Business Ownership, Base Rates, Debt & Credit Ratings

Business Ownership, Base Rates, Debt & Credit Ratings

1. Business Ownership – Importance
Business ownership affects control, liability, taxes, profit sharing, ability to grow, and access to finance.

2. Types of Business Ownership
A. Sole Trader
– Owned by one person, simple to set up, full control.
– Unlimited liability, harder to raise finance.

B. Partnership
– 2–20 owners, shared workload and skills.
– Profit sharing, potential disputes, liability depends on type.

C. Limited Company (Ltd)
– Separate legal identity, limited liability, can raise more funds.
– More regulation and administration.

D. Public Limited Company (PLC)
– Shares can be publicly traded, raises large finance.
– High regulation, shareholder pressure.

3. Base Rate
– Interest rate set by central banks.
– High base rate: borrowing expensive, inflation falls.
– Low base rate: borrowing cheap, economy grows.

4. Debt
– Borrowed money to be repaid with interest.
Personal debts: student loans, overdrafts, credit cards, mortgages.
Business debts: bank loans, overdrafts, trade credit, leasing.

Risks: high repayments, possible bankruptcy, loss of assets.

5. Credit Ratings
– Score that measures repayment reliability.
– Affects borrowing access and interest rates.
– Individuals, businesses, and governments all have credit ratings.

One-Page Revision Summary

– Sole Traders: simple, owned by one person, unlimited liability.
– Partnerships: shared responsibility, possible disputes.
– Limited Companies: separate legal identity, limited liability, more regulation.
– PLCs: publicly traded shares, large-scale finance, high regulation.

– Base Rate: controlled by central bank, influences borrowing.
* High rate = expensive loans, lower inflation.
* Low rate = cheaper loans, more spending.

– Debt Types:
* Personal: mortgages, loans, credit cards, overdrafts.
* Business: overdrafts, bank loans, trade credit, leasing.

– Credit Ratings:
* Affect ability to borrow and interest rates.
* Poor rating = higher cost and reduced trust from lenders.

Key idea: Financial decisions are influenced by interest rates, debt level, and ownership structure.

Short Quiz Questions

1. What is unlimited liability?
2. Name two advantages of a sole trader.
3. What happens to borrowing costs when the base rate increases?
4. Give one difference between a Limited Company and a Sole Trader.
5. Why are credit ratings important for businesses?

Quiz Answers

1. The owner is personally responsible for all debts of the business.
2. Full control and all profits belong to the owner.
3. Borrowing becomes more expensive.
4. A Limited Company has limited liability and is legally separate from its owners.
5. A poor credit rating increases interest costs and makes it harder to borrow.