Business EOT Exam 1 - Advantages and disadvantages of partnerships and limited companies

Advantages of limited companies

All: Limited liability, Continuity, More capital, Decisions by shareholders Private: Fair control Public: Shares sold to the public, Raise large finance, High collateral

Disadvantages of limited companies

All: Shared profits, Information publication Private: Shares sold privately, Hard to raise capital, Low collateral Public: Unfair control, Complicated legalities, Influence, Risk of takeover, Strict on publication of info, Hard to manage

Disadvantage of public limited company - Management

As they tend to become very large, communication errors occur and they become more difficult to manage

Advantage of partnership - Financial

Bigger access to finance as there is more than one person investing capital in the business

Advantages of partnerships

Bigger access to finance, Shared decision making, Shared workload, Easy to set up, More skills and ideas, Specialization, Privacy, Cover

Key term - Unincorporated business (Partnerships and Sole traders)

Business with unlimited liabilty

Advantage of public limited company - Financial

Can raise large sums easily by selling shares - have valuable collateral to borrow money

Advantage of limited company - Financial

Company has more finance from selling shares

Disadvantage of public limited company - Risk

Company is always at risk of a takeover because shares can easily be sold and bought

Advantage of partnership - Decision

Decision making is shared which leads to better decisions

Disadvantage of partnership - Decision

Decisions binding on all partners, no matter their agreement to it

Disadvantage of public limited company - Influence

Directors' decisions are usually influenced by big investors who are looking to fulfil their objectives, not the company's

Advantage of partnership - Set up

Easy to set up, the can sign a deed of partnership.

Disadvantage of limited company - Privacy

Financial accounts public to everyone

Disadvantage of private limited company - Financial

Hard to raise additional capital as shares can't be sold to the public - and have low collateral to borrow money

Disadvantage of partnership - Liability

Have unlimited liability - meaning they might risk personal wealth for the business's success, be responsible for business debts

Disadvantage of partnership - Continuity

If a partner leaves then the business ceases to exist and has to be reformed to continue functioning

Disadvantage of partnerships - Conflict

It is harder to make decisions when the partners' opinions are conflicting, Partners have to agree on decisions

Disadvantage of partnership - Financial

It tends to be hard for them to raise finance for the business

Advantage of partnership - Knowledge

More skills and ideas are available

Advantage of limited company - Continuity

No matter if a shareholder dies, the business continues

Key term - Collateral

Non-current assets offers as security against borrowing

Disadvantage of partnership - Profit

Owners have to share profits

Key term - Unlimited liability

Owners have to use personal wealth to finance business debts

Advantage of private limited company - Control

Ownership and control are not separated

Disadvantage of public limited company - Control

Ownership and control are separated

Advantage of partnership - Cover

Partners can provide cover for each other when they are absent.

Advantage of partnership - Specialisation

Partners can specialise in certain areas of the business, making work and management higher quality

Disadvantage of limited company - Profit

Profit is shared between all shareholders (dividends)

Advantage of limited company - Liability

Shareholders have limited liability, they only risk the value they invested in the company if it fails (their shares)

Advantage of limited company - Decisions

Shareholders vote on most of the decisions taken by the company

Advantage of public limited company - Selling shares

Shares can be sold to the general public, it is quick and easy to do so

Disdvantage of private limited company - Selling shares

Shares can only be sold privately with all other shareholders' agreement, making it difficult to sell shares.

Disadvantage of public limited company - Legal

The legal formalities of setting up a public company are very expensive

Advantage of partnership - Work

The management and workload of the business are shared, reducing strain on individual owners

Disadvantage of public limited company - Privacy

The requirements for the publication of business information are even more strict

Advantage of partnership - Privacy

They get to keep all business details private

Disadvantages of partnerships

Unlimited liability, Shared profits, No continuity, Decisions binding on all partners, Difficult to raise finance, Conflict,