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A level business theme 1 > 1.5.4 Forms of Business > Flashcards

1.5.4 Forms of Business Flashcards

1
Q

What is a Sole Trader?

A

One person who owns and runs their own business

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2
Q

What is Unlimited Liability?

A

When owners of a business are legally responsible for all the debts of the business

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3
Q

What are advantages of sole traders?

A
  1. Freedom –> Sole trader is their own boss and has complete control over decisions
  2. Profit –> Sole trader is entitled to all of the profit
  3. Financial records remain private
  4. Cheap and easy to set up
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4
Q

What are disadvantages of sole traders?

A
  1. Risk –> Unlimited Liability
  2. Time –> Sole trader has to work long hours
  3. Expertise –> Sole trader has limited skills
  4. Difficult to find cover when ill
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5
Q

What is a Partnership?

A

A form of legal ownership of a business that usually has between 2 - 20 owners

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6
Q

What are advantages of partnerships?

A
  1. Risks, costs and responsibilities are shared
  2. Extends variety of skills
  3. More capital can be raised as a partnership than as a sole trader
  4. Financial records remain private
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7
Q

What are disadvantages of Partnerships?

A
  1. Unlimited liability
  2. All owners have to agree on business decisions which can cause arguments
  3. If a partner dies. resigns or goes bankrupt the partnership is dissolved
  4. Any and all profit needs to be shared between the owners
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8
Q

What is a Limited Company?

A

A limited company is incorporated –> It has a separate legal identity from the owners

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9
Q

What is Limited Liability

A

The owners of the business are not legally responsible for all of the business’s debts.

Note: The owners only lose the money they invested

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10
Q

What is a Private Limited Company (Ltd)?

A

A form of legal ownership of a business in which shares are sold privately (often to friends and family)

Note: Owners can only sell shares to other shareholders

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11
Q

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

A
  1. Limited Liability
  2. Separate legal identity
  3. More capital can be raised through the sales of shares - compared to sole traders and partnerships
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12
Q

What are the disadvantages of a private limited company (Ltd)?

A
  1. Some loss of control as shareholders have voting rights
  2. Unable to sell shares to the public
  3. More complex to set up due to increased legal requirements
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13
Q

What is a Public Limited Company (PLC)?

A

a form of legal ownership of a business in which shares are sold publicly on the stock market.

Note: Must have a minimum of two shareholders and have issued at least £50,000 of shares to the public before they can trade

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14
Q

What are advantages of a public limited company (PLC)?

A
  1. Limited liability
  2. Separate legal identity
  3. More capital can be raised through the sale of shares
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15
Q

What are the disadvantages of a public limited company (PLC)?

A
  1. Lack of privacy as financial performance is available for all to view
  2. More complex to set up due to increased legal requirements
  3. Some loss of control as shareholders having voting rights
  4. Risk of hostile takeover
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16
Q

What is Stock Market Flotation?

A

When a business becomes a public limited company and sells shares on the stock market for the first time

Note: could also be referred to as ‘going public’

17
Q

What is Franchising?

A

An agreement in which one business (the franchisor) sells the rights to the name and the brand, and certain business operations, to another smaller business (the franchisee).

18
Q

What are advantages of franchising?

A
  1. Customers will already recognise the franchisor’s brand so are more likely to buy from the franchisee –> This means there’s less
    risk of the business failing
  2. As franchises are less risky then starting a business from scratch –> It can be easier to get a bank loan to start up
  3. The franchisor will provide the franchisee with training, and help with things like management and accounting.
19
Q

What are disadvantages of franchising?

A
  1. The franchisor could have strict rules about what the business can sell and how it can operate –> so the franchisee’s freedom is
    limited
  2. The franchisee usually has to pay a lot of money to start the franchise and then make regular payments to the franchisor –>
    These costs may mean they end up with less money than if they started a business from scratch
20
Q

What is a Franchisor?

A

A business that sells the rights to the brand name, trademark, brand, and certain business operations to another smaller business (the franchisee)

21
Q

What are the advantages for the franchisor?

A
  1. Rapid expansion
  2. Mass advertising
  3. Economies of scale
    (When the cost of producing each item decreases as the scale of production increases)
  4. Cheap investment
  5. Regular flow of income from franchisee’s
22
Q

What are the disadvantages of the franchisor?

A
  1. Loss of control
  2. Profit from franchisor’s idea is shared with franchisee’s
  3. Reputation can be affected by franchisee’s
23
Q

What is a Franchisee?

A

An independent, smaller business that has bought the rights to use a better known business’s brand name, trademark, brand and certain business trading operations for a fee or royalty payment.

24
Q

What are advantages for the franchisee?

A
  1. Lower risk
  2. Already has an established product
  3. Already has brand awareness
  4. Assistance:
    - At start up
    - Management
    - Training
    - Financial & Marketing
25
Q

What are disadvantages for the franchisee?

A
  1. Lack of control
  2. Must buy supplies from franchisor
  3. Franchisee cannot make individual business decisions, must consult franchisor
26
Q

What is a Social Enterprise

A

A business that’s set up with a core aim to use it’s profits to benefit society in some way

27
Q

What is a Lifestyle Business?

A

When entrepreneurs run a business to suit and meet the needs of their own lifestyle

Note: A lifestyle business focuses on a profit statisficing approach

A level business theme 1 (24 decks)

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