The options for start-up and small businesses

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Olivia !

Cards (47)

Limited liability means that the business owner or owners are only responsible for business debts up to the value of their financial investment in the business
A creditor can only take assets or finances belonging to the company in cases of limited liability
Limited liability only applies to certain types of business, such as private limited companies
Unlimited liability means that the business owner or owners are personally responsible for all of the debts of the business, no matter what the value
The main difference between unlimited and limited liability is the level of risk that a business is willing to take
Options for setting up a new or small business depend on factors like the business size, number of owners, and the level of risk owners are willing to take
Limited liability in a business means the owner is only responsible for business debts up to the value of their financial investment in the business, providing a layer of protection for business owners
Example of limited liability: Karim invested £15,000 in a plumbing business and owns 100% of the shares. If the business went £50,000 into debt, Karim would only lose his original £15,000 investment, with his other personal finances and possessions protected
A limited liability business has its own legal identity, meaning its owners are not personally responsible for its debts
Example of unlimited liability: Sarah, a sole trader, initially invested £10,000 in a corner shop. If the business went into £60,000 of debt, Sarah would be personally responsible for the entire debt, having to use her personal savings and possessions to pay it off
A sole trader is a business owned and run by one person, who may have employees working for them, common in start-ups or small businesses like photographers, electricians, and bloggers
Sole traders have unlimited liability, meaning the owner is personally responsible for the debts of the business and pays income tax on their earnings
Advantages of sole trading:
Quick and easy setup
Owner has a lot of control over the business and its money
Opportunity to be one's own boss and make all business decisions
Low set-up costs
Disadvantages of sole trading:
Risk of unlimited liability
Involves long work hours and stressful conditions
High level of responsibility for the owner
Owner often performs many different roles in the business
Partnerships are a type of business with 2 or more owners who set up and run the business together, often found in professional services like lawyers or doctors
In a partnership, owners agree on a set of rules outlined in a deed of partnership, specifying profit allocation, ownership percentages, roles, responsibilities, and debt obligations
Partnerships can have limited liability, separating owners from the legal entity of the business, with advantages like shared decision-making and responsibility for debts, but disadvantages such as long work hours and the risk of unlimited liability
A private limited company has limited liability, where the business owner or owners are only responsible for business debts up to the value of their financial investment in the business
Private limited companies pay corporation tax, which is a tax on the profits of a business
Advantages of a private limited company:
Owners have limited liability
Individuals have the opportunity to be their own boss
New shareholders need to be invited, protecting the business from outside influence
Shares in the business can be sold to raise money
Disadvantages of a private limited company:
More paperwork is often required
In some instances, other people can view the business’s financial information
Setting up can be time-consuming and may require outside professional help to manage finances
A franchise is a business that gives the right to another person or business to sell goods or services using its name by providing a license
To become part of a franchise, a new business must pay a fee and in return, it gets to join the franchise and benefit from using its name, products, training, marketing, and equipment
Key terms related to franchises:
Franchise: the right given by one business to another to sell goods using its name
Franchisee: a business that agrees to manufacture, distribute, or sell branded products under the license of a franchisor
Franchisor: a business that gives franchisees the right to manufacture, distribute, or sell its branded products in return for a fixed sum of money or royalty payment
Advantages of setting up a franchise:
Access to free training and marketing
Part of an established business
Easier to make money
Lower risk for a new entrepreneur than setting up a new business
Disadvantages of setting up a franchise:
The franchisee has to pay a percentage of its profits to the franchisor (royalties)
It can be expensive to set up
The franchisee cannot make individual business decisions without consulting the franchisor
Local competition from other franchises can arise, causing competition for customers
Options for setting up a new or small business depend on factors like the business size, number of owners, and the level of risk owners are willing to take
Limited liability in a business means the owner is only responsible for business debts up to the value of their financial investment in the business, providing a layer of protection for business owners
Example of limited liability: Karim invested £15,000 in a plumbing business and owns 100% of the shares; if the business went £50,000 into debt, Karim would only lose his original £15,000 investment, with his other personal finances and possessions protected
A limited liability business has its own legal identity, meaning its owners are not personally responsible for its debts
Example of unlimited liability: Sarah, a sole trader, initially invested £10,000 in a corner shop; if the business went into £60,000 of debt, Sarah would be personally responsible for the entire debt, having to use her personal savings and possessions to pay it off
A sole trader is a business owned and run by one person, who may have employees working for them, common in start-ups or small businesses like photographers, electricians, and bloggers
Sole traders have unlimited liability, meaning the owner is personally responsible for all the debts of the business, and they pay income tax on their earnings
Advantages of sole trading:
Quick and easy to set up
Business owner has a lot of control over the business and its money
Individuals have the opportunity to be their own boss and make all business decisions
Low set-up costs
Disadvantages of sole trading:
Risk of unlimited liability
Involves long work hours and stressful conditions
High level of responsibility for the owner
Owner often performs many different roles in the business
Partnerships are a type of business with 2 or more owners who set up and run the business together, often found in professional services like lawyers or doctors
In a partnership, owners agree on a set of rules outlined in a deed of partnership, specifying profit allocation, ownership percentages, roles, responsibilities, and debt obligations
Partnerships can have limited liability, separating owners from the legal entity of the business, with advantages like quick setup, shared decision-making, and shared debt responsibility, but disadvantages such as long work hours, potential conflicts, and the risk of unlimited liability
A private limited company (Ltd) can be a small or large business with limited liability, where owners are only responsible for business debts up to the value of their financial investment in the business
Private limited companies pay corporation tax, which is a tax on the profits of a business