Understanding different business Forms

• What is a sole trader?

  1 person, no separate legal identity
• What is one advantage of being a sole trader?

  Easiest to set up
• What does a sole trader have full control over?

  What happens to profits
• What is a disadvantage of being a sole trader?

  Unlimited liability
• Why is it hard for a sole trader to raise finance?

  Seen as high risk to banks
• What is a challenge a sole trader may face in decision-making?

  Harder to make decisions alone
• What is a private limited company?

  Ownership where shares are restricted
• What is required for shareholders in a private limited company to sell their shares?

  All shareholders need to agree
• What is one advantage of a private limited company?

  Limited liability for shareholders
• How does a private limited company access loans compared to a sole trader?

  Seen as less risky to banks
• What is a disadvantage of a private limited company?

  Upfront fees and paperwork costs
• What must a private limited company do annually regarding their accounts?

  Publish their accounts information
• How does the liability differ between a sole trader and a private limited company?

  Sole traders have unlimited liability, private limited companies have limited liability
• What impact does the legal structure have on decision-making for sole traders compared to private limited companies?

  Sole traders make decisions alone, private limited companies involve multiple shareholders
• What are the advantages and disadvantages of being a sole trader?

  Advantages:

  • Easiest to set up
  • Full control of the business
  • Complete power over profits
  • Easy to change legal structure

  
  

  Disadvantages:

  • Unlimited liability
  • Hard to raise finance
  • Harder to make decisions alone
  • Harder to retain employees
• What are the advantages and disadvantages of a private limited company?

  Advantages:

  • Limited liability
  • Retain control over shares
  • Easier access to finance

  
  

  Disadvantages:

  • Upfront fees and paperwork costs
  • Must publish accounts annually
• What is a Public Limited Company (PLC)?

  Sell shares openly on the stock exchange
• Why do firms often become PLCs?

  To raise finance through shares
• What are the advantages of a PLC?

  • Raise finance through selling shares
  • Easier access to bank capital
  • Shareholders have limited liability
• What are the disadvantages of a PLC?

  • Owners have little control over operations
  • Risk of takeover from share purchases
  • Company accounts must be public
• What do non-profit organizations do with their profits?

  Put the profit back into the company
• What type of non-profit organization allows for tax relief?

  Charities
• What is franchising?

  A business gives rights to sell products
• What does the franchisee pay in a franchising agreement?

  An upfront fee and a percentage of profits
• What are the advantages of franchising?

  • Expansion without large investments
  • Avoidance of diseconomies of scale
  • Increased brand awareness
• What are the disadvantages of franchising?

  • Limited control over franchisee operations
  • Negative impact from a bad franchisee
• Ordinary share capital - amount of finance raised through selling shares
• Market capitalisation - valuing a business through total number of shares x price of one share
• Dividends - Businesses may decide to issue a portion of their profits with shareholders

  Dividends can please shareholders so they done sell shares

  Dividends could also mean profit isn't spent on growing the business which can limit long term growth
• In a PLC , any of the public can purchase shares through the stock market

  In an LTD, shares have to be sold with the permission of all the other shareholders

  Shareholders have the right to attend a Annual General Meeting which is where key decisions are made. The number of shares a person holds is how much influence they have