3.1.2

Question 1

Limited liability

Answer 1

personal assets are safe in case of business debt
owner and business have different legal identity

Question 2

Unlimited liability

Answer 2

personal assets of owner at risk in case of business financial crisis
owner and business have same legal identity

Question 3

Public limited companies PLC

Answer 3

sell shares to public via stock exchange
open to more public scrutiny

Question 4

Advantages of public limited companies

Answer 4

Limited liability
Separate legal identity
Perceived status after title of PLC
more capital can be raised through sales of shares

Question 5

Disadvantages of PLCs

Answer 5

-Lack of privacy as financial performance is available for all to view, competition can see
-more complex to set up due to increased legal requirements and ongoing administrative costs
-some loss of control as shareholders have voting rights
-risk of hostile takeovers

Question 6

Private limited companies (LTD)

Answer 6

company owned by its shareholders known to company
can only sell shares to other shareholders

Question 7

Advantages of LTDs

Answer 7

limited liability
additional source of finance available through selling shares
can control who shareholders are- less risk of conflict between owners and managers
higher prestige

Question 8

Disadvantages of LTDs

Answer 8

more complex to set up due to increased legal requirements
some loss of control as shareholders have voting rights
Unable to sell shares to public
No access to stock exchange- smaller volume of finance available
more admin- more tax

Question 9

Sole traders

Answer 9

Owned by one individual who retains all profits

Question 10

Advantages of sole traders

Answer 10

simple and easy to set up
retains all profits
control over decisions
Private finances
Higher motivation
flexible hours

Question 11

Disadvantages of sole trader

Answer 11

unlimited liability
needs to be multi skilled
Limited capital
Fewer sources of finance
Difficult to take holiday

Question 12

Not for profit organisation

Answer 12

pursue objectives that benefit society
have reduced taxes meaning higher profits to use for social objectives

Question 13

why might privatisation happen

Answer 13

private sector may be more efficient and able to raise more capital than government

Question 14

Market capitalisation

Answer 14

used to measure size of PLC
total value of shares issued by a PLC
FORMULA= number of issued shares x price of 1 (current share price)

Question 15

shareholders

Answer 15

investors who are part owners of a company
liability is limited to amount invested or promised
receive dividends in return for investment
invited to an AGM where they have a proportional voting right

Question 16

Ordinary share capital

Answer 16

External source of finance available to companies
Formula = number of issued shares x price of 1 share @ first issue

Question 17

Dividends

Answer 17

Reward for shareholders as a distribution of a % of profits by a company

Question 18

Dividends

Answer 18

Reward for shareholders as a distribution of a % of profits by a company

Question 19

Risks of buying shares

Answer 19

• price of shares can easily fall if the economy is not performing well
• companies may make lower profits than expected so dividend payments may be lower

Question 20

Influences on share prices

Answer 20

• company performance
• business environment
• investor confidence
• political stability
• global economy
• national economy

Question 21

Changes in share prices

Answer 21

• can influence perceptions of business performance
• affect ability to raise finance from other sources
• will be watched carefully by competition and other businesses
• may flag an opppurtinity for a hostile takeover
• can affect consumer confidence in economy as a whole