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Business Ownership

Business Ownership

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Business Ownership

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  1. Business Ownership BTEC Business

  2. Investing in a Business • Sole traders must raise all the finance to set up and run the business themselves • Partners can all contribute to the financing of a firm • Private limited companies can sell shares to family, friends and associates • Public limited companies can raise finance by selling shares on the stock market

  3. Limited Liability – What does it mean? It all comes down to the responsibility for the debts of the business: • A sole trader or partnership can be held responsible for all the debts of the firm • The owners of limited companies can only be held responsible up to the value of their investment in the business

  4. Other Sources of Finance • Loans • Overdrafts • Profits that are fed back into the business • Shares • Grants and donations

  5. Ownership and Control • Owners often want to keep control of their businesses • This leads many small firms to stay as sole traders, even though this limits their funds • Taking on new partners or shareholders cuts the amount of control that owners have • If you hold the majority of shares (over 50%) you can keep some control, but not all

  6. Legal Responsibility • Sole traders have no legal formalities to go through, apart from registering for VAT if their turnover reaches a certain amount • Partnerships also have no legal formalities but may choose to sign a Deed of Partnership • Companies have to go through a series of legal formalities

  7. Forming a Limited Company • Limited companies must produce two documents • Memorandum of Association and Articles of Association • If these are acceptable, the Registrar of Companies awards a Certificate of Incorporation • The company can then trade

  8. Other Legal Requirements • A limited company must also send a copy of its annual accounts to the Registrar • It must also hold an Annual General Meeting and invite its shareholders to attend • Becoming a Public Limited Company involves far more time and cost • It must have a minimum of £50,000 share capital

  9. Where the Profits go • Limited companies use part of their profits to pay a dividend to shareholders • They can choose not to pay a dividend but always have to pay interest on any borrowing the company has made • Profits can be ‘retained’ and ploughed back into the company

  10. Profits and Losses • Any profits made (once tax has been paid) can be kept by the owners of the business • This makes Sole Trader (and partnership) businesses very attractive • But remember … whatever funds have been put into the business will be lost if it goes bust!