1.5.4 - Forms Of Business

Question 1

Def of liability

Answer 1

Refers to the extent to which the owners of the business must repay debts incurred in the running of the business

Question 2

Def of unlimited liability

Answer 2

Means the owners of the business must take personal responsibility for covering the debts run up by their business. If the business goes bust, the owner can be forced to sell their personal assets

Question 3

Def of limited liability

Answer 3

Is a form of legal protection for business owners which ensures that owners of a limited company can lose the money they have invested in the business

Question 4

4 legal forms of business covered

Answer 4

Sole,p trader, partnership, private limited company, public limited company

Question 5

Non legal forms of business covered

Answer 5

Franchising, social enterprise, lifestyle business and online business

Question 6

2 businesses with unlimited liability

Answer 6

Soletrader

Paternershipsn

Question 7

Description of sole trader

Answer 7

A person who starts and runs a business without turning it into a company, as a result, the owner is liable for any debts built up in running business.

Question 8

What happens if a sole trader goes bust

Answer 8

The owner has to use personal assets to repay those whom the business owes money

Question 9

Benefits of being a sole trader

Answer 9

• owner has full control over decisions
• owners keeps all profits made
• minimal paper work needed to start up

Question 10

Drawbacks of being a sole trader

Answer 10

• owner has unlimited liability for debts

- hard to raise finance

Question 11

Descriptions of partnership

Answer 11

Several owners that each bring capital into the business meaning the responsibility of the business is shared

Question 12

Benefits of a parternship

Answer 12

• more owners can allow more finance to be raised
• partners may bring varied skills and experience
• shared burden of responsibility among partners

Question 13

Drawbacks of partnerships

Answer 13

• partners have unlimited liability

- potential for disagreement among partners

Question 14

2 businesses with limited liability

Answer 14

Private limited company

Public limited company

Question 15

Description of private limited company

Answer 15

No minimum share capital, increased legal formalities such as having accounts independently audited each year. A business will always be a private limited company before public limited company

Question 16

Description of public limited company

Answer 16

Only type of business that can sell shares via stock market to general public - raising vast sums of money.

Question 17

How much money must public limited company raise

Answer 17

£50 000 sharecapital to become a public limited company

Question 18

What has to happen to become a public limited company

Answer 18

Float on the stock market involving regulatory requirements

Question 19

Def of franchise

Answer 19

Is a license to use another business name and business model in return for payment

Question 20

Def of franshisor

Answer 20

Is a business that sells the right to use its name and logo to other businesses of entrepreneurs

Question 21

Def of franchisee

Answer 21

Is an entrepreneur or company that buys a license to use another businesses name and business model in return for payment

Question 22

Benefits of franchising

Answer 22

• support from franchiser in providing materials and fixtures and fittings
• advice and training on all business functions
• easier access to loans and banks recognise lower risk involved in starting franchisee

Question 23

Weakness of franchising

Answer 23

• Franchisee can’t make decisions
• dictated by franchisor
• likely to be initial franchise fee to buy the license
• franchisor will expect royalities

Question 24

Description of social enterprise

Answer 24

Desire to fix social problems above the profit motive when making decisions

Question 25

Descriptions of lifestyle business

Answer 25

Suits their desired lifestyle, maximising profit isn’t main goal giving flexibility

Question 26

Description of online business

Answer 26

Internet enabling business to connect with consumers without being face to face
- lower costs with higher potential revenues