1.2 types of business entities

Question 1

public sector in general

Answer 1

refers to the parts of the economy controlled by the government
the term can be used in a broad sense, meaning any type of activity (including the military, police and public education) that is run by the government and has meaningful economic implications

Question 2

public sector in business

Answer 2

has a narrower usage
a public sector company is one that the government owns
common types of public sector companies include utilities, telecommunications companies, and public transport

Question 3

private sector

Answer 3

refers to those parts of the economy not controlled by the government
is managed by individuals and companies that are not owned by the government
most private sector businesses are for-profit

Question 4

profit making businesses come in various types of legal organization:

Answer 4

• sole traders
• partnerships
• privately held companies/corporations
• publicly held companies/corporations

Question 5

profits formula

Answer 5

total revenues - total costs

Question 6

sole trader main features

Answer 6

• owns and runs the business
• no legal distinction exists between the business and the sole trader (“unlimited liability”)
• finance is usually limited
• the business is often geographically close to the customer
• the sole trader has privacy and limited accountability
• registering the business is generally relatively easy and inexpensive - and quick

Question 7

advantages sole traders

Answer 7

• all profits from the business belong to the sole trader
• complete control over important decisions
• flexibility in terms of working hours, products and services, changes to operations
• privacy, as sole traders generally do not need to divulge information
• minimal legal formalities
• close ties to customers, giving a competitive advantage

Question 8

disadvantages sole traders

Answer 8

• competing against established businesses all by yourself can be challenging
• may be stress and potential ineffectiveness because the sole trader makes all the decisions, often with limited time to make them and limited opportunity to seek advice from others
• lack of continuity in the event of a serious accident or death
• may be limited scope for expansion as the owner spends all their time running the business
• generally will be limited capital, which may be a burden. The focus will be more on having sufficient cash for day-to-day operations than on looking to the future
• unlimited liability of the owner for any faults, debts or mistakes made

Question 9

main features of a partnership

Answer 9

• decisions are made jointly
• business is owned and managed by more than one person
• no legal distinction exists between the business and the partners, who are liable for all the partnership’s debts and obligations
• finance is usually more available than for a sole trader business (more capital provided than if provided by only one person)
• some partners may be “sleeping partners” (provide finance and expect a share of profit but do not perform any other roles)
• a business operated as a partnership can often a more varied service than a sole trader
• partnerships typically have a greater degree of accountability than a sole trader
• partnerships are typically more stable than sole traders and have higher likelihood of continuity
• partnerships do not necessarily share all of the profits equally

Question 10

what does a deed of partnership include information about

Answer 10

• responsibilities
• financing
• division of profits
• liabilities
• procedures for changing circumstances

Question 11

advantages of partnerships

Answer 11

• as partners often bring different skills and qualities, partnerships may have more efficient production as a result of the specialisation and the division of labour
• partners bring more expertise to a business than one person can
• as partnerships are perceived as having refer stability and lower risk, they generally have access to more finance
• partners can help in emergencies
• partnerships have more chance in continuity as the business will not necessarily end if one partner dies

Question 12

disadvantages partnerships

Answer 12

• each partner has unlimited liability, which means each partner is legally responsible for all the business’s debts or the actions of any other partner ; the only exception to this liability is when in the deed of a partnership a partner is declared “limited partner”
• compared to businesses that operate as companies (corporations), partnerships usually have less access to loans from banks and other financial institutions; limited finance can often prevent a business from expanding or maximising opportunities for making profits
• an individual partner does not have complete control over the business and has to rely on the work and the goodwill of others
  -profits must be shared among partners
• partners may disagree, which in the west case could lead to the break-up of a partnership

Question 13

what is a shareholder

Answer 13

A person, company, or organization that owns a share or shares of stock in a given company
shareholders receive a proportion of the profits as dividends at the discretion of the company, and their proportion of the dividends is determined by their proportion of the shares of stock