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17 Cards in this Set
- Front
- Back
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1.2 Understanding Different Business Forms |
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Business Forms |
The legal ownership that a firm adopts. This can be an unlimited liability firm such as a sole trader or limited liability firm such as Sole Trader or Limited Liability firm, be the public or privately owned. Alternatively, it can be co-operative, mutual or a not-for-profit business. |
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Sole Trader |
An individual who owns and runs their own business. A sole trader has unlimited liability and is therefore responsible for all the debts of the business. It is unincorporated i.e. the sole trader and the business have the same legal identity. |
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Private Limited Company |
An incorporate business that is owned by shareholders who tend to be family and friends of the entrepreneur. Shareholders in the business have limited liability. The company must have Ltd after its name. |
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Public Limited Company |
An incorporated business that is able to sell shares on the stock exchange. Shareholders in the business have limited liability. The business must have a minimum of £50,000 in share capital and 'plc' after its name. |
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Private Sector Organisitions |
The Sector of the economy that is owned and controlled by individuals or groups of individuals and not the government. It includes: Sole Traders Private Limited Company Public Limited Company |
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Public Sector Organisations |
The sector of economy that is owned and controlled by the government. It includes: State education NHS Others e.g. police, army, navy, and air forces |
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Non- Profit Organisations |
Businesses with a motive other than profit, this may be to provide a social benefit or service to society or support a cause. Include: Charities Social Enterprises Pressure Groups Mutual Society |
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Charities |
Organisations with an aim to support a specific cause or benefit for the well being of society. Charities may support: Groups within society Animals Places e.g. conserving buildings Organisations have to be registered to gain charitable status and are treated differently by the government in terms of taxes. |
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Mutuals |
Used to describe several types of business ownership all of which are run for the mutual benefit of those involved. Mutual businesses exist purely for the benefit of members e.g. customer, employees, suppliers, local community. Mutuals have no shareholders and no owners Common business form in the UK |
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Unlimited Liability |
The owners of a business are responsible for the total amount of debt of the business. The owner may lose their personal belongings if the value of these is needed to cover the debts of the business. |
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Limited Liability |
An investor’s liability/financial commitment is limited to the total amount invested or promised in share capital. An investor’s personal belongings beyond this venture are protected. Private and public limited companies have limited liability |
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Ordinary Shareholder |
Investment given to a business by shareholders in return for a share of profit (a dividend) and a voting right. (The dividend is not fixed so does not have to be paid) Shareholders are part owners in a business. Ordinary shares are unsecured, meaning that the shareholders are the last to get their money back if the firm goes into liquidation. |
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Market Capitalisation |
The value that the stock market places on a business based on the total value of shares issued. Calculated as: Share price x the number of shares issued |
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Dividends |
A percentage of profit paid to shareholders as a reward for their investment. Profit can be utilised to pay dividends and/or be ploughed back into the business. Ordinary shareholders are only paid a dividend if the business can afford it. Higher dividends are often paid to ordinary shareholders when the business has performed well. A business objective may be to maximise shareholders’ return. Firms with a high growth strategy might not pay a dividend but use profit to reinvest into the business. |
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Shareholders. |
Investors who are part owners of a company. Shareholders will receive a dividend, a share of the profit, in return for their investment. Shareholders have a voting right proportional to the number of shares held. Liability is limited to the sum invested. |
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Share Price |
The share price refers to the value attached to each individual share that is bought and sold on the stock market or by the business. The value of these shares change according to the performance of the business and the economy in general. |
