level 1 business studies 1.1 - as90837 demonstrate an understanding of internal factors of a small...
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Level 1 Business Studies
1.1 - AS90837
Demonstrate an understanding of internal factors of a small business
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Types of Businesssole trader, partnership, registered company
Students will identify and describe different types of legal entities:
Define and recognise the legal entities of business ownership i.e. sole trader, partnership and registered companyExplain reasons for different forms of legal entitiesExplain advantages and disadvantages of each type of entity
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Sole Trader
A business owned and operated by one person
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Sole TraderReasons
Relatively easy to establish Few legal requirements or
restrictions to set up Can employ people with the
required skills
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Sole TraderAdvantages
Can be your own boss Few legal requirements to set up Able to organise and run the
business as you wish Control over employees Can choose how long and when
to work Get to keep all profits
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Sole TraderDisdvantages
Unlimited liability – sole traders are not a separate legal entity
Sources of finance are often limited which can make expansion difficult
Often need to take advice from outside the business
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Unlimited liability
If the business cannot pay its debts as they fall due, the owners become personally responsible for them.
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Partnership
Business owned and operated by 2 or more people
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PartnershipReasons
Business run by the owners Partners contribute capital to set
up and run the business All partners are able to contribute
to the running and organisation of the business
Partners share the profits
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PartnershipsAdvantages
Increased levels of capital compared to a sole trader
Shared responsibility Increased knowledge and
specialisation Partners motivated due to
sharing of profits
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PartnershipDisdvantages
Unlimited Liability – not a separate legal entity Partners can disagree on important decisions. It
can be time consuming to reach a consensus.
Partners can suffer if one partner is inefficient or dishonest
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Private Limited Company:
Companies are jointly owned by people with an interest in and have invested in the business
NB: for level 1 Business Studies companies will tend to be private
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Private Limited CompanyReasons
Owned by numerous people - shareholdersCompanies are separate legal entities from
their ownersAbility to grow and expandA company can make contracts or legal
agreements in its own name
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Private Limited CompanyAdvantages
All shareholders have limited liability
A large number of people can purchase the shares
Additional shares can be issued in order to raise capital and expand the company
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Limited liability
The owners of the business will not be responsible for the debts of the business if the business cannot pay.
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Private Limited CompanyDisdvantages
Legal issues when being establishing
Cannot sell shares to public Difficult to transfer shares, all
shareholders have to agree Directors make the decisions
on the running of the business – not all shareholders are directors