Types of business organisation.
Define unincorporated business:
Unincorporated businesses are not legally registered as companies (corporations). The two main types are sole traders and partnerships.
Explain any two disadvantages of being a sole trader:
1. Unlimited liability: This means that the sole trader is personally liable for all of their business debts.
2. No continuity : The sole trader and their business are the same, so when the sole trader decides to stop working.
Explain any 2 benefits to the franchisor?
1. The franchisee will run the franchise on behalf of the franchisor, which reduces the time spent on day-to day-issues by the franchisor.
2. The franchisor receives yearly royalties from the franchisee.
Explain any three characteristics of a sole trader:
1. Business that are easy to setup and require little startup finance are often sole traders.
2. A sole trader is the best form of legal ownership, especially as they require very little paperwork before they can start trading.
Explain any 2 advantages of being a partnership:
1. More access to capital : There are more partners to invest in the business.
2. Can attract investment : Partnerships can attract investment from sleeping partners.
Explain limited liability
As companies are legally registered, they are separate legal identities to the identities of their owners. This means that the company and not the owners is liable for all of its debts.
If the business was to face legal action, it may lose all of its possessions, including money invested by its owners, but the owner's personal possessions would not be at risk as they are protected by limited liability.
Explain the deed of partnership:
The deed of partnership is legally binding document, drawn up by partners. If a conflict arises between the partners, they can refer to the deed of partnerships.
A deed will normally include the details of :
- Finance provided by each partner.
- Salary entitlements.
- Percentage of profit to be recieved by each partner.
- Holiday entitlements.
- Registered address.
Explain in detail incorporated businesses :
They are private and public limited companies:
They have separate legal identity to their owners. This means that incorporated businesses are registered with the company registration institute of the country they are based in.
Analyse issuing shares for private and public limited company :
PLC ltd issue their shares to private investors who they choose, which means that the ownership of the business is kept private.
They have to prepare two documents :
1. Articles of association: the legal document detailing the responsibilities of the internal members.
2. Memorandum of association: The legal document detailing the registered name, address, structure.