Business A-Level Lesson: 3.12 - Business Forms, Shareholders, and Share Price

Key Topics Covered

1. Different Business Forms
2. Shareholders and Share Price

Business Forms

Key Terms

• Capital: Money used to start or develop a business.
• Unlimited Liability: Full responsibility for business debts.
• Limited Liability: Responsibility limited to amount invested.
• Dividends: Profits paid to shareholders.

Sole Trader

• Definition: Business owned by one person.
• Pros:
  • Easy and cheap to set up.
  • Complete control over business.
  • All profits kept by owner.
  • Financial information is private.
• Cons:
  • Unlimited liability.
  • Long working hours.
  • Business ceases upon owner’s death.
  • Shortage of capital.
  • Skill shortage due to single owner.

Private Limited Company (LTD)

• Definition: Business owned by at least two shareholders.
• Pros:
  • Limited liability.
  • Business continuity if a shareholder dies.
  • Can raise more money by selling shares.
• Cons:
  • Some financial information is public.
  • More administrative work.
  • Share sale is restricted.
  • Need to pay dividends to shareholders.

Public Limited Company (PLC)

• Definition: Business whose shares are traded publicly on the stock exchange.
• Pros:
  • Can raise a substantial amount of capital.
  • Easier to borrow money.
  • Limited liability.
• Cons:
  • Risk of takeover.
  • Expensive to set up (minimum £50,000 in shares).
  • Inefficiency in large businesses.
  • Full financial transparency.

Liability Types

• Unlimited Liability: Sole trader is fully responsible for business debts.
• Limited Liability: Shareholders only liable for their investment.

Incorporation

• Unincorporated: Sole traders; business and owner are the same entity.
• Incorporated: Limited companies; business and shareholders are separate entities.

Public vs. Private Sector

• Public Sector: Owned and funded by the government (e.g., NHS).
• Private Sector: Businesses set up to make money.
  • Unincorporated (e.g., Sole Trader)
  • Incorporated (e.g., LTD, PLC)

Not-for-Profit Organizations

• Focus on social/community aims rather than profit-making.
• Mutuals: Benefit extends beyond shareholders
  • Consumer, Worker, and Producer Cooperatives.

Shares and Shareholding

Shareholder Rewards

• Dividends: Profit distribution to shareholders.
• Capital Growth: Increase in share value.

Share Price Influences

• Supply and Demand: Influences share price changes.
• Private vs. Public: Private companies set initial share prices; public companies have real-time prices.

Market Capitalization

• Formula: Share price x Number of shares.
• Indicates company valuation.

Share Issuance Methods

• Flotation: Issuing shares on the stock exchange for the first time.
• Rights Issue: New shares offered to existing shareholders.

Conclusion

• Understanding business forms, shareholder roles, and share price dynamics are crucial for business management and decision-making.
• Each business form has its own advantages and disadvantages, which should be considered based on the business’ goals and conditions.