Business Finance
- Tags
- finance
The rules and guidelines for financing a business.
Business Structures
Many variants but generally fall into [see page 4, 3 categories].
Sole Trader
Unincorporated business with just [see page 4, one owner] that pays income tax yearly. This is the simplest and most popular form that's easy to establish and dismantle. Business owner must register the business name with a real (or alias) name. The law sees the business and the owner as the same entity under the law.
The owner has full control over income and profits but they may have difficulty getting partners or funding.
Warn: A sole trader businesses liability is unlimited. The entire businesses debts are tied to the owner.
Partnership
An [see page 4, extension] of sole trader where two (or more) people come together to run a business and share profits. Decisions about liability, ownership, and profits splits must be decided in a partnership agreement.
Owners are expected to pay creditors when there're losses, and can be personally bankrupted if sued.
Limited Liability Partnership
Forming a partnership without being responsible for any of the debt accrued by the company. These companies have:
- Managing partners - liable for the actions of the partnership
- Silent partners and investors - not liable so long as they don't take decision control.
Funding
see page 5, Initial funding is the money contributed by each partner.
We define [see page 6, retained earnings] as profits that're not distributed to the owners of the business. The timing and future level of these earnings are unpredictable/unreliable. Most companies nowadays pay out no-more than 50% of earnings, investing the rest in company growth.
Companies can also use Working Capital Funding, Overdrafts, Loan or a Leasing.