LE2-Company Law-Types of Business Structures

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The main facts you need to know when deciding to set up a business
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Question Answer
What is a sole proprietorship? A one-person business - A business that is fully owned and run by a single owner.
Advantages of being a sole trader? >Full control over decision making. >Get to keep all the profits. >Financial privacy > Flexibility
Disadvantages of being a sole trader? >Unlimited Liabililty >No economies of scale >Limited capital >Lack of continuity
What is a Partnership? A business that is owned by 2-20 people.
Advantages of a partnership? >More effective decision-making. >Increased Capital >Shared workload / Specialisation
Disadvantages of a partnership? >Unlimited Liablility >Shared profits >Lack of continuity >Possible conflict between partners
What is the document that should be drawn up when a partnership is formed? What kind of information should it contain? >The partnership agreement. -It should include Name and function of the company, capital invested, profit ratio, rules for ending a partnership
What is a silent partner? A partner which has invested capital in the business but isn't involved in the running of the business.
What is a limited company? A company, which is a separate legal entity from its owners.
What is an LTD A private limited company: ie, a limited company with shares that cannot be bought by the public.
What is a PLC? A private limited company: ie, a limited company whose shares can be bought by the public because they are traded publicly..
Advantages of an LTD? >Continuity >Limited Liability of its owners >More Control >Easier access to capital
Disadvantages of an LTD? >Shared Profits >Lack of financial privacy >Limit on capital >Set up costs
Advantages of a PLC? >Raising capital is easy because of unlimited number of shareholders >Limited Liability >Continuity
Disadvantages of a PLC? >Threat of hostile takeover! :( >Lack of control >Set up costs >No financial privacy
What are the two documents required for a Limited company? 1. The "Memorandum of Association." >Basically of interest to outsiders eg. name, function, objectives 2. The "Articles of Association." >Basically of interest to shareholders, directors and managers eg. How board meetings will work, how profits will be split, duties of the directors
Examples of Internal sources of finance? >Owner's Investment >Sale of fixed assets and stock >Debt Collection >Retained profits
Examples of External sources of finance. >Hire purchase (small payments until its paid off.) >Issue of shares >Bank loans & overdrafts >Goverment grants and subsidies >Rent leasing >Trade credit (goods now pay later)
What is a stakeholder? Someone with an interest in the business.
Examples of internal stakeholders Managers and employees
Examples of external stakeholders customers, community, competitors, creditors, government
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