Study sets, textbooks, questions
Upgrade to remove ads
Terms in this set (18)
If a business goes bankrupt and owes a lot of money, in the case of a sole trader the owner is personally responsible and in a partnership the partners are jointly and severally liable for paying back all the business's loans. If after selling the business to repay the loans, debts are still owed, they will have to sell off their personal assets, such as their home, to pay back these loans. (In the case of a partnership of one partner cannot pay back their share of the loans the other partners have to pay it for them.)
If a business goes bankrupt and owes a lot of money, the shareholders are not personally liable for paying back the business's debts. If after selling the business to repay the loans, debts are still owed, the shareholders do not have to sell their own personal assets, such as their homes, to pay back their shares of the loans. All they lose is the capital they put into the business.
A contract drawn up between partnerships before setting up the business. It is used in the event of any disagreements between the partners. It sets out in advance issues such as Goethe profits are to be shared, what each partner is expected to do in the running of the business, what happens if the business closes down, what salaries each partner is to be paid for working in the business and if so how much. Then if one partner breaks the terms the others can sue for break of contract.
Deed of partnership contract
Key issues to address before setting up business enterprise
1) organisational ownership options
2) finance options
3) production options
- a business set up, owned and run by one person on their own
- e.g. hairdressers and newsagents
- establishment: easy to set up - few legal registration requirements and no government permission required.
- profit: all profits go to entrepreneur alone.
- confidentiality: confidential type of business as the financial accounts do not have to be published.
- decision making: decisions can be made quickly as no time is wasted in discussions with others - allows swift response to market changes.
Advantages of sole trader
- liability: unlimited liability
- decision making: no help with major business problems and decisions
- access to capital: hard to raise the money on your own to set up and run a business-difficult to get loan from bank as sole traders are the business organisation most likely to go bankrupt
- effort: it required a lot of effort and may result in stress and burn out
- a partnership is a business set up, owed and managed by between 2 and 20 owners called partners. They set up the business together and combine their resources and talents to make a profit.
- e.g. solicitors and KPMG
- establishment: easy to set up - few legal registration requirements and no government permission required. However advisable to draw up a deed of partnership contract.
- access to capital: partnerships have access to greater amounts of capital to pay for the costs of setting up and growing the business as up to twenty partners can bring financial resources to the business.
- shared workload: partnerships have access to different skill sets as new partners may bring new skill sets and expertise to the business e.g. IT or marketing skills.
- decision making: partnerships can lead to more effective decision making as the decision making process is shared eliciting different points of view and opinions from a range of talented people.
- confidentiality: financial information can remain confidential. Financial accounts do not have to be published.
Advantages of partnership
- liability l: partners in the main have unlimited liability.
- decision making: shared decision making could lead to differences of opinion, disagreements, arguments between partners and lost opportunities. This could at best lead to delayed decision making or at worse lead to the dissolution of the partnership.
- profits: the profits of the business have to be shared according to the ratio set out in the deed of partnership and not necessarily in ratio of how much effort they put in.
- legal entity: not a separate legal entity therefore partners and not the business can be sued in law.
- continuity: if one partner does or resigns the partnership must be dissolved.
Challenges of partnership
- a business set up by 1-149 people called shareholders. The shareholders enjoy limited liability and in Irish law, the company is separate from its owners, so it is the company that makes contracts and that would be sued rather than the individual shareholders.
- although a private limited company can be owned by one person, it must have at least two directors to run it. Directors are voted in by the shareholders to run the business on their behalf.
- e.g. Eason and son ltd.
Private limited company
- access to capital: one of the main advantages of the private limited company structure is the ability to raise capital by selling shares up to a maximum of 149 shareholders. Start-up costs such as R&D, technology, marketing, and staffing requirements are very high.
- liability: the shareholders of a private limited company have limited liability.
- one share one vote: a private limited company is controlled by the shareholders based on the rule "one share one vote" at the AGM. The original shareholders can maintain control of the company as long as they continue to hold 51% or more of the ordinary share capital. With a private limited company, the members keep control as shared are not sold on the stock exchange.
- separate legal entity: the start-up business is incorporated and is a separate legal entity in the eyes of the law, meaning that it can sue or be sued in its own name and enter business contracts.
- continuity of of existence: the company is legally independent of its owners and therefore it can stay in existence even after the death of a shareholder.
- shared workload: the workload can be split between various directors each of whom may have different skills and experience, directors can brainstorm ideas. This inventive, creative process will yield better decisions and ideas than a person operating on her own.
- less tax: less tax is paid on the business profits (12.5%) therefore more profits left after tax to use for business expansion.
Advantages of private limited company
- establishment: complicated to set up-Must apply to Registrar of Companies, pay a fee and they cannot begin trading until they receive a Certificate of Incorporation.
- confidentiality: company must publish its financial accounts each year, there are lots of legal requirements costing time and money - an annual return must be sent to the CRO every year and the company must get its final accounts audited.
Disadvantages of private limited company
1) Job production
2) Batch production
3) Mass/flow production
Challenges in changing from Job production to Batch or Mass production
- stock control
- a written document a businessperson uses when starting a major business venture. It sets out details about the entrepreneur setting up the business, ownership, their business idea and their USP. It details how the entrepreneur is going to make and sell the product and how they intend to finance the business.
- they set out the objectives the business intends to achieve and the strategies they propose to use to achieve them. They'd et out the overall direction for the business. It is like a map fir the entrepreneur telling them what they have to achieve to make her business a success and what steps they must take to get there.
1) description of business
2) market analysis
3) marketing plan
4) production plan
5) finance plan
Importance of business plan
1) major tool to persuade investors to provide finance
2) help entrepreneur to control their progress
3) sets out a series of well thought out steps to follow to guide business to success
4) can prepare solutions to problems in advance of them occurring
Sets found in the same folder
Other sets by this creator
People in business