Business Environment

Question 1

What is a business?

Answer 1

A business is any economic activity that is carried out with the aim of making profits.

Question 2

Who is a sole trader?

Answer 2

This is a person who runs a business by themselves and they receive all profits made by the business

Question 3

Features of a sole trader?

Answer 3

• Simplest form of business
  -Appropriate for most types of small businesses.
• Funds and running is done by one person.
• More than one person can work in the business.
• Can do both retail and wholesale trade

Question 4

Advantages of Sole trading

Answer 4

• Simple and cheap to set up
  -No legal or admin set up costs required because it is not a legal entity separate from owner.
• Not required to file a formal report and accounts each year with registrar companies.
  -Quick independent and operational decisions.

Question 5

Disadvantages of sole trading

Answer 5

• Normally remains small
  -Personal assets are at risk because of limited liability.
• No co-owner to share responsibility with and management.
• Entire responsibility for all aspects.
  -Responsible for all debts of the business.
• Lacks collateral so difficult to source outside finances.

Question 6

Partnership organization?

Answer 6

This is an organization run by two or more people and the responsibilities are shared.

Question 7

General Partnership

Answer 7

Partners work together on a fail basis sharing privileges, benefits and liabilities of the partnerships.

Question 8

Limited Partnership

Answer 8

One contributes and one works.

Question 9

Partnership advantages?

Answer 9

• Few formalities when setting up.
• No formal file report and accounts each year with registrar of companies.
• Broader base of business skills.
• Share risk taking, decision making and general management.

Question 10

Partnership disadvantages?

Answer 10

• Partners are jointly and severally liable for debts of firm.
• Personal property may be used to pay for debts.
• liability of partner’s actions.
• Personality clashes can affect the business greatly.
• Death or bankruptcy will dissolve the partnership.
• Less flexibility or operations.

Question 11

Limited companies?

Answer 11

Two or more people come together for a common business goal.
Company has own cooperate personality
When company fails each one according to their shares to pay debts.
Either public or private.

Question 12

Private limited company features?

Answer 12

Designated as Ltd
Minimum number of shareholders 2-50
Legal formalities when setting up.
- Drafting company’s memo and articles of association.
- Registering the company and it’s directors with the registrar of companies.
- Company name registration.

Question 13

Ltd advantages

Answer 13

Legally separate person from owner
Liability of shareholders is limited, so personal assets not at risk.
Shareholders have direct control over company’s affairs
Can easily raise more capital by selling shares though not publicly.
Has sure continuity as many people are involved.

Question 14

Ltd disadvantages

Answer 14

Too many legal formalities to comply with
Accounts should be audited yearly which needs the service of auditors
Less flexibility as compared to sole proprietorship
It is costly to form a limited company

Question 15

Public limited company features?

Answer 15

Designated as plc
First starts as a Ltd and then apply for registration and lists it’s share on the stock exchange
Formed by Atleast 2 and has no maximum number
Shareholders elect board of directors to control it
Board of directors deal with managing directors on policy issues

Question 16

PLC advantages?

Answer 16

The company is a separate legal entity and liability is according to shares
It can raise more capital by sales of shares on the stock exchange
It can employ pros in fields like marketing and accounting making it more efficient
Size equal to better equipment and tech
Assured continuity

Question 17

PLC disadvantages

Answer 17

It has to comply with many regulations set to protect employees, employers and stakeholders
Little secrecy accounts published annually
Decisions tend to be delayed
The risk of take over bids by other companies because shares can easily be bought on stock exchange

Question 18

What is the business environment?

Answer 18

This is defined by the total surroundings external forces, factors and institutions that have an impact on how a business functions indirectly and directly.

Question 19

Why study it?

Answer 19

So as to develop strategies and long policies of the firm.
So as to develop action plans to deal with tech advancements
To foresee the impact of social and economic changes at national and international level.
Analysis of competitors strategies and formulation of effective counter measures
Keeps business flexible and dynamic towards changes in the environment

Question 20

Importance of business environment

Answer 20

Determining opportunities and threats
Giving direction for growth
Continuous learning
Image building
Meeting competition
Identifying firms weaknesses and strengths

Question 21

What is an internal environment?

Answer 21

These are the conditions and forces within an organization such as
Employees
Board of Directors
Culture

Question 22

Explain the board of directors?

Answer 22

They are elected by stockholders and are in charge of overseeing general management of the firm to ensure that it is run in a way that best serves the interests of stockholders.

Play major role in helping set corporate strategy and seeing that it is implemented properly
Reviews all important decisions made by top management and determines compensation for top managers