1.2 Business Ownership

Question 1

What are the 3 legal structures?

Answer 1

• sole trader.
• partnership.
• company.

Question 2

What is meant by the term “sole trader”?

Answer 2

Someone who sets up a business on his or her own.

Question 3

What is meant by the term “unlimited liability”?

Answer 3

The personal possessions/belongings of the owner of a business is at risk if there are any problems.

Question 4

Name 3 advantages of being a sole trader.

Answer 4

• simple, quick and inexpensive to set up.
• the person who owns the business keeps all the profits.
• the owner has total control and makes all decisions without needing to consult others.

Question 5

Name 3 disadvantages of being a sole trader.

Answer 5

• it can be hard and stressful as they may find it hard to take a holiday and will have to make all decisions as well as manage the business.
• a wide range of skills needed.
• unlimited liability - sole traders can lose everything they own.
• difficult to raise money to start or expand a business.
• business ends when owner dies.

Question 6

What is meant by the term “partnership”?

Answer 6

Occurs when two or more people join together in a business enterprise to pursue profit.

Question 7

What is meant by the term “deed of partnership”?

Answer 7

An agreement between partners which sets out the rules of the partnership.

Question 8

What is meant by the term “limited liability”?

Answer 8

When a business and it’s owners are legally separate meaning that the owner’s personal possessions can’t be sold to pay the business’ debts.

Question 9

What things does a deed of partnership include?

Answer 9

• how profits are shared/divided.
• the roles (or specialisms) of each partner.
• how decisions on new partners will be made.
• how decisions will be made.
• the amount of money invested by each partner.

Question 10

Name 3 advantages of partnerships.

Answer 10

• likely to be wider range of skills available, helping to make the business more efficient.
• access to finance, as each partner can contribute funds.
• partners bring different skills and can cover each other during holidays, reducing stress.

Question 11

Name 3 disadvantages of partnerships.

Answer 11

• disagreements are common as partners my have different ideas on how to run the business causing inefficiency or ending of partnership.
• profits must be shared between partners.
• most have unlimited liability therefore personal belongings are at risk if mistake made by one partner, all the partners pay a price.
• decision making can be slow as all partners are normally consulted.

Question 12

What is meant by the term “company”?

Answer 12

A business that has its own legal identity.

Question 13

What is meant by the term “shareholder”?

Answer 13

A person or organisation that owns a part of a company.

Question 14

What is meant by the term “flotation”?

Answer 14

Occurs when a private limited company (Ltd) becomes public limited company (plc) and has its shares listed on the Stock Exchange.

Question 15

What is meant by the term “stock exchange”?

Answer 15

A market for buying and selling shares of public limited companies.

Question 16

What are the 2 types of companies.

Answer 16

• private limited companies (Ltd).
• public limited companies (plc).

Question 17

Name 3 advantages of private limited companies (Ltd).

Answer 17

• limited liability - shareholders are only liable to pay the amount they have invested or have agreed to invest attracting shareholders and investors.
• the business has a separate legal identity which means the company continues in existence even when its owners die.
• being able to hire experts and specialist managers to run the business.
• many customers prefer to deal with a company as they feel it has a higher status than a sole trader.

Question 18

Name 3 disadvantages of private limited companies (Ltd).

Answer 18

• its more complex to set up a company.
• its more expensive.
• some financial information is available to anyone who cares to see it.
• selling shares to raise money may reduce the amount of control the original owners have over the business.

Question 19

Name 3 advantages of public limited companies (plc).

Answer 19

• can sell shares to the general public via stock exchange making it easier to raise money.
• lots of coverage on media helping to advertise the business and its products boosting sales.
• Banks are more willing to lend money.

Question 20

Name 3 disadvantages of public limited companies (plc).

Answer 20

• under pressure to increase profits in the short term due to being listed on stock exchange.
• adverse publicity in media when being a larger company.
• more laws and regulations which can be costly to comply to.
• can be bought by other companies.

Question 21

What is meant by the term “not-for-profit”?

Answer 21

An organisation that is set up to achieve objectives other than profit.
E.g. A charity.