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“There let s take a look now with a topic that is a little bit bit dry potentially boring. But actually really important when it comes to understanding how businesses organized so bear with me for four or five minutes as we take a look at the different forms of business and we ll focus here on one of those private sector organizations private sector businesses in a separate video we look at the difference between private sector and public sector. But for now the first thing to remember is that there is a there is a difference between what are known as unincorporated businesses and incorporated businesses. Unincorporated and incorporated and the two main types of unincorporated business are sole traders and partnerships aqa students.
You don t need to know about partnerships and then incorporated businesses private limited companies and public limited companies now we re not going to look at public limited companies on this video. We re just going to focus in particular the difference here between unincorporated and incorporated businesses. The key differences between the two okay so let s move on to that then now this is important so it might be worth. Pausing.
The video for a minute just to jot down some some notes here earning cooperative businesses. The essence is that the business is the owner there is no legal difference between the owner of the business and the business and as a consequence of that the owner of the business is liable for the business s actions. Including its debts. The owner of the business has what s known as unlimited liability for the debts of the business.
Most of incorporated businesses are sole traders. But as we ll see in a second you can also be a partnership. The difference between only corporator and incorporated is that with incorporated businesses..
The company exists. It is a real legal personality. The business is the company the business is the company. The company has owners the shareholders.
But they owners are not liable for the debts of the business. They have what s known as limited liability. The liability is limited to the amount that they invest in the business. They can lose their shareholding.
But they re not liable for the debts of the business and the vast majority of incorporated businesses are private limited companies with me so far okay so let s just quickly go through these three forms of business. We won t spend a long time on it just to chop down the key points is all you need to know sole traders to start with by a distance the most popular type most common type of business form where a single individual owns her own or his own business. I doesn t mean to say they can t employ the people of course lots do. But the key point is the bottom point.
Here. The sole trader is personally responsible for the business s debts. A sole trader has unlimited liability so in terms of benefits to benefits and drawbacks advantages disadvantages really easy the sets for sole trader dead easier to close it to setup again paperwork is fairly minimal fantastic dead easy very informal the big downside is unlimited liability as a sole trader you are responsible for the debts of your business..
And other downsize include. It s a little bit harder to raise finance. Potentially and of course. If the owner it becomes ill or loses interest.
Then the business suffers because the business and the owner are one and the same thing partnerships again don t forget aqa students. You don t need to know about partnerships and excel students need to have an awareness of these. And it s basically where two or more people decide to set up a business and run a business based around a legal agreement called the partnership agreement which did which explains how they re going to share the profits of the business. How decisions will be taken what happens.
When there s a change in a partnership and so forth. But again the key point about partnerships is that they have unlimited liability. They are unincorporated businesses. So again it might be worth pausing.
The video. If you want to jot down some benefits and drawbacks of partnerships take a little bit longer to get set up you need to have a partnership agreements. But generally fairly easy to set up the side for partnerships is the unlimited liability..
Okay and finally therefore moving. We ve dealt with unincorporated businesses. Let s to spend a minute looking at these incorporated businesses and the key here. We ve mentioned it already is that with incorporated businesses.
The business is a separate limited separate legal identity. A separate legal identity. The company is the business now of course. The company has owners the owners of a company are shareholders.
But the shareholders are not the business. They simply own part of a business. Which is the company and that has big implicit in plication x. .
If the business fails. Because the owners of the company. The shareholders are not liable for the debts of the business..
They have limited liability. So that s the key point about limited companies and it s the reason. Why so many are created is a great way of protecting shoulders. It s the company.
Which is the business shareholders have unlimited liability. So i would say that the it s the left hand side of this table. That s the most important yeah for sure setting up the company has a little bit more admin and paperwork and of course you have to disclose information. But way outweighed completely outweighed by the advantages of setting up a limited company.
The protection that shareholders have of limited liability. And also it makes it easier to raise finance. Because a limited company is a more stable form of business. The business continues even if the shareholders change there we go that s quite complicated hopefully useful.
Though just a quick overview of the different forms of business. ” ..
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The three main forms of business (sole traders, partnerships and private limited companies) are explained in this revision video as well as the difference between incorporated and unincorporated businesses.
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