Business Ownership

Question 1

What is a sole trader?

Answer 1

Someone who sets up a business on their own.

Question 2

What are advantages of being a sole trader?

Answer 2

1) It’s simple, quick and inexpensive to set up.

2) The person who owns the business keeps all the profits - if there are any.

3) The owner has total control and makes all the decisions without the need to consult with others.

Question 3

What are disadvantages of being a sole trader?

Answer 3

1) It can be hard work and stressful

2) Wide range of skills is needed as an entrepreneur must manage all the business functions ( operations, finance, marketing and possibly human resources).

3) Unlimited liability means that if a sole trader business fails, its owner’s personal possessions can be sold to pay the business’s debts. Sole traders can lose everything they own.

4) It is often difficult to raise money to start or expand a business. Personal savings or loans from friends and family might be used initially.

5) A sole trader business ends when its owner dies - even if it has been running for years.

Question 4

What is unlimited liability?

What is limited liability?

Answer 4

1) The personal possessions of the owner of a business are at risk if there are any problems. There is no limit to the amount of money the owner have to pay out.

2) Exists when a business and its owner have separate legal entities. This means that the owners’ personal possessions be sold to pay the business’s debts.

Question 5

What is a partnership?

Answer 5

Occurs when two to twenty people join together in a business enterprise to pursue profit.

Question 6

What is a deed of partnerships?

Answer 6

A document which sets out the ‘rules’ by which the partnership will be run.

Question 7

What may be included in a Deed of partnership?

Answer 7

1) The amount of money to be invested by each partner.

2) The roles (or specialisms) of each partner.

3) How profits will be split between the partners.

4) How decisions on new partners will be made.

5) How decisions will be made.

Question 8

What are the advantages of a partnership?

Answer 8

1) There is likely to be a wider range of skills available, helping to make the business more efficient.

2) Partnerships potentially have access to more finance, as each partner can contribute funds.

3) Partners bring different skills and can cover for each other during holidays, reducing stress.

Question 9

What are the disadvantages of a partnership?

Answer 9

1) Disagreements are common as partners may have different ideas on how to ruin the business. This can cause inefficiency or the ending of the partnerships.

2) Profits must be shared between partner, unlike sole traders.

3) Most partnerships have unlimited liability.

4) Decisions making can be slow us all partners are normally consulted.

Question 10

What is a companies?

Answer 10

A business that has its own legal identity (has limited liability). It can own items, owe money, sue and be sued.

Question 11

What is the name o the people who own companies?

Answer 11

Shareholders.

Question 12

What is a shareholder?

Answer 12

A person or organisation that owns a part of a company. Each shareholder owns a ‘share’ of a business.

Question 13

What is a share?

Answer 13

A document which represent part ownership of a company.

Question 14

What are ordinary shares?

Answer 14

The most common type of shares, they include voting rights and allow shareholders a say in how the company is run.

Question 15

What percentage of shares does an individual or group of shareholders have to have in order to gain control of company?

Answer 15

50%

Question 16

What are the two types of companies?

Answer 16

1) Public limited.

2) Private limited.

Question 17

What is a public limited company (PLC) ?

What is a private limited company (LTD)?

Answer 17

1) A large business owned by its shareholders whose shares can be sold freely on the stock exchange.

2) A business owned by its shareholders whose shares cannot freely be traded on the stock exchange.

Question 18

What are advantages of a public limited company?

Answer 18

1) PLCs can sell their shares to the general public via the stock exchange, makes it easier to raise money when needed.

2) Public companies often receive a lot of coverage in the media, helping to advertise the business and its products.

3) Banks and other financial institutions are often more willing to lend money to PLCs.

Question 19

What are disadvantages of a public limited company?

Answer 19

1) Being listed on the stock exchange can put PLCs under pressure to increase profits in the short term. This may not be for the benefit for the company in the long term.

2) Larger companies are more likely to suffer from adverse publicity in the media. Many of the UKs banks have suffered in this respect in recent years.

3) PLCs are subject to more laws and regulations than other businesses. Complying with these laws can be costly and involves the publication of detailed financial information.

4) Public companies can be bought by other companies. This can have unfavourable consequences.

Question 20

What are advantages of a private limited company?

Answer 20

1) Limited liability - shareholders are only liable to pay the amount they have invested/ agree to invest.

2) The business has a separate legal identity, which means the company continues to exist even if their owners pass.

3) The businesses is able to hire expert and specialist managers to run it.

4) Many customers prefer to deal with a company as they feel it has higher status than a sole trader, and this can help to boost sales.

Question 21

What are disadvantages of a private limited company?

Answer 21

1) It is more complex to set up a company, even a private limited one.

2) Selling shares to raise money may reduce the amount of control the original owners have over the business.

3) Some financial information is available to anyone who cares to see it. This might benefit rivals.

Question 22

What is a not-for-profit organisations?

Answer 22

An organisation that is set up to achieve objectives other than to make profit, for example a charity.

Question 23

What factors must be considered when choosing a legal structure?

Answer 23

1) Is the business risky and likely to incur debt?

2) How much finance does the business need to raise to become established or to continue its growth?

3) Are rapid rates of growth expected?

4) Is the business aiming to make a profit?

5) Is the business a start-up or an established business?