1.3 Business Ownership Flashcards

All 25 cards in this deck

What is a partnership?

A business owned by two or more people who share the profits and usually have unlimited liability; the terms may be set out in a deed of partnership.

Which two of the four main types of business ownership give their owners limited liability?

Private limited companies (ltd) and public limited companies (plc).

True or false? Becoming a plc is usually the best structure for a brand new small start-up.

False. Plc status suits large established businesses; it is costly and risks losing control.

Give two factors an owner should consider when choosing a legal structure for a business.

Any two of: whether they want limited liability; how much finance the business needs; how much control they want to keep; the size of the business.

Give one advantage of a private limited company over a partnership, other than limited liability.

Any one of: the company carries on if a shareholder dies or leaves; banks are usually more willing to lend to it; it can raise capital by selling shares to new shareholders.

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 unlimited liability?

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

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 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.

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.

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 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 public limited company (plc)?

A company whose shares can be bought and sold by the general public on the stock market.

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.

Give one advantage to a growing business of becoming a plc.

Any one of: it can sell shares to the general public, raising large amounts of capital to fund growth; its higher profile and status can make it easier to borrow from banks.

Give one drawback to the original owners of becoming a plc.

Any one of: issuing new shares dilutes their ownership, so they may lose control or face a takeover; flotation is expensive and takes management time.

True or false? An established business can change its type of ownership as it grows.

True. For example, a partnership can become a private limited company.

What is a deed of partnership?

A written agreement between the partners setting out how the partnership will run, such as each partner's role, how much capital each puts in and how profits and losses are shared.

Give one disadvantage of being a sole trader to do with continuity.

If the owner dies or is too ill to work, the business may stop, because there is no one else to run it.

Give one advantage that sole traders and partnerships have over limited companies to do with financial information.

Their financial information is private: they do not have to make their accounts available to the public, so competitors cannot see how they are performing.

What is a dividend?

A payment made to shareholders out of a company's profit, as a reward for investing in it.

Why can dividends cause conflict in a limited company?

Shareholders may want profit paid out to them as dividends, while the directors may want to keep it to pay for expansion.

Why can a private limited company not be taken over without its shareholders agreeing?

Its shares can only be sold with the agreement of the existing shareholders, so an outsider cannot buy control without their consent.