3.2 Types of Business Organisations

Question 1

What is a sole trader?

Answer 1

A sole trader is a business that is owned and controlled by one person.

Question 2

What are the advantages of being a sole trader?

Answer 2

1. The owner keeps all the profits.
2. The owner is own boss.
3. Financial statements remain private.
4. Quicker and easier to set up this type of business.

Question 3

What are the disadvantages of being a sole trader?

Answer 3

1. The owner is the only source of capital.
2. Long working hours.
3. heavy workload.
4. unlimited liability.

Question 4

What is a partnership?

Answer 4

A partnership is a business that is jointly owned uncontrolled by more than one person.

Question 5

What are the advantages of a partnership?

Answer 5

1. more than one source of capital
2. shared workload
3. partners can specialise
4. financial statements remain private.

Question 6

What are the disadvantages of a partnership?

Answer 6

1. Profits have to be shared between the partners
2. can be disagreements
3. unlimited liability.

Question 7

What is a limited company?

Answer 7

Unlimited company is a separate legal entity that is owned by shareholders and controlled by executive directors. There are two types of limited companies private and public limited company.

Question 8

What are dividends?

Answer 8

Dividends are a portion of a company’s earnings distributed to it’s shareholders.

Question 9

What is an asset?

Answer 9

An asset is anything that is owned by a business such as a vehicle or bank account.

Question 10

What is the difference between a private and public limited company?

Answer 10

A public limited company (plc) can sell their shares on the stock market unlike a private limited company (Ltd).

Question 11

What are the advantages of a limited company?

Answer 11

1. More capital can be raised by selling shares
2. limited liability

Question 12

What are the disadvantages of a limited company?

Answer 12

1. Takes longer and work expensive than a sole trader or partnership.
2. More paperwork and additional costs.
3. Profits have to be shared with shareholders.

Question 13

What are owners/Partners capital?

Answer 13

Is money introduced by the existing owner of the business/ new were existing partners.

Question 14

What is share capital (Ordinary shares)?

Answer 14

Share capital is money invested by shareholders which makes them the owners of a limited company.

Question 15

What are Debentures?

Answer 15

Debentures are long-term loans to a company from investors that may be secured on the assets of the company. Repaid in full at the agreed date.

Question 16

What are the Advantages of Debentures?

Answer 16

1. No loss of control of the company.
2. No repayments due for several years.
3. No more interest or payments are needed after the agreed date unlike shares.

Question 17

What are the disadvantages of Debentures?

Answer 17

1. They increase the level of capital gearing.
2. they may require security interest is payable.
3. Whether the company can afford it or not.

Question 18

What is a bank loan?

Answer 18

A bank loan is a fixed amount that must be repaid, plus interest over a stated amount of time and equal monthly installments.

Question 19

What is a mortgage?

Answer 19

The mortgage is a bank loan that is used to buy property on a secured on that property.

Question 20

What is a bank Overdraft?

Answer 20

A bank overdraft is when the business bank account has a negative balance.