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Business Theme 1 > 1.5.4. Forms of Business > Flashcards

1.5.4. Forms of Business Flashcards

1
Q

How many people operate a sole trader?

A

1

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2
Q

How is a sole trader financed?

A

Either by personal savings, family/friends or a loan from a financial institution.

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3
Q

What is the owner of a sole trader taxed on?

A

The profit that the business makes.

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4
Q

What records must a sole trader owner keep?

A

Proper and financial records of all income and expenditure.

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5
Q

What does the owner of a sole trader not have to publish?

A

Business accounts.

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6
Q

What must a sole trader owner complete for HM Revenue and Customs?

A

A self assessment tax return.

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7
Q

Who is responsible for a sole trader’s National Insurance contributions?

A

The owner.

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8
Q

What are the advantages of a sole trader?

A
  • owner keeps all the profit
  • owner makes all decisions
  • relatively simple business to start up
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9
Q

What are the disadvantages of a sole trader?

A
  • owner is partially responsible for all debts and losses (unlimited liability)
  • owner must take total responsibility for efficient and effective running of business
  • owner has limited ability to raise capital for expansion as business is usually small with a limited asset valuation for use as collateral security
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10
Q

How many people are in a partnership?

A

2 or more.

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11
Q

What act lays down fixed conditions that partners must follow?

A

Partnership Act 1890

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12
Q

What is a partnership agreement?

A

A legal document detailing how the partnership is to operate, and all partners must agree.

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13
Q

How is a partnership financed?

A

Self raised or from loans.

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14
Q

What is each partner taxed on?

A

Their share of the profits

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15
Q

What must partners keep records of?

A

All expenditures and incomes.

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16
Q

Advantages of partnerships?

A
  • capital/risks/ideas are shared
  • each partner can specialise in different areas
  • normally raises capital easier because business is larger and has greater asset valuation
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17
Q

Disadvantages of partnerships?

A
  • profit is shared
  • equally responsible for debts
  • decision making can be slow
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18
Q

PLC’s exist…

A

…in it’s own right.

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19
Q

What are the finances of PLC’s separate to?

A

The personal finances of owners.

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20
Q

What are shareholders protected by?

A

Limited liability.

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21
Q

What does limited liability mean?

A

That if the company fails, shareholders only lose the amount of capital that they have invested in the company.

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22
Q

What act must LTD’s follow?

A

The Companies Act 2006

23
Q

How many shares must a LTD have?

A

At least one

24
Q

Can a LTD issue shares to the general public?

A

No.

25
Q

Where must a LTD be registered?

A

Companies House.

26
Q

How many directors must a LTD have?

A

At least one.

27
Q

What does a LTD director do?

A

Makes all management decisions.

28
Q

What must a LTD file?

A

Annual accounts with Companies House.

29
Q

What are advantages of a LTD?

A
  • less risky as shareholders are protected by Limited Liability
  • this encourages more people to invest, which gives the company a larger capital base
  • has perpetual existence, which means that even if a shareholder dies, the company will exist in its own right
30
Q

Disadvantages of a LTD?

A
  • cannot offer shares to the general public
  • profit is distributed to shareholders (limits profit for expansion/reinvestment)
  • must file annual accounts
31
Q

What is a franchise?

A

When the owner of an established business grants the right to sell their product/service in exchange for monetary consideration.

32
Q

Advantages for franchisor?

A
  • receive lump sum income on top of a regular agreed percentage of profit
  • name of business gets more widely promoted
33
Q

Advantages for franchise?

A
  • trades under established business name

- has access to network of help and support from franchisor

34
Q

Disadvantages for franchisor?

A
  • loss of control over operation of business

- reputation can be damaged

35
Q

Disadvantages for franchise?

A
  • must conform to image and characteristics of franchise

- part of profits must be paid to franchisor

36
Q

Why do not-for-profit businesses trade?

A

In order to benefit the community or social purpose for which it was set up.

37
Q

What is the profit from not-for-profit businesses used for?

A

Reinvested into the community or used to support principles for which they were formed.

38
Q

Instead of shareholders, what do not-for-profit’s have?

A

Trustees who are gaurantors.

39
Q

What restricts distribution of profit to members of not-for-profits?

A

Memorandum of Association.

40
Q

What can not-for-profit’s apply for?

A

Charitable status.

41
Q

Why are online businesses attractive for potential owners?

A

There are very few costs involved and can start with very little capital.

42
Q

What do lifestyle businesses often start as?

A

Sole practitioners or partnerships with limited opportunity for growth.

43
Q

Other than profit maximisation, what are some reasons for setting up lifestyle businesses?

A
  • financial comfort
  • flexibility
  • quality of life
44
Q

What are the finances of PLC’s separate to?

A

The finances of shareholders.

45
Q

How many shareholders must a PLC have?

A

At least 2.

46
Q

A PLC must have issued shares to the value of what before they can trade?

A

£50,000

47
Q

How do PLC’s issue shares?

A

Through stock exchange.

48
Q

Where must a PLC be registered?

A

Companies House

49
Q

Where does a PLC’s finances come from?

A

Public share issue, debenture issue, borrowings and retained profits.

50
Q

What must a PLC file?

A

Annual accounts.

51
Q

What are advantages of a PLC?

A
  • can obtain very large amounts of capital
  • usually dominate market and have extensive asset base, so find it easy to obtain loans
  • benefit from Economies of Scale because of their huge size
52
Q

What are disadvantages of a PLC?

A
  • can get too large and impersonal, causing employees to lose sense of identity and demotivation/communication problems
  • small group of directors make all the decisions, which might not be widely agreed within company
  • large hierarchical structure works against fast/effective decision making
  • hostile takeovers
53
Q

What are hostile takeovers?

A

Being unwillingly taken over by another company.

Business Theme 1 (16 decks)

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