Business Ownership BTEC Business

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

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

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

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

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

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

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

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

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!