1.5.4 Forms of business

Question 1

Unincorporated

Answer 1

The owner = the business
Owner has unlimited liability for business actions
Most = sole traders

Question 2

Incorporated

Answer 2

Legal difference between business and owner - separate legal identity
Owners/shareholders have limited liability
Most = LTD

Question 3

Unlimited liability

Answer 3

Business owner = personally responsible for debts and liability of the business
If unincorporated business fails the owners are liable for the amounts owed

Question 4

Sole Trader Advantages

Answer 4

Easy to set up - no complicated forms
Make quick decisions
All profit kept
Company info is private
Less capital needed

Question 5

Sole trader disadvantages

Answer 5

Unlimited liability
Difficult to raise money - seen as a risk
No economies of scale
No one to take over - unwell, holidays

Question 6

Partnerships Advantages

Answer 6

Legal partnership agreement set out - how profits are shared, what partners have to invest, how decisions are taken, what happens if partner leaves.
Advantages 
Larger range skills and knowledge
Partners able to raise more capital
Pressure on owners is reduced - holiday

Question 7

Partnerships Disadvantages

Answer 7

Control is shared - arguments common
Still a shortage of capital
Unlimited liability

Question 8

Limited liability

Answer 8

Shareholders can only loose the value of their investment in the share capital of the company
Shareholders do not own company assets
Private and public limited company

Question 9

Private limited company - LTD

Answer 9

Owners control who buys shares

Question 10

LTD - Advantages

Answer 10

Limited liability for shareholders
Capital raised by selling shares
Control cannot be lost by outsiders
Owners have tax advantages

Question 11

LTD - Disadvantages

Answer 11

Must publish financial info of performance
Greater scrutiny of activities
Very expensive to set up
Founder may loose control
Significant administrative expenses

Question 12

Going from LTD to PLC

Answer 12

If LTD has grown and needs further investment may consider - PLC
Going public = expensive - lawyers draw up legal paperwork, publications,, insurance against unsold shares, need 50k in share capital, advertising and admin

Question 13

Social enterprise

Answer 13

Not for profit - have a social mission

Usually generate incomes through donations and reinvest most of the profit

Question 14

Franchises

Answer 14

Franchisor grants a license to another Business to allow it to trade using brand format

Question 15

Benefits to franchisor

Answer 15

Can accelerate growth of a proven service business format
Enables rapid geographical growth for a minimum investment
Still have option to open sole branches
Can cream off above normal profits
Risk of failure reduced - if fail, cost paid by franchisee

Question 16

Drawbacks to franchisor

Answer 16

Franchisee keeps some profit
Significant cost in supporting franchises e.g. training
Unsuccessful franchise could affect business as a whole e.g hygiene - affects brand na,e

Question 17

Benefits to franchisee

Answer 17

Don’t have to advertise or promote
Less failure risk - established brand
Training administration fees etc - paid by franchisor
Set up and ongoing costs = predictable

Question 18

Drawbacks to franchisee

Answer 18

Fees - set up, on going etc may be higher than expected
Contract - can loose franchise and also restrictions such as Non - competition clauses
Other franchises can give bad name

Question 19

Life style business

Answer 19

Provides great quality of life for owner - allows them to live how they want
Business objectives not important
Business = something they enjoy

Question 20

Online business

Answer 20

Can be managed from anywhere - don’t need to be in an office
Available 24/7
Easy to set up