Business Ownership Flashcards
All 22 cards in this deck
What is a sole trader?
A business owned and run by one person, who may employ others but is the only owner.
What is a deed of partnership?
A document signed by all owners setting out the terms and obligations they must follow, including how profits are shared and who is responsible for debts.
Give two benefits to an entrepreneur of operating as a sole trader.
Easy and quick to set up with low start-up costs; the owner is in control of the business and keeps any profit made.
Give two drawbacks of operating as a sole trader.
The owner has unlimited liability, and long working hours and high stress are common as one person performs multiple roles.
Give two benefits of operating as a partnership rather than as a sole trader.
Partners share the workload and bring extra skills and experience; more capital is available because several owners can invest.
What is a private limited company (ltd)?
A company owned by shareholders whose shares cannot be advertised or sold to the general public.
What is a public limited company (plc)?
A company owned by shareholders that can issue shares to the general public, usually on the stock exchange, and has 'plc' after its name.
How are profits distributed to the shareholders of a limited company?
As dividends, a share of profit paid to shareholders.
Give two benefits of operating as a private limited company (ltd).
Shareholders have limited liability, and capital can be raised by selling shares to family, friends and invited investors.
Give two drawbacks of operating as a public limited company (plc).
Profits must be shared with many shareholders as dividends, and the original owners can lose control as anyone can buy shares.
What is a not-for-profit organisation?
A business that aims to provide a public service or help people rather than make profit for owners, reinvesting any surplus.
What is a charity?
A not-for-profit organisation that raises money for good causes or helps people, animals and the environment.
What is a social enterprise?
A not-for-profit organisation that sells products or services like a traditional business but uses its profits to benefit society.
How are charities mainly funded?
Through donations, plus grants and tax relief they are eligible for.
What is a grant as a source of funding for a not-for-profit organisation?
Money given, usually by the government or lottery fund, that does not have to be repaid.
True or false? A not-for-profit organisation does not need to cover its costs.
False. It must generate enough income to cover its costs; it simply reinvests any surplus rather than paying owners.
What is unlimited liability?
The business owner is personally responsible for all debts of the business, regardless of the amount owed.
Which legal structures have limited liability and which have unlimited liability?
Private limited companies (ltd) and public limited companies (plc) have limited liability; sole traders and partnerships have unlimited liability.
State one benefit to shareholders of limited liability.
Their personal possessions are not at risk — only the amount of their investment can be lost.
What are the steps to recommend a legal structure for a business?
e.g. a sole trader deciding whether to take on a partner
- State the structure and one benefit for this business: a partner shares the workload and brings new skills.
- Give one drawback: profits must be shared, which may cause resentment.
- Judge using the context: if the partner invests no capital but growth is high, staying a sole trader and employing someone may be better.
Why might a large established business change its structure to a public limited company (plc)?
It can issue shares to the public to raise large amounts of capital for growth, and shareholders keep limited liability.
True or false? A partnership must always share profits equally between the partners.
False. Profit allocation is set out in the deed of partnership and can be unequal.