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Flashcards · 7127 · Topic 2
Types of business organisation flashcards
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Topic 2: Types of business organisation
- Sole trader: owners, liability and reporting burden
- One person; unlimited liability; light reporting with no statutory filing.
- Partnership: owners, liability and reporting burden
- Two or more people; unlimited liability for ordinary partners; light reporting, governed by the partnership agreement or the Partnership Act 1890.
- Private limited company (Ltd): owners, liability and reporting burden
- Shareholders, with shares not publicly traded; limited liability; must file accounts under company law.
- Public limited company (plc): owners, liability and reporting burden
- Shareholders, with shares publicly traded; limited liability; the most extensive reporting, with public disclosure and audit requirements.
- What does "limited" mean in a limited company?
- A limit on the owners' financial liability (their loss is capped at the amount invested), not a limit on the size of the business.
- Two sources of finance open to a limited company but not to a sole trader
- Ordinary shares and debentures. (Bank overdrafts, loans and mortgages are open to all four types.)
- Risks of share finance and of debt finance for a plc
- Shares dilute existing ownership and control. Debt carries interest that must be paid whatever the profit, though liability is limited to the value of shares held.
- What does the Partnership Act 1890 do where partners have no agreement?
- It applies by default: profits shared equally regardless of capital, and no partner salary unless agreed. It is a fallback, not a requirement to have an agreement.