✅ 1.2 - Business Ownership

Question 1

What is limited liability?

Answer 1

Limited liability is when the owners are not responsible for the debts of the business. The limit of their liability for the business’ debts is the amount they invested.

Question 2

What is a sole trader?

Answer 2

A sole trader is a business that is owned by one person

Question 3

Which types of businesses are usually sole traders?

Answer 3

Sole traders are usually start-ups or small businesses such as plumbers, hairdressers and electricians

Question 4

What are the advantages of being a Sole Trader?

Answer 4

• They are easiest to set up
• You get to be your own boss & make your own decisions
• You have full control over the profits

Question 5

What are the disadvantages of being a Sole Trader?

Answer 5

• You have unlimited liability
• You may have to work long hours (and may not get holidays)
• There is a high level of responsibility and making all the decisions can be stressful
• It is harder to raise finance and get loans (as banks see sole traders as risky)

Question 6

What is a Partnership?

Answer 6

A partnership is a business that has 2-20 owners

Question 7

What is a Partnership deed?

Answer 7

A partnership deed is a document agreed upon by the partners that outlines:

• How profits are allocated
• What percentage of the business each person owns
• Their roles and responsibilities

Question 8

Which types of businesses are usually Partnerships?

Answer 8

Professional services such as surgeries, dentists and accountancy firms.

Question 9

What are the advantages of being a Partnership?

Answer 9

• More owners means that there are more skills, experience and ideas to bring to the table
• More people to share the work
• More capital to invest on the business

Question 10

What are the disadvantages of being a Partnership?

Answer 10

• Unlimited Liability
• Profits are shared
• Disagreement and conflict between owners

Question 11

What are three key differences between limited companies and partnerships/sole traders?

Answer 11

• Limited companies are incorportated
• Limited companies are owned by shareholders
• Owners have limited liability due to incorporation

Question 12

Define Shareholders

Answer 12

Shareholders are people who own shares in a limited company. They are part owners of the business

Question 13

What are the advantages of being a LTD?

Answer 13

• Limited Liability
• Easier to get a loan compared to a sole trader or partnership
• All shareholders must agree to sell shares so shares are private

Question 14

What are the disadvantages of being a LTD?

Answer 14

• It is costly to incorporate a business in addition to the paperwork costs
• Finances have to be recorded which can be time-consuming

Question 15

What is the key difference between public limited companies and private limited companies?

Answer 15

Public Limited Companies can publicly sell their shares on the stock exchange

Question 16

Why may businesses want to become a PLC?

Answer 16

A business may want to become a PLC to sell shares to expand

Question 17

What are the advantages of being a PLC?

Answer 17

• Shares can be sold to raise money for investment
• Easier to raise capital from banks if they are a PLC because they present less of a risk
• Shareholders have limited liability

Question 18

What are the disadvantages of being a PLC?

Answer 18

• Each shareholder typically have very little say over how the business is run
• The company is open to a hostile takeover if somebody is able to buy enough shares
• The company’s accounts have to be made public, so everybody including competitors can see how good or bad a business is doing

Question 19

What are Not-for-profit organisations?

Answer 19

Not-for-profit organisations are organisations that do not try to make a profit

Question 20

What happens to any profit made by a not-for-profit business?

Answer 20

Profit made by not-for-profit organisations is reinvested back into the business

Question 21

What happens to not-for-profit organisations that choose to be an ‘unincorportated association’

Answer 21

The owners have unlimited liability

Question 22

Big not-for-profit organisations tend to be ____________

Answer 22

Big not-for-profit organisations tend to be incorporated

Question 23

What are the benefits of not-for-profit organisations having a ‘charitable status’?

Answer 23

Not-for-profit organisations that have a charitable status:
- Gets some tax relief
- Are able to apply for certain grants

Question 24

What are social enteprises?

Answer 24

Social enterprises are a type of not-for-profit organisation that make money by selling goods and services which are used to benefit society in some way