3.1.2- Understanding different business forms

Question 1

What are the different forms of businesses?

Answer 1

• Sole traders
• Private limited companies and public limited companies
• Private sector and public sector organisations
• Non profit organisations
• social enterprises

Question 2

What is a public sector?

Answer 2

Businesses owned by the government that provides a service rather than makes a profit. E.g. NHS. Its usually funded by UK tax system

Question 3

What are private sectors?

Answer 3

Businesses owned and run by private individuals. E.g. ASDA. They usually aim to make a profit

Question 4

What are non-profit organisations?

Answer 4

Private sectors that dont make a profit. E.g. charities.

Question 5

What are the aims and objectives or non-profit businesses?

Answer 5

The help people in need or benefit the community. E.g
* Charities like British Red Cross, earn money from donations which is sued to fund activities like setting hospitals in developing countries

Question 6

What is unlimited liability?

Answer 6

When the businesses debts become the personal debts of the owner, they have to use personal assets to pay it off

Question 7

What is limited liability?

Answer 7

The owners arent personally responsible for the debts. They only lose how much they invested into the business

Question 8

What is a sole trader?

Answer 8

A business owned by one person

Question 9

What are the advantages of being a sole trader?

Answer 9

• Freedom: They have control over decisions
• Profit: entitled to all the profit made
• Simplicity; less form-filling than limited companies

Question 10

What are the disadvantages of a sole trader?

Answer 10

• Risk: theres no one to share responsibilities with
• Time: Often work long hours to meet tight deadlines
• Vulnerability: Theres no one to cover if the trader gets ill and cant work

Question 11

What are some factors about Private limited companies (LTDs)?

Answer 11

• Cant sell shares to the public, people in company own them
• Dont have share prices quoted on stock exchanges
• Shareholders may be unable to sell shares w/out agreement of other shareholders.
• Often small family businesses
• No minimum share capital requirement

Question 12

What are some factors of a public limited company (PLC)?

Answer 12

• Can sell shares to public, issue a prospectus to inform others before they buy
• Share prices can be quoted on stock exchanges
• Shares are freely transferable, can be bought or sold
• Usually start private than go public to raise capital

Question 13

Who are LTDs run by?

Answer 13

Shareholders who are the directors of the business

Question 14

Who are PLCs run by?

Answer 14

Directors. Who are elected to the board by shareholders

Question 15

What are shares?

Answer 15

Shares are sold by the companies to raise money. Ordinary share capital is usually used for long term investment

Question 16

What are dividends?

Answer 16

They are a proportion of profits earned by the company, split and paid to shareholders. Dividends arent always paid out

Question 17

What are shareholders?

Answer 17

Anyone who owns at least one share in a company

Question 18

Who are the shareholders in a PLC?

Answer 18

• Idividuals
• Companies
• Institutions

Question 19

What are the main factors of shareholders?

Answer 19

• They provide funds for businesses
• Shareholders with the most shares have the most power
• Shareholders have a right to receive dividends
• Shareholders have limited liability

Question 20

Why do shareholders invest in companies?

Answer 20

• To be paid dividends: the more shares a shareholder owns, the bigger the dividends
• In order to achieve capital gain: Buying shared at a low price, and selling them when share price rises to make profit
• Some believe in the aims and objectives of the company

Question 21

What factors influence demand and supply (which affects share price)?

Answer 21

• Performance: better performance means a bigger dividends payment. Leading to increase in demand for shares.
• Economy: With strong economy, people have more money to invest, and confidence they will get a good return, this increases demand and share price.

Question 22

What are the short term impacts of share price changes?

Answer 22

Can effect shareholders who want to buy and sell shares for short-term capital gain. If share price increases, shareholders will make money. Decreasing share prices mean a shareholder makes a loss when selling