1.2 Business Ownership

Question 1

What is a sole trader?

Answer 1

A sole trader is someone who sets up a business on his or her own.

Question 2

What are the advantages of being a sole trader?

Answer 2

• It is easy to set the business up.
• You make all the decisions yourself. This means decision making is fast.
• You keep all the profits yourself.

Question 3

What are the disadvantages of being a sole trader?

Answer 3

• Stressful decision making.
• Has to deal with all aspects of the business: the finances, the marketing and the running of the business itself.
• You have unlimited liability. This means that you could lose everything you own.

Question 4

What does profit measure?

Answer 4

The difference between the values of revenue (sales) and its total costs.

Question 5

What is unlimited liability?

Answer 5

Unlimited liability means that the owner’s personal possessions are at risk if there are any problems with the business, e.g. can’t pay off debt.

Question 6

What is a partnership?

Answer 6

When two or more people join together in a business enterprise.

Question 7

What are some advantages of a partnership?

Answer 7

• Share workload.
• Better decisions made for the business-more discussion.
• Share skills.

Question 8

What are some of the disadvantages of a partnership?

Answer 8

• Might disagree with the other partners.
• Unlimited liability.
• Share profits.

Question 9

What are stakeholders?

Answer 9

Stakeholders are individuals, groups or organisations that are affected by the activity of the business.

Question 10

What is a shareholder?

Answer 10

A shareholder is a person or an organisation that owns part of a company. Each shareholder owns a share of the business.

Question 11

What is a company?

Answer 11

A business that has its own legal identity.

Question 12

What is the stock exchange?

Answer 12

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

Question 13

What is a flotation?

Answer 13

A flotation occurs when a private limited company (ltd) becomes a public limited company (plc) and has its shares listed on the stock exchange.

Question 14

What are the advantages of setting up as a private limited company?

Answer 14

• If the business founders die, the company still exists and is passed on to the shareholders.
• Limited liability (the shareholders’ personal possessions are safe).
• less paper work than plc.

Question 15

What are the disadvantages of setting up a private limited company?

Answer 15

• various legal procedures need to be completed, such as registering the company.
• the business must pay corporation tax.
• accounts must be checked by an independent accountant, which will create additional cost.

Question 16

Who owns a private limited company?

Answer 16

The shareholders.

Question 17

What is a public limited company?

Answer 17

A public limited company is a company that has shares that are sold to the public on the Stock Exchange.

Question 18

What are the advantages of becoming a public limited company?

Answer 18

• plc’s can advertise its shares to the general public-more potential investors.
• plc’s attract more media coverage because they usually have more shareholders.

Question 19

What are the disadvantages of becoming a public limited company?

Answer 19

-A plc cannot control who buys its shares, so managers may find that a competitor buys control of the company and takes it over.

Question 20

What is a not-for-profit organisations?

Answer 20

A not-for-profit organisation is set up to achieve objectives other than profit; for example, a charity.

Question 21

What is a deed of partnership?

Answer 21

A Deed of Partnership is an agreement between partners that sets out the rules of the partnership, such as how profits will be divided.

Question 22

What is corporation tax?

Answer 22

Corporation tax is when a company has to pay tax on their total earnings in a year. However, if a company is not making a profit, they don’t have to pay any corporation tax.