3.1.2 Understanding different business forms

Question 1

What is a private sector business?

Answer 1

Businesses that are owned and controlled by an individual or groups of individuals

Question 2

Give examples of private sector businesses

Answer 2

• Sole traders

- Companies (private limited companies/public limited companies)

Question 3

What are sole traders?

Answer 3

A business that is owned and operated by one person

• They must have the confidence to take decisions and the range of skills necessary to run the business
• Requires a high level of self discipline because there is no one checking up or offering guidance

Question 4

Advantages of operating as a sole trader?

Answer 4

• Easy to start up and manage
• Don’t have to take orders from anyone - have the freedom to make own decisions
• Any profit made by the business does not have to be shared
• Making key decisions can be motivating
• Decisions can be made quickly and sole traders can respond rapidly to changes in the market

Question 5

Disadvantages of operating as a sole trader?

Answer 5

• Pressure to make all decisions alone - pressure of holding responsibility if anything goes wrong
• Difficult to raise finance to start or expand the business - sources of finance are limited
• Unlimited liability - the owner is personally responsible for any loses
• It can entail working long hours, with limited holidays, leading to stress