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level: Business Legal Structure

Questions and Answers List

level questions: Business Legal Structure

QuestionAnswer
What is the Public and Private Sector in Business?Public Sector are organisations ran by the Government. This includes Hospitals and Schools Private Sector are businesses ran by indivudals, not the government. They still go by the rules however.
Evaluate Sole TradersBusinesses owned by 1 person [can employ others] The owner is called the Sole Proprietor.
Whats good about a Sole Trader-Not many legal regulations to worry about -You are the Boss. You control the Business. -You can have freedom over your holidays, hours of work, prices to be charged and who to employ -You have close connections with customers which leads to responding quickly to the needs and demands. -The profit the business makes, goes to you! This gives motivation to carry on -Your information about the business is kept secret [excluding the Tax Office]
Whats bad about a Sole Trader-You can't discuss your business problems to anyone really -You have Unlimited Liability. Your business and personal accounts are not seperated -Hard to raise money to expand. Also having to rely on savings and profits via the business. Also bank loans -You can't be good at everything! Its quite expensive to get a specialist workers -Small businesses can't exactly take Economies of Scale -If you receive an illness, no one can take over
Whats Unlimited Liability?This is when the owners of the business is connected to the debts of the Business. IF the Business shuts, the debts are going to be against your personal account.
Whats Limited Liability?This is when the debts of a Company does not affect the Shareholders [owners] If it does shut down, the money put in the Company will only be lost. The Company is a 'Separate Legal Entity'
What is a Partnership?A Partnership is when 2-20 people open a Business together. They each have a say to the Business and they share the Profits.
How are Partnerships made?They are easy. Using a Partnership Agreement or Deed of Partnership is a common way. This helps the present and any conflicts about shares of profit [for example]
What does the Partnership Agreement include?-Nature of Partnership -Location of Business -Partnership Name -Capital -Shares of Profits and Losses -Drawings -Duties of Partners -Termination of Partnership -Arbitration [sorts out disputes] -Signature of the Entrepreneurs
Advantages of Partnerships-Quite easy to set-up -More Capital [investment money] brought in. -Multiple Owners can bring new skills and features -Decision making is easier. More brains -Responsibility is shared along with Duties
Dis advantages of Partnerships-Disagreements makes Problems -Capital will eventually be limited, making it harder to expand -No Continuity [someone dies or bankrupts, goodbye business] However it can be reformed -Unlimited Liability [its split to what the Partnerships Agreement says]
What is a Limited Company? How is it formed?-Companies are formed when a Business sets up a separate legal identity -The Company's finance is now not connected to the Personal Wealth of now the Shareholders [Owners] -Shareholders receive a share [percentage] of the profits -The Business is now ran by a Board of Directors. They are made up by people who were chosen by the Shareholders. Shareholders also can be part of the Board of Directors. -The Board of Directors now 'runs' the company for you
Do Companies have Limited Liability?Yes. Since the Company is now a separate legal identity, its Finance is also too separate, meaning personal wealth isn't affected if the Company has Debts.
What are Private Limited Companies?-Private Limited Companies can get funds via investors that are friends and family of the Owners. The shares however, aren't public. -Examples are River Island, Clarks and Wilkinson
Advantages of Private Limited Companies?-Limited Liability -Can sell shares equalling finance -Stable form. Companies can still exist even if the Shareholders change -Previous owners still have control
Disadvantages of Private Limited Companies?-Shareholders need to agree how the profit is divided -Administration costs more then setting up a Sole Trader -Finance is limited to Family and Friends -Not that much privacy. Public can still see some company information -Directors legal duties are stricter
What is a Public Limited Company?-Very complicated and expensive to start up, but has its shares on thje Stock Exchange.
Advantages of a Public Limited Company?-Limited Liability -Large amounts of money can be generated via the Stock Exchange -Stable form. Business can still continue with a change of Shareholders -Firm is more Prestigious
Disadvantages of a Public Limited Company?-Shareholders have to agree who gets what [profits] -Finance limited to the Stock Market Valuation -Public can easily see company Information and accounts -Risk of company being taken over [someone who gets 50% of shares can challenge the Owner] -Gap between Ownership and Control
What factors in choosing the Right suitable legal Structure for a Business?-Size of Business; Sole Traders are the most common start up's , as they're easier and quicker -Type of Business; Skilled jobs like Doctors or Vets usually go into Partnerships. If risks are present, Ltd's [Private Limited Company -Lender Requirements; Banks may want Sole Traders and Partnerships, as they are more confident it will be handed back -Investment protection; Limited Company may be the pathway if you concern mostly about your Personal Wealth -Control; Sole Trader Owners, or Shareholders holding most of the shares has control over the Business -Growth; Plc's allow greater sums of Finance to be raised.