3 Types of Business

Question 1

What is a Sole Trader?

Answer 1

a single proprietor owns the business, taking all the risks and enjoying all the rewards of the business.

Question 2

What are the features of a sole trader? (7)w

Answer 2

• No legal distinction between proprietor and business
• The proprietor is wholly liable for the debts of the business, borrowing money in his/her own time.
• financed by capital and loans/short term credit
• Sole traders take drawings from the business.
• usual for the proprietor is a very active role
• can be sold as a going concern by its owner
• if proprietor dies then their business assets and liabilities become their esate

Question 3

What are the advantages of a ST?

Answer 3

make all decisions and get all thinsg done in their own way

no publicity requirement beyond the requirement to prepare accounts for taxation purposes

Question 4

What are the disadvantges of an ST?

Answer 4

Limits to the skill and the time of one individual. so while on-one shares theprofits there is no one to share the load

unlimited liability for company debts.

Question 5

What is a partnership?

Answer 5

the relation whoch subsists between persons carrying on a business in common with a view of profit.

two or more people who own a business and agree to take ll the risks and enjoy all the rewards of the business are in the partnership together

Question 6

What are the features of a partnership. (5)

Answer 6

Business is legally distinct from its owner but may be jointly liable for the debts of the partnerships

Partners take drawings from the business and work financially similar to sole traders

More scope of specalism and “take back seat”

A share in a partnership in not a form of property

If a partner dies a general/limited partnership is dissolved => no perpetul succession

Question 7

What are the three types of partnership?

Answer 7

General
Limited
LLP

Question 8

What are general parterships?

Answer 8

hve no seperate legal identity

Question 9

What are the advanatges of General partnerships?

Answer 9

felxibility - own boss
multiple partners ahve different skills
they share the risks associated with the business

Question 10

what are the disadvanatges of general partnerhips?

Answer 10

they have equal unlimited liability but hey ahve to share profits

based on trust o if parterships break down they cease to exsistadn therefore partners can be lfet with liability for debts run up by another partner. - difficult to exit

Question 11

what are LLPs?

Answer 11

when operting partnships are bound by rules

Question 12

what is a company? andhow do they work?

Answer 12

a legal entity registered under the compnaies Act 2006

the owners (SHs) of a imited company have limited liability for its debts beyond any amount they may still owe for the shares they hold.

The company has unlimted liability for its own debts.

Question 13

what are the 2 types of company?

Answer 13

Public and private

Question 14

What is a public company?

Answer 14

A company whose memorandum states that it is pubilc and tha is has complied with the registration for sucha company. I.e. it may offer its shares adn other securities for sale to the public at large.

Question 15

What is a priate company?

Answer 15

a company which has not been registered as a public company under the statue. It may not offer its securities to the public at large.

Question 16

do public companies have to list their shares on the stockexchange?

Answer 16

NO they dont have to necessarily.

Question 17

how many shareholders must a capmnay ahve?

Answer 17

at least 1

Question 18

public compnaies mjust have what?

Answer 18

at least 2 directors adn 12500 in sahre capital paid up at registration.

Question 19

what are the advantages of being a registered company? (5)

Answer 19

seperate legal entitty
limited liablty of its members
perpetual sucession
transferable interests
security of loans ( floating and fix charges)

Question 20

what are the disadvantages of being a registered company? (5)

Answer 20

Seperation of ownership and control (i.e. he shareholders do not have a right to participate in management)

ownership assets - the shareholders do not have the rright to share in the companies assets

accouting records and returns

publicity

regulations and expense

Question 21

What other structures are there?

Answer 21

Joint venture
Strategic Alliences
Licences
Agents
Groups

Question 22

what are joint ventures?

Answer 22

a seperate busines can be formed in whoch two ormore buinesses take a financial stake (most likely as shareholders) and managment is provided as agreed

Question 23

Benefits of JVs?

Answer 23

less capital
reduces competition
enables acess to resticted markts
access to the skills of each aprty

Question 24

Disadvantages to JVs?

Answer 24

dispute on how company shoud be run = costs incured and managemtn charges

if break down occurs skills may be used against one partner of a previous JV

possible lack of financial support

Question 25

What are liscences?

Answer 25

a permission given to another compny to manufacture or sella product, or use a brand name.

Question 26

what is the most common form of licence?

Answer 26

A franchise - involves an annual fee

Question 27

What are strategic alliences?

Answer 27

an imformal or weak contractual agreement between parties or a minority cross-shareholding agreement (samll number of shares in the other)

Question 28

SAs are similar to JVs in Adv and Disadvs - what other points are there?

Answer 28

the looser agreemnt is easier to break
they may contrvene competition laws eg be viewed as an illegal cartel
there may be less commitment than a jiont venture - so the benefits are not as great

Question 29

what are agents?

Answer 29

agents can be used as the distribution channel where local knowledge adn contracts are important eg exporting. the sgreements may be resiticted o mareking adn product support.

Question 30

What are groups

?

Answer 30

as companies are entilied to won shares - groups of companies may form.

Question 31

What are the advtanges of Groups? (5)

Answer 31

funds, people and tax losses can be moved around the group

having disinct parts allows different structure to be developed.

risk of failure is spread

minority shareings can be retained in subsideraries be the entrepreneurs who set up each business

skills, expertise, equipment and administartion matters can be shared and/or centralised.

Question 32

group disadvantages (3)

Answer 32

Financial reporting for the groups can become extremely complex

Groups of companies require alot of administartion in terms of annual return

While legally risk is spread - the failure of a group company can have detrimental effects on all the other compnaies in the group.