Business Ownership

Question 1

What’s a Sole Trader?

Answer 1

One owner of a business

Question 2

Benefit of sole trader?

Answer 2

1. Only owner meaning they maintain full day to day control of the business
2. Can build a strong brand image to differentiate and increase price with no fall in demand
3. Increase revenue and profits to reinvest

Question 3

What’s a Partnership?

Answer 3

Two or more owners of a business

Question 4

What’s the benefit of a partnership? (3)

Answer 4

1. Two or more people grants knowledge and experience
2. Able to innovate more easily and differentiate from rivals
3. Able to increase price resulting in more revenue and profits to reinvest into..

Question 5

What is the Drawback of a Sole Trader and Partnership? (5)

Answer 5

1. Unlimited Liability
2. Increased Risk of investment
3. If business debts exceed assets they’ll have to sell possessions
4. Making investments less attractive to bankers and investors reducing investment
5. Raising less capital and reduced assets

Question 6

What is a Public Limited Company (PLC) ?

Answer 6

A business that sells shares to the public through the stock market

Question 7

Benefit of a PLC? (3)

Answer 7

1. They sell their shares on the stock market
2. Therefore can generate significant amount of capital
3. Able to reinvest to build further scale

Question 8

Drawback of PLC? (3)

Answer 8

1. Selling their shares on the stock market makes shareholders want short term profits
2. This will lead to less focus on long term goals such as further R&D to be innovative
3. And differentiate in the long term

Question 9

What’s a Private Limited Company (Ltd) ?

Answer 9

A business that doesn’t sell its shares to the stock market.

Question 10

Benefit of Ltd? (3)

Answer 10

1. Choose their own shareholders who match their objectives like passion for innovation
2. This could mean they focus on short term profits able to invest in the long term on R&D to pursue Innovation.
3. Being able to differentiate in the long term.

Question 11

Drawback of Ltd? (3)

Answer 11

1. Harder to generate capital as shares aren’t sold to the public
2. Limited to the amount of capital they can raise reducing their scale
3. Less likely to innovate through R&D and differentiate

Question 12

What is a Franchisor?

Answer 12

An owner of a Franchise who sells the rights to a Franchisee for royalties.

Question 13

Benefit of Franchisor? (4)

Answer 13

1. Franchisors give Franchisees the right to use the business name for royalties and capital
2. These can be used to build scale more quickly.
3. And the made capital used to invest into marketing and advertising
4. Building a better brand image

Question 14

Drawback of Franchisor? (3)

Answer 14

1. Can damage the business reputation as they are not responsible for the employees
2. Perhaps leading to reduced loyalty from the other outlets due to a lack of supervision
3. Consumers will switch to rivals leading to lower revenue…

Question 15

What is a Franchisee?

Answer 15

An investor who buys the rights and pays royalties to the Franchisor for the name.

Question 16

Benefit of Franchisee? (3)

Answer 16

1. Has access to the brands name aswell as a well established brand.
2. Therefore will have more customers and already charging high prices
3. Leading to more revenue and profit margins to reinvest into future franchises

Question 17

Drawback of Franchisee? (4)

Answer 17

1. Have to pay royalties increasing the outflows
2. If Outflows > Inflows that will possibly lead to negative net cash flow
3. Straining cash reserves and having to sell non current assets to pay bills
4. Business can’t operate

Question 18

What is Limited Liability?

Answer 18

Owners that are only responsible for the amount they have invested into the business

Question 19

Benefit of Limited Liability? (3)

Answer 19

1. They are not responsible for any business debts increasing chance of investment
2. Increasing Capital and will build scale for the business
3. Improved accessibility to increase revenue etc

Question 20

Drawback of Limited Liability? (3)

Answer 20

1. As investors don’t risk personal assets, business are liable to their debts
2. This will mean banks and suppliers lose what they’re owed as business can’t pay off debts
3. Increasing risk to receive cash from the bank in the future limiting expansion