are franchisee stores across the country.
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What are the advantages for franchisors?
Receive a lump sum income from the franchise sale in addition to regular agreed percentage of franchisee profit. The brand of the business becomes widely promoted with the sale of every franchise.
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What are the disadvantages for franchisors?
A degree of loss of control over the operations of the franchisee. Reputation of the business could get damaged if the franchisee does not operate the business to expected standards.
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What are the advantages for the franchisee?
Trades under an established business name. Has access to a network of help and support from the franchisor.
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What are the disadvantages for the franchisee?
Must conform to the image and characteristics of the business. Part of the franchisee's profits must be paid to the franchisor. Can be expensive to initially establish.
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What are not-for-profit businesses?
Businesses that trade in order to benefit the community or the social purpose for which they were set up. Their profit is reinvested in the community.
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What is meant by not-for-profit businesses are usually limited by guarantee?
This means that they do not have share capital but have trustees who are guarantors instead of shareholders.
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Why do some people set up online businesses?
Some people do it in order to both own their own business and have a work-life balance. There are also fewer costs and a greater potential to reach a wider audience.
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What are some main objectives for online entrepreneurs?
Financial comfort - only earn what they need to. Flexibility - Easy to carry on with at home/during a lifestyle. Quality of life - Owner may put more importance on leisure/family time than on being at work.
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What is a Public limited company (plc)?
PLCs tend to be much larger than private limited companies in terms of both size and the amount invested. PLCs is a type of business that also exists in its own right. This means that the finances are separate from the personal finances of shareholdr
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What can PLCs do that public limited companies can't?
They can sell shares on the stock market.
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What are the advantages of being a Public Limited Company (PLC)?
Can obtain very large amounts of capital as their shares are bought and sold on the stock market. They usually dominate the market and have an extensive asset base. They can benefit from economies of scale.
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What are the disadvantages of being a Public Limited Company (PLC)?
Can get too large and impersonal, causing employees to lose their 'identity'. Divorce of ownership by the large body of shareholders and control by the small board of directors. Large hierarchical structure means decision making is slow.
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- carrying on from last question -
Can be subject to hostile takeovers - unwillingly taken over by another company.
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Other cards in this set

Card 2

Front

What must the owner do in regard to finance?

Back

Keep proper and accurate financial records of all income and outcome. Also they will need to complete a self assessment tax return for HM Revenue and Customs.

Card 3

Front

What don't sole traders have to complete/do/publish?

Back

Preview of the front of card 3

Card 4

Front

What are the advantages of being a sole trader?

Back

Preview of the front of card 4

Card 5

Front

What are the disadvantages of being a sole trader?

Back

Preview of the front of card 5
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