7115 · 1.4
Types of business organisation flashcards
Revision flashcards for Cambridge 7115 Types of business organisation (syllabus 1.4). Flip, recall, then mark a real past-paper question.
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Unlimited liability?
Owner personally liable for all business debts — assets at risk.
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Limited liability?
Shareholders lose only their investment — personal assets protected.
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Sole trader pros?
Quick setup, full control, keeps all profit (after tax).
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Partnership pros?
Shared capital, skills, workload; deed sets profit share.
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Ltd advantage?
Limited liability + can sell shares to private investors.
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PLC advantage?
Raise large capital via stock market (5.2.2).
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PLC disadvantage?
Regulation, disclosure, risk of takeover, divorce of ownership/control.
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Link to 5.2.1?
Ownership form determines available finance sources.
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What is 'unlimited liability'?
A legal status where the business owner is personally responsible for all the debts of the business. There is no legal distinction between the owner's assets and the business's assets, meaning personal property is at risk.
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What is the primary purpose of a 'Deed of Partnership'?
It is a legal agreement between partners that sets out how the partnership will be run. It covers profit-sharing, voting rights, responsibilities, and what happens if a partner leaves or dies. It helps prevent and resolve disputes.
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Explain the concept of a 'separate legal entity'.
This means the law considers the company to be a legal 'person' in its own right, distinct from its owners. The company can own assets, enter contracts, and be sued in its own name. This concept is the basis for limited liability.
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What is the main difference in how a Private Limited Company (Ltd) and a Public Limited Company (PLC) raise share capital?
An Ltd can only sell shares privately to invited individuals (e.g., family, friends, associates). A PLC can sell its shares to the general public on a stock exchange.
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Explain the 'divorce between ownership and control'.
A situation, common in PLCs, where the owners (shareholders) are not the same people who manage the business (directors/managers). Shareholders have little involvement in day-to-day decisions, which can lead to conflicts of interest (e.g., managers prioritising high salaries over shareholder dividends).