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,