1.5.4 Forms of Business

Question 1

unincorporated business

Answer 1

the owner is the business, there is no legal difference
-unlimited liability for business actions
-operate as sole traders

Question 2

incorporated business

Answer 2

there is a legal difference between the business and the owners
-has a separate legal identity
-owners have limited liability
-most operate as private limited companies

Question 3

unlimited liability

Answer 3

the owners of the business are personally responsible for all debts run up by the business
-their home and all of their assets might be used to pay off any debts that they may incur and are unable to pay.

Question 4

sole trader

Answer 4

an individual who owns and runs their own business
-registered as self-employed with HMRC
-legally required to keep a record of all income and expenses at the end of the tax year
-profits are classed as income and are taxed
-unlimited liability

Question 5

advantages of being a sole trader

Answer 5

-no need to rely on other people
-you can choose your own working hours
-in control of all business decisions
-easy to set up and close down

Question 6

disadvantages of being a sole trader

Answer 6

-unlimited liability
-income is taxable as it is profit
-can be difficult to manage it all, no backup
-may lack skills to run the business
-harder to raise finance

Question 7

partnership

Answer 7

two or people share the costs, risks and responsibilities of being in business together
-there is equal responsibility
-share profits made by company

Question 8

benefits of being in a partnership

Answer 8

-risks, costs and responsibilities are shared
-more scope for specialist skills
-financial records remain private
-minimal paperwork once partnership agreement is set up

Question 9

disadvantages of being in a partnership

Answer 9

-unlimited liability
-arguments may occur
-harder to raise finance than a company
-complicated to sell or close

Question 10

limited liability

Answer 10

shareholders can only lose the value of their investment in the share capital of the company. this makes it easier for companies to raise money by selling shares, investors will not be at risk of losing their personal possessions.

Question 11

who is a company owned by?

Answer 11

owned by shareholders
-the more shares a person owns, the more of the company that belongs to them

Question 12

advantage of being a company

Answer 12

-companies have their own legal identity which is separate from its owners, limited liability

Question 13

disadvantage of being a company

Answer 13

-documents are needed to be made, a process called incorporation.

Question 14

what must companies do?

Answer 14

-pay to have accounts checked annually by independent accountants
-make their company accounts public

Question 15

about private limited companies

Answer 15

-LTD
-benefit from limited liability
-owners can place restrictions on who the shares are sold to in the future

Question 16

advantages of LTD

Answer 16

-limited liability
-easier to raise finance and raise debt
-stable form of structure

Question 17

disadvantages of LTD

Answer 17

-greater administration costs
-public disclosure of company information
-directors’ legal duties

Question 18

about public limited companies

Answer 18

-shares are traded publicly
-minimal capital requirement of £50,000
-accounts need to be published in more detail than for a LTD company

Question 19

market capitalisation

Answer 19

the total value of all the issued shares in a public limited company

Question 20

market capitalisation formula

Answer 20

share price x number of shares issued

Question 21

franchise

Answer 21

this exists where a franchisor grants a license to another business to allow it to trade using the brand/ business format

Question 22

benefits for franchisee

Answer 22

-your own business
-advice, support, training
-easier to raise finance
-no industry expertise required

Question 23

drawbacks for franchisee

Answer 23

-not cheap
-restrictions on actions, including selling
-problems selling business on

Question 24

social enterprise

Answer 24

-businesses have social aims as well as trying too make money
-not-for-profit organisations are businesses that trade in order to benefit the community

Question 25

lifestyle business

Answer 25

a business that generates a living for the owners
-could be based around a hobby
-mostly operated as an unincorporated business

Question 26

online business

Answer 26

the internet has allowed firms to connect with consumers effectively without ever meeting face to face.
-as the internet has been growing, business opportunities have grown out of the technology

Question 27

public sector organisations

Answer 27

organisations that provide goods and services that are owned and operated by public bodies
-funded by central and local government

Question 28

not-for-profit organisations

Answer 28

businesses that trade in order to benefit the community
-have social aims as well
such as job creation and training, providing community services and fair trade with developing countries