1.3 Business Ownership

Question 1

What are the 4 main types of business ownership?

Answer 1

Sole trader.
Partnership.
Private limited company (Ltd).
Public limited company (Plc)

Question 2

Define ‘sole trader’

Answer 2

A business owned by one person.

Question 3

What are the main advantages of operating as a sole trader?

Answer 3

Easy to set up.
Little capital (finance) required to set up.
Owner has full control.
Owner keeps all profits (after income tax).
Financial information is private.

Question 4

What are the main disadvantages of being a sole trader?

Answer 4

Unlimited liability.
Lack of continuity.
Illness/holidays can be a problem.
Shortage of capital.
Long hours.
Skills shortage.

Question 5

What is unlimited liability?

Answer 5

This is where the responsibility for all the debts of the business rests with the owners of the business.
If the business cannot pay its debts, the owners could lose their personal possessions.

Question 6

Can a sole trader employ people?

Answer 6

Yes.

Question 7

Define ‘partnership’.

Answer 7

A business owned by two or more people.

Question 8

What are the main advantages of being a partnership?

Answer 8

More capital.
Easy to set up.
More skills.
Workload is shared.
Financial information is private.

Question 9

What is the difference between a normal partner and a sleeping partner?

Answer 9

A normal partner has unlimited liability, whereas a sleeping partner has limited liability.

Question 10

Why does a sleeping partner have limited liability?

Answer 10

Because they are not involved in the day to day decisions and running of the business, so they may not have accrued the debt.

Question 11

What are the disadvantages of a partnership?

Answer 11

Profit is shared.
Unlimited liability.
Shortage of capital.
Slower decision-making.
Continuity.

Question 12

Why might decision-making be slower in a partnership than in a sole trader business?

Answer 12

There are more people to discuss ideas with before turning them in to actions. This means decisions may take longer before they have been passed by everyone. There may even be disagreements which cause delays.

Question 13

What is a Deed of Partnership?

Answer 13

A document setting out the operations of the partnership, including the amount of capital to be invested and how the profits will be shared.

Question 14

Why is it a good idea to complete a Deed of Partnership?

Answer 14

In case there are arguments or disagreements in the future.
The Deed will have identified what will happen in this scenario.
Without a Deed of Partnership all partners are seen as being equal.

Question 15

What is capital?

Answer 15

The money raised to start or develop a business.

Question 16

List two businesses that commonly operate as a partnership.

Answer 16

Solicitors, accountants, dentists.

Question 17

What is a private limited company (Ltd)?

Answer 17

Usually a smaller business that is owned by at least 2 shareholders. Shares cannot be sold to the general public.

Question 18

What are the main advantages of being a private limited company (Ltd)?

Answer 18

Limited liability.
Continuity.
Raise finance more easily.
Control over share sale.

Question 19

What are the main disadvantages of being a private limited company?

Answer 19

Financial information is available to the public.
Administration - more complex and expensive to set up and operate.
Sale of shares is restricted.
Dividends expected by shareholders.

Question 20

What is limited liability?

Answer 20

The responsibility for the debts of a business is limited to the amount invested by a shareholder. The most they can lose is the amount they invested. Personal Possessions are not at risk.

Question 21

What is a shareholder?

Answer 21

A person who has bought a share in a business. They are the owners of public and private limited companies.

Question 22

Is a private limited company at risk of a hostile takeover?

Answer 22

No - as shares cannot be sold on without consent from the original shareholders.

Question 23

What is a public limited company (Plc)?

Answer 23

A public limited company is a large business where shares have been sold to the general public on the stock exchange.. Vast amounts of capital can be raised.

Question 24

What are the main advantages of being a public limited company?

Answer 24

Ability to raise large amounts of capital.
Easier to borrow money.
Limited liability.

Question 25

Why is it easier for a public limited company to borrow money?

Answer 25

Banks will often see them as lower risk and so are more willing to lend them money.

Question 26

What are the main disadvantages of being a public limited company (Ltd)?

Answer 26

Possibility of takeover.
Cost to set up and operate (complex and expensive).
Problems of size (may be more complex leading to inefficiencies).
Financial information available to the public.

Question 27

What is an LTD?

Answer 27

A private limited company?

Question 28

What is a Plc?

Answer 28

A public limited company?

Question 29

What is the minimum amount of share capital a Plc must raise?

Answer 29

£50,000

Question 30

Which forms of ownership are suitable for a small start-up business?

Answer 30

Sole trader, partnership or private limited company.

Question 31

Why might an established business look to change its ownership?

Answer 31

To gain the protection given by limited liability if the business has more debt.
To raise capital to grow.

Question 32

What is the only type of ownership not suitable for a new business?

Answer 32

Public limited company.

Question 33

What is a company?

Answer 33

A business that has sold shares and is registered with Companies House.

Question 34

What is a dividend?

Answer 34

A share of the profits given to shareholders.