1.5.4 Forms Of Business- Legal Structures

Question 1

what is a sole trader

Answer 1

a business owned by one individual who retains all profits

Question 2

pros of being a sole trader

Answer 2

• simple set up, quick, easy
• don’t have to publish accounts
• retain all profit
• more control in decision making

Question 3

cons of being a sole trader

Answer 3

• unlimited liability, personal assets at risk
• fewer sources of finance, expansion may be slower
• need to be multi-skilled
• lack of flexibility, hard to take holiday

Question 4

what is a partnership

Answer 4

a business owned by a minimum of two and a maximum of 20 partners

Question 5

pros of partnerships

Answer 5

• more finance available
• shared workload, more flexibility
• specialise in expertise
• more industry contacts

Question 6

cons of a partnership

Answer 6

• unlimited liability, personal assets are liable if the business fails
• shared profits
• shared control, conflict can occur

Question 7

what is a private limited company ltd

Answer 7

a company owned by shareholders and have it managed by a director
- shareholders are known to the company
- personal assets are protected
- shares not available on the stock exchange

Question 8

pros of a private limited company ltd

Answer 8

• limited liability, personal assets separate
• additional source of finance through shares
• control of shareholders
• higher prestige than a sole trader/partnership

Question 9

cons of private limited company ltd

Answer 9

• no access to the stock exchange which generates large amounts of money
• shared profits, diluted profit
• the legal requirement to publish financial accounts
• more admin

Question 10

what is a public limited company plc

Answer 10

a company that offers its shares to the general public via the stock exchange

Question 11

pros of public limited company

Answer 11

• access to stock exchange gives access to a large amount of finance
• limited liability
• higher prestige
• allows the business to become larger

Question 12

cons of a public limited company

Answer 12

• no control over shareholders, which could cause conflict
• becoming one is expensive

Question 13

what is flotation

Answer 13

process of a private limited company offering shares on the stock market to become a public limited company

Question 14

if you get a long-answer question on moving between these types of business think PLUMS (how is the business affected by moving between sole traders, partnerships, ltd’s and plc’s)

Answer 14

P is for profits, how are they distributed
L
unlimited and limited liability
U
M is for management and control of the business
S is for sources of finance

Question 15

what is a franshisor

Answer 15

creator of a franchise who allows a franchisee to use the successful business formula in exchange for an initial fee and then a cut of the profits

Question 16

what is a franchisee

Answer 16

person or company that has paid to become a part of a franchise

Question 17

what does the franchisor have control of

Answer 17

product range
interior of outlet
staff uniform

Question 18

what does a franchisee have control of

Answer 18

staff training
staff recruitment
stock control

Question 19

pros of becoming a franchisee

Answer 19

• brand recognition
• easier than starting from nothing, the franchisor helps you run the business
• less time consuming
• less risk, more likely to get loans because the franchise is a known brand

Question 20

cons of becoming a franchisee

Answer 20

• limited freedom in making decisions, like staff uniforms
• reputation relies on what happens in other franchisees
• initial fee to become a part of the franchise
• cut of profits given to franchisor

Question 21

pros of becoming a franchise

Answer 21

• speed up growth
• less HR costs
• profit from the initial fee the franchisee has to pay and the cut of the profits they pay
• increases brand recognition

Question 22

cons of becoming a franchise

Answer 22

• reduction in control, staff, training, stock
  if the franchise is unable to meet good standards, customers may not have a consistent experience and may decrease their reputation
• profit sharing with the franchisee