Options for Start-ups & Small Businesses Flashcards

All 22 cards in this deck

What is limited liability?

The owner or owners are only responsible for business debts up to the value of their financial investment in the business.

What is unlimited liability?

The owner or owners are personally responsible for all debts of the business, no matter what the value.

Give one implication for an owner of having unlimited liability.

Their personal possessions (e.g. house, car, savings) can be sold to pay the debts of the business.

Give one implication for an owner of having limited liability.

Any debts are the responsibility of the business, so the owners' personal possessions will not have to be sold to pay them.

What is a sole trader?

A business owned and run by one person, who may employ others but has unlimited liability for all business debts.

What is a partnership?

A business owned by two or more people who agree terms in a deed of partnership and typically have unlimited liability.

What is a private limited company (Ltd)?

A business with limited liability whose owners are shareholders who must be invited to buy shares; it registers with Companies House and files annual reports.

What is a deed of partnership?

A document signed by all partners setting out the terms, obligations, profit allocation, ownership percentages and responsibility for debts.

True or false? A sole trader can sell shares to raise finance.

False. Only limited companies can sell shares; a sole trader cannot.

Give one advantage of being a sole trader.

Any one of: quick and easy to set up; low set-up costs; the owner keeps all the profit and makes all decisions.

Give one disadvantage of starting a business as a partnership.

Any one of: there may be disagreements between partners, making decisions difficult; decisions made by one partner affect all partners; all partners are liable for the debts.

Give one advantage of starting a business as a private limited company.

Any one of: the owners have limited liability; the business can sell shares to raise finance for investment.

Give one disadvantage of a private limited company.

Any one of: more paperwork and time to set up; accounts must be filed at Companies House; shareholders may not agree.

Which tax is paid on the profits of a private limited company, and which on a sole trader's earnings?

Corporation tax for the private limited company; income tax for the sole trader.

Give one advantage to an entrepreneur of buying a franchise.

Any one of: support and training from the franchisor; an established, successful brand; national advertising campaigns — all reducing the chance of business failure.

Give one disadvantage to an entrepreneur of buying a franchise.

Any one of: start-up and royalty fees must be paid to the franchisor; ongoing monthly fees raise costs; little freedom to change products or branding.

True or false? A franchisee is free to run the business exactly how they wish.

False. The franchisee must follow the franchisor's rules on branding, products and operations.

Give one disadvantage of being a sole trader.

Any one of: unlimited liability, so personal possessions are at risk; it is harder to raise finance; the owner carries all the workload and decisions alone.

Give one advantage of starting a business as a partnership.

Any one of: partners bring extra skills and experience; risk, workload and decisions are shared; more capital can be put in than by one owner.

What is a franchise?

An arrangement in which one business lets others trade under its brand name and sell its products or services, in return for a fee or a share of their revenue.

What is the difference between a franchisor and a franchisee?

The franchisor owns the brand and sells the right to use it; the franchisee buys that right and runs an outlet under the brand.

What does it mean that a private limited company is a separate legal entity?

In law the company exists apart from its owners, so its debts belong to the company, not to the shareholders personally.