5.1 - Forms of ownership and their advantages and disadvantages

Question 1

What is a Sole Trader?

Answer 1

Smallest type of business

Question 2

What is an example of a Sole Trader?

Answer 2

• Hairdressers
• Plumbers
• Small Shops

Question 3

What is a Partnership?

Answer 3

Business ran by two or more people (Up to 50)

Question 4

What is an example of Partnerships?

Answer 4

• Dentists
• Accountants
• Estate Agents

Question 5

What are the advantages of being a Sole Trader?

Answer 5

• The owner makes all the decisions
• It is very easy to set up
• Individualised services can be set up

Question 6

What are the disadvantages of being a Sole Trader?

Answer 6

• Owner is responsible for all business debts
• The owner may have to work long hours
• Illness can cause problems

Question 7

What are the advantages of a Partnership?

Answer 7

• Benifits from shared skills and recources - allowing for diverse expertise within businesses
• They can share the same financial burden

Question 8

What are the disadvantages of being a Partnership?

Answer 8

• Involves shared liability which means one partners mistakes can affect others
• Disagreements can lead to conflicts, impacting business operations and success

Question 9

What is unlimited liability?

Answer 9

Responsible for all debts

which has to be paid even if the business doesn’t have the money

Question 10

What would be the result of unlimited liability?

Answer 10

They may have to sell their own assets to raise the money

Question 11

What is limited liability?

Answer 11

Can only loose the money they have invested in the business

meaning that their risk is minamised as none of their personal possessionsons can be lost

Question 12

As a Private Limited Company, what can they do?

Answer 12

• Can be formed by one or more people
• Pays shareholders a dividend
• Enables shareholders to have limited liability

Question 13

What are dividends?

Answer 13

• Typically paid out in cash or additional shares of stock
• They represent a ROI for shareholders

Question 14

What are advantages of LTDs?

Answer 14

• Finance can be raised by selling shares
• Shareholders have limited liability
• Extra capital makes growth easier

Question 15

What are disadvantages of LTDs?

Answer 15

• Decisions usually takes longer to make
• Financial accounts are not private
• More expensive to set-up

Question 16

What is a Franchise?

Answer 16

Where a business sells the right to trade

under their names

to another business

Question 17

As a franchisee, what can they do?

Answer 17

• Have signed an agreement with the franchisor
• Will provide the money needed to start the business
• Will make regular payments to the franchiser

Question 18

In return what does a Franchisor do?

Answer 18

• Allow the use of their business name for an agreed time period
• Provides materials, training and advice

Question 19

What are the advantages of a Franchise?

Answer 19

• There’s a good chance of success
• Most problems will have been overcome
• Training and marketing is usually provided

Question 20

What are the disadvantages of a Franchise?

Answer 20

• Have to buy supplies from franchiser
• Have to pay royalties to the franchiser
• The initial cost of buying the franchise can be high