1.5.4. Forms Of Business

Question 1

Unlimited liability vs limited liability

Answer 1

Unlimited- Liable for debts built up running business. If it fails, personal assets vulnerable as can be used to repay those owed money. So owner is personally responsible for debts

Limited- personal assets protected

Question 2

Sole trader

Answer 2

-Someone who starts and runs business without turning it into a company. Business and owner seem as the same.
-Unilimired liability, unincorporated

+ves:
- Full control over decisions
-Owner keeps all profits made
-Minial paperwork to start up

-ves:
-Owner has unlimited liability
-Harder to raise finance

Question 3

Partnership

Answer 3

-Two by or more people join together to form business to usually raise finance as they can each bring capital into business . Responsibility shared, with skills and experiences
-Unlimited liability, unincorporated

+ve:
-More owners can allow more finance to be raised
-Bring skills, expertise
-Share responsibility

-ve:
-Unlimited liability
-potential disagreement

Question 4

Private limited company

Answer 4

-Limited liability business owned by shareholders, who can offer share for sale privately usually to friends, family or venture capitalists
-Incorporated

+ves:
-limited liability
-access to greater finance
-easier to transfer ownership

-ves:
-expensive
-time consuming
-shareholders have little control over company
-annual financial reporting required

Question 5

Private limited company

Answer 5

-Limited liability business owned by shareholders, who can offer share for sale privately usually to friends, family or venture capitalists
-Incorporated

+ves:
-limited liability
-access to greater finance
-easier to transfer ownership

-ves:
-expensive
-time consuming
-shareholders have little control over company
-annual financial reporting required

Question 6

Incorporated vs unincorporated

Answer 6

Incorporated-Owner is the business. No legal differences. Owner has unlimited liability
-Sole trader, partnership

Unincorporated-Legal difference between business and owner. Limited liability
-PLC, LTD

Question 7

Public limited liability (PLC)

Answer 7

-Sells shares via stock market to general public to raise lots of share capital. Must have minimum of £50,000 share capital and lots of regulatory requirements involved in floating company on stock market. Continuing your meet annual requirements is expensive
-Incorporated, limited liability

+ve:
-Significant capital can be raised
-Risks shared among large group of shareholders(reduces financial risk)
- increased liquidity (can be bought and sold more easily)
-extended decision making
-greater public profile

Question 8

Franchising

Answer 8

-individual buys right to operate a business model from larger company. Receives branding and business systems in exchange ve for initial lump sum of money and ongoing fees

+ves:
-Still your own business
-Low risk of failure
-Has support
-Guaranteed local monopoly for that brand
-Easier to raise finance

-Ves:
-Not cheap
-restrictions on selling
-unable to make decisions dictated by franchisor
-franchisor expects % of revenue with initial costs

Question 9

Social enterprise

Answer 9

Primary purpose to create social or environmental impact as well as generating profits. Profits usually reinvested into business Has desire to fix social problem above profits

Question 10

Lifestyle business

Answer 10

-Typically small, owner operated businesses that prioritise specific lifestyle or personal interest of owner over profits.
Flexibility in working etc

Question 11

Online businesses

Answer 11

-Lower overhead cost(no need to spend on physical premises)
-Higher potential revenue (scope to sell worldwide)