1.3 Different forms of legal ownership

Question 1

What type of business operate within the private sector?

Answer 1

Sole traders
Partnerships
Private limited companies
Public limited companies

Question 2

What are the advantages of a sole trader?

Answer 2

Start-up costs are low
retain all profit
Makes all decisions
Financial records remain private
Motivation is high

Question 3

What are the disadvantages of a sole trader?

Answer 3

Difficult to raise finance
Unlimited liability
Skills shortage
Limited capital for investment
Business ends if owner dies
Long hours, few holidays

Question 4

What are the advantages of a partnership?

Answer 4

Cheap and easy to set-up
Workload shared
Funds from each partner
Multiple skills
Co-owner to discuss ideas with
Financial records remain private

Question 5

What are the disadvantages of a partnership?

Answer 5

Unlimited liability
No separate legal identity
profits must be shared
Arguments can occur with decision making
Business ends if partner dies or resigns

Question 6

What are the advantages of an ltd?

Answer 6

Limited liability
Separate legal identity
Can raise funds by selling shares
Can control who buys shares
Range of skills and experience
Business continues if shareholders die

Question 7

What are the disadvantages of an ltd?

Answer 7

Pay dividends to shareholders
Complex to set up due to increased legal requirments
Financial accounts not private (Companies house)
Pay corporate tax

Question 9

What are the disadvantages of a plc?

Answer 9

Pay diviends to shareholders
Risk of hostile takeover
Very complex to set up due to increased legal requirments
Original owners lose some control of the business
Financial accounts must be published
Pay corporate tax

Question 10

What are the advantages of goverment owned organisations?

Answer 10

Limited liability
Not driven by need to make a profit
Provides services other business would not provide
Availability of funds through taxes
Wide range of expertise
Protected from bankruptcu and takeovers

Question 11

What are the disadvantages of government owned organisations?

Answer 11

Slow to change
Bureaucratic
Lack of profit motive may lead to inefficiences
Inflexible procedures
Diseconomies of scale
Slow decision making

Question 12

what are the advantages of not for profit organisations?

Answer 12

Limited liability
Any surplus made is used for charitable benefit
Tax exempt
Direct control of business aims
Business continuity

Question 13

What are the disadvantages of not for profit organisation?

Answer 13

Strict “charitable status test”
Bureaucratic rules and regulations
Financial accounts not private
Relies on volunteers