3.1.2 Understanding different business forms

Question 1

What is a business form?

Answer 1

Its the legal structure e.g. sole trader, partnership, PLC or LTD.

Question 2

What type of business are majority of UK businesses?

Answer 2

PLC

Question 3

What is limited liability?

Answer 3

It means that the owner has no personal liability for business debts. They are a seperate legal identity.

Question 4

What is unlimited liability?

Answer 4

If a business gains debt or goes bust the owner might need to pay it with their own savings, finances and they may even need to remortgage their home.

Question 5

What is a sole trader?

Answer 5

It is a business that is owned by one person but can employ employees or managers to run it.

Question 6

What are sole traders also known as?

Answer 6

Sole proprietor.

Question 7

Benefits of being a sole trader:

Answer 7

Easy to form, make decisions quickly, less capital needed, all profits are kept, don’t have to share their information, they are their own boss.

Question 8

Drawbacks of being a sole trader:

Answer 8

Unlimited liability, dificult to raise money (seen as a risk), don’t have economies of scale (buy in bulk), no one to take over when ill or on holidays unless they take on staff.

Question 9

What is a private limited company (LTD)?

Answer 9

Its a business that expands by selling shares to friends and family to raise more capital.

Question 10

Benefits of being a LTD:

Answer 10

Limited liability, can raise capital by selling shares, can employ managers, the business has its own legal status.

Question 11

Drawbacks of being a LTD:

Answer 11

Accounts cannot be kept private, more dificult and expensive to set up, can’t sell shares on the stock exchange which limites the amount of capital that it can raise.

Question 12

What is a public limited company (PLC)?

Answer 12

Its a business form where the shares are sold on the London stock exchange.

Question 13

Benefits of being a PLC:

Answer 13

Limited liability, can sell shares to the public to raise capital, can be traded on the stock market, banks and investors are more likely to lend cash.

Question 14

Drawbacks of being a PLC:

Answer 14

Going public is expensive:

Lawyers to draw up legal paperwork, Publications, Advertising and admin, Company must have £50,000 in share capital.

Question 15

What are public sector organisations?

Answer 15

They are organisations owned by the UK government. Taxes paid by the public and businesses go towards paying for them. According ton ONS around 5.2 million people in the UK are employed by them

Question 16

Examples of public sector workers:

Answer 16

Teachers, social worker, police officer, armed forces, prison officers, doctors, nurses.

Question 17

Objectives of public sector organisations:

Answer 17

Serve the UK public.

Question 18

Objectives of private sector organisations:

Answer 18

Survive, profit maximisation, growth, dividends for its shareholders.

Question 19

Role of the government in public sector organisations:

Answer 19

Full control.

Question 20

Role of government in private sector organisations:

Answer 20

Only interested in taxation and adhering to UK laws e.g. minimum wage.

Question 21

Which sector organisation has a stronger competative nature?

Answer 21

Private sector organisation.

Question 22

Which sector organisation has a higher employee job security?

Answer 22

Public sector organisations.

Question 23

What are non profit organisations?

Answer 23

A business which as a social objective and puts all retained profits into helping the cause e.g. charities.

Question 24

What factors lead to the chosen business form?

Answer 24

Objectives, how its financed, what products and services its offering.

Question 25

What is ordinary share capital?

Answer 25

It provides investors with voting rights (one vote per share) and represent proportional ownership of a company.

Question 26

What is maket capitalisaition?

Answer 26

It is the toal value of the company or the toal value of the shares in the company.

Question 27

Market capitalisation formula:

Answer 27

Current share price x Number of shares issued.

Question 28

What are shareholders?

Answer 28

They are the owners of the company and provide financial backing in return for dividends.

Question 29

Where will shareholder decisions be made?

Answer 29

General meetings.

Question 30

Why do shareholders invest?

Answer 30

To get a return on their capital invetment.

Question 31

What are some influences on share prices?

Answer 31

Suply and demand, interest rates, political climate, management of the company.