Level 3 Applied Business Studies AO 1b Legal Structures of Businesses

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What is unlimited liability?
Owners are personally liable for all debts. This means that the business owner can be forced to sell their house and other personal possessions to meet their businesses' debts, and may even face bankruptcy.
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What is limited liability?
Provides protection for the owners of a company (normally the shareholders). They only risk the amount they have invested in the business in the event of its failure.
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Why may a business consider changing it's type of ownership?
1. Liability concerns 2. Generation of funding 3. Factors liking to types of ownership to business growth and size
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What is a sole trader?
•A form of business organisation in which an individual owns and operates a business. For example, plumbers, decorators, window cleaners and hairdressers are often sole traders. •One individual •Unlimited liability
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What are the advantages and disadvantages and disadvantages of a sole trader?
Adv: •Easy to establish and operate •The business owner receives all the profits Dis: •The business owner takes all the responsibility •There is no protection from limited liability
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What is a partnership?
•A group of between 2 and 20 people who contribute capital and expertise to an enterprise •Unlimited liability
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What are the advantages and disadvantages of a partnership?
Adv: •Able to share responsibility 4 business •Greater ability to raise capital than sole trader •Can rely on each others' skills and expertise Dis: •No protection from limited liability •Partners may argue/fall out leading to termination of business
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What is a limited liability partnership?
Similar to a normal partnership, but the Limited Liability Act 2000 offers a means by which partnerships could obtain limited liability.
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What are the advantages and disadvantages of a limited liability partnership?
Adv: •Limited liability •LLP responsible for debts that it runs up, not individual partners •Flexibility- partners can contribute as much as they want Dis: •2 members must be 'designated members' & law places extra responsibilities on them •Still not
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What does it mean to have 'company' status (ltd or plc)?
•Business must pay to have its accounts checked yearly by independent accountants (auditors) •Company accounts made public, less privacy as outsiders can see your business's revenue and profit
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How is a company formed and what does this create?
•Formed through the legal process of incorporation •Creates a separate legal identity for the business
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What is a private limited company?
It is a type of company for small and medium-sized operations. It is suitable for family firms and small enterprises involving just a handful of people.
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What are the advantages and disadvantages of a private limited company?
Adv: •Limited liability •Relatively cheap and easy to establish •Business can raise finance by selling shares Dis: •Cannot sell additional shares with approval from existing shareholders •Obliged to publish some financial information
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What is the problem with selling shares in a Private Limited Company?
They cannot advertise that there shares are for sale and so they do not have their share prices quoted on the stock exchange. Must sell them privately.
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Why is having limited liability essential to raising money buy selling shares?
Investors would be far less likely to buy shares because of risk of losing personal possessions. It would mean giving money to others and risking everything.
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Why do people become shareholders of businesses?
•If the business is successful, they will receive lots of dividends. •Shareholders can influence the policy of the business (more shares = more votes)
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What is a public limited company?
•Public limited companies have plc after their names. •Owned by shareholders •No restrictions on the sale of shares
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What are the advantages and disadvantages of a public limited company?
Adv: •Limited liability •Able to raise large sums of money (selling shares on stock exchange) •In media frequently > high public profile > easier to arrange loans Dis: •Has to publish detailed financial information •Vulnerable to takeover by company
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What is the difference between ltd and plc's with regards to the way they can sell shares?
Shares in plcs can be advertised in the media. That's why you can see the share prices of plcs in the newspapers, but not ltds. Most companies BECOME public because they want to advertise their shares to the general public > raise large sums of money
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What is a community interest company?
Companies that do not have profit as their main objective. Social enterprises have social aims and trade to benefit the community or society in general.
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Give some examples of social aims.
•Job creation and training •Providing community services •Fairtrade with developing countries
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What are the advantages and disadvantages of community interest companies?
Adv: •Any money made is put back into the community •Limited liability •There is a lock on assets so assets are protected for community •Business has good reputation Dis: •Public has access to records •Can be difficult to raise finance
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What are the advantages and disadvantages of a cooperative?
Adv: •Limited liability •Equal voting rights regardless of their level of involvement/investment •Not based on profit Dis: •Decisions take a long time to make •No incentive for profit, may not work as hard •Member participation required for success.
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Other cards in this set

Card 2

Front

What is limited liability?

Back

Provides protection for the owners of a company (normally the shareholders). They only risk the amount they have invested in the business in the event of its failure.

Card 3

Front

Why may a business consider changing it's type of ownership?

Back

Preview of the front of card 3

Card 4

Front

What is a sole trader?

Back

Preview of the front of card 4

Card 5

Front

What are the advantages and disadvantages and disadvantages of a sole trader?

Back

Preview of the front of card 5
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