1 - Business Ownership

Question 1

What Are The 4 Different Business Forms?

Answer 1

~ Sole traders.

~ Private and public limited companies.

~ Private and public sector organisations.

~ Non-profit organisations such as charities and mutuals.

Question 2

What Is A Sole Trader?
(2 Points)

Answer 2

~ Business that is owned by one individual who retains all the profits generated by the business.

~ Unincorporated, meaning unlimited liability.

Question 3

What Are The Benefits Of Being A Sole Trader?
(4 Points)

Answer 3

~ Simple set up process, cheap, quick and taxes are aligned with income tax.

~ No need to publish accounts due to private finances.

~ Retain all the profits as there are no shareholders or partners.

~ Complete control over decision making.

Question 4

What Are The Drawbacks Of Being A Sole Trader?
(4 Points)

Answer 4

~ Unlimited liability, personal assets are at risk if the business fails.

~ Fewer sources of finance, as you cannot issue shares, expansion may be harder.

~ Little specialist skills, must be multi-skilled.

~ Difficult to find cover when unwell or to take a holiday.

Question 5

Describe Limited Companies
(6 Points)

Answer 5

~ They exist in their own right.

~ Owners and the company are separate legal entities.

~ The companies finance are separate from the owners personal finances.

~ Shareholders are the owners.

~ Have limited liability.

~ Only lose the money that they have invested in the business in the form of shares.

Question 6

What Is A Private Limited Company?
(4 Points)

Answer 6

~ LTD.

~ Company that is owned by its shareholders and managed by a director.

~ Shareholders will choose its directors.

~ Incorporated, meaning limited liability.

Question 7

Describe Private Limited Companies
(2 Points)

Answer 7

~ Owned by shareholders who are known to the company.

~ Can only sell shares to other shareholders, cannot sell shares openly on a stock exchange.

Question 8

What Are The Benefits Of Private Limited Companies?
(4 Points)

Answer 8

~ Limited liability, shareholders personal possessions are not at risk which can encourage investment.

~ Additional source of finance, can raise finance through selling shares.

~ Control of who shareholders are, at less risk of the divorce of ownership problem.

~ Financial records remain relatively private.

Question 9

What Are The Drawbacks Of Private Limited Companies?
(4 Points)

Answer 9

~ No access to the stock exchange, meaning smaller volume of finance is available.

~ Shared profits, as many shareholders means diluted profits.

~ Legal requirement to publish finical accounts, meaning that competitors may be able to see.

~ Some loss of control as shareholders have voting rights.

Question 10

What Is A Public Limited Company?
(2 Points)

Answer 10

~ Company that commonly offers shares to the general public via the stock exchange.

~ PLC.

Question 11

Describe Public Limited Companies
(4 Points)

Answer 11

~ Limited liability, as it is a limited company.

~ Shares can be sold to the public via the stock exchange.

~ Must raise a minimum of £50,000 share capital.

~ Must have a minimum of 2 directors and 1 company secretary.

Question 12

What Are The Benefits Of Public Limited Companies?
(4 Points)

Answer 12

~ Limited liability.

~ Separate legal entity.

~ Financial records remain relatively private.

~ More capital can be raised through the sales of shares.

Question 13

What Are The Drawbacks Of Public Limited Companies?
(4 Points)

Answer 13

~ Lack of privacy as financial performance is available for all to view.

~ More complex to set up due to increased legal requirements and ongoing administrative costs.

~ Some loss of control as shareholders have voting rights.

~ Risk of hostile takeovers, if anyone can obtain 51% of shares in the company.

Question 14

What Is Unlimited Liability?
(3 Points)

Answer 14

~ Unincorporated businesses have it. E.g. Partnerships and sole traders.

~ Owners and business is the same legal entity.

~ Owner is responsible for all debts the business incurs.

Question 15

What Is Limited Liability?

Answer 15

~ Incorporated businesses have it. E.g. PLC and LTD.

~ Owner and the business are different legal entities.

~ Shareholders assets are not at risk in the event of the business incurring debts.

Question 16

What Are Examples Of Incorporated Businesses?
(2 Points)

Answer 16

~ PLC.

~ LTD.

Question 17

What Are Examples Of Unincorporated Businesses?
(2 Points)

Answer 17

~ Sole traders.

~ Partnerships.

Question 18

What Is The Private Sector & Give Examples?
(2 Points)

Answer 18

~ Sector of the economy that is financed by entrepreneurs.

~ Has unincorporated businesses and incorporated businesses, franchises can be produced from both.

Question 19

What Is The Public Sector & Give Examples?
(2 Points)

Answer 19

~ Sector of the economy that is financed by the government.

~ State education, NHS, public services and BBC.

Question 20

Describe Not-For-Profit Organisations / Social Enterprises
(5 Points)

Answer 20

~ Businesses which don’t have an objective of profit, has objectives that benefit society.

~ Any profits made are reinvested into the business to pursue social objectives.

~ Can be set up as incorporated or unincorporated.

~ They benefit from reduced taxes.

~ Examples -> Social enterprises, charities.

Question 21

How Do Not-For-Profit Organisations Make Its Money?

Answer 21

From fundraisers.

Question 22

How Do Social Enterprises Make Its Money?

Answer 22

From selling goods and services.

Question 23

What Are Mutuals?
(2 Points)

Answer 23

~ Organisations that operate for the wellbeing of their members.

~ Members can be customers, employees and suppliers.

Question 24

What Are Issues With Different Forms Of Business?
(4 Points)

Answer 24

~ Unlimited and limited liability.

~ Ordinary share capital.

~ Market capitalisation.

~ Dividends.

Question 25

Describe Ordinary Share Capital
(2 Points)

Answer 25

~ External source of finance available.

~ Investment given to a business in return for a share of the profit and a voting right.

Question 26

How Do You Calculate Ordinary Share Capital
(2 Points)

Answer 26

~ External source of finance available.

~ Investment given to a business in return for a share of the profit and a voting right.

Question 27

Describe Market Capitalisation
(2 Points)

Answer 27

~ Value of all of the shares issued by a PLC.

~ Gives an indication to the market.

Question 28

How Do You Calculate Market Capitalisation?

Answer 28

Number Of Ordinary Issued Shares x Price Of 1 Share

Question 29

What Are Dividends?

Answer 29

% of profit paid to shareholders as a reward for their investment.

Question 30

Describe Shareholders
(4 Points)

Answer 30

~ Investors who are part owners of a company.

~ Limited liability.

~ Receive dividends in return for their investment.

~ Invited to an AGM where they have a proportional voting right.

Question 31

Why Do Shareholders Invest?
(2 Points)

Answer 31

~ Short term gains, dividends.

~ Long term gains, increase in share price.

Question 32

What Are Influences On Share Price?
(5 Points)

Answer 32

~ Global economy.

~ National economy.

~ Investor confidence.

~ Political stability.

~ Company performance.

Question 33

What Is The Significance Of Share Price Changes?
(4 Points)

Answer 33

~ Indication of managers performance.

~ Influences stakeholders.

~ Can effect the ability to raise finance from other sources.

~ Affects consumer confidence.