1.5.4 Forms Of Business

Question 1

What type of businesses to most start out as

Answer 1

• a sole trader

Question 2

What are the forms of business

Answer 2

• a sole trader
• social, lifestyle & online
• franchise
• public ltd company
• private ltd company
• partnership

Question 3

Sole trader:

Answer 3

• a business that has a single owner

Advantages:
- they are easy and inexpensive to set up
- the owner has complete control over the business
- all profits belong to the owner
- simple tax arrangement

Disadvantages:
- the sole trader is responsible for any debts the business incurs
- limited access to finance and capital
- limited skill set of the single business owner

Question 4

Partnership:

Answer 4

• two or more people join together to form a business

Advantages:
- easy to set up and inexpensive
- shared responsibilities and decision making
- more skills and knowledge are available
- increased access to finance and capital

Disadvantages:
- partners have unlimited liability
- potential for disputes between partners
- profits are often shared equally, regardless of the contribution
- difficult to transfer ownership

Question 5

Private limited company

Answer 5

• the ownership of the business is broken down into a specific number of shares

Advantages:
- limited liability, meaning the owners are not personally responsible for the company’s debts
- access to greater finance and capital
- easier to transfer ownership
- can have a professional image and reputation

Disadvantages:
- more expensive and time consumer to set up
- more complex legal requirements and regulations than sole traders
- annual financial reporting and auditing are required
- shareholders have little control over the company as the founder usually imposes their agenda

Question 6

Franchising:

Answer 6

• a business model where and individual (franchisee) buys the rights to operate a business model, branding, and support from a larger company (franchisor) in exchange for an initial lump sum plus ongoing fees
• the franchisee operates the business under the franchisor’s established system and receives training, marketing support, and ongoing assistance

Question 7

Social enterprises:

Answer 7

• a business that has a primary purpose to create social or environmental impact in addition to generating profits
• profits are usually reinvested back into the business or used to create positive social change or address an environmental issue