Business Ownership

Question 1

What are the four types of business ownership?

Answer 1

• Sole traders
• Partnerships
• Limited companies
• Franchise

Question 2

What is a sole trader?

Answer 2

• Owned and controlled by one person (even though they may have other staff working for them)
• They do not require a lot of money to set up
• Money is provided by the owner
• They have unlimited liability (responsible for company debts)

Question 3

Give advantages to being a sole trader.

Answer 3

• Business is easy to set up (and close if necessary) with few start-up costs.
• You are your own boss and can make all of the decisions and be flexible.
• Owner can keep all the profits
• May not need to employ staff/pay wages.
• Can respond immediately to the needs of the customers

Question 4

Give disadvantages to being a sole trader.

Answer 4

• No one to share the risk with.
• No one to help make decisions.
• Unlimited liability (if the business gets into debt, the sole trader must pay it off)
• Difficult to borrow money.
• Business costs are higher.
• Lack of ‘purchasing power’.
• Difficult to take holiday.
• Owner must usually work long hours.

Question 5

Describe a partnership.

Answer 5

• Partnerships have two or more owners (and can have any number of employees)
• Usually small businesses, but larger than sole traders
• Money is provided by the partners
• Easy to set up but may have a ‘Deed of Partnership’
• They have unlimited liability

Question 6

Give advantages to a partnership.

Answer 6

• Responsibility is shared.
• More capital (money) can be raised to run and expand the business.
• More owners can bring more skills, ideas and expertise.
• Decisions can be shared.
• Time commitments can be shared.

Question 7

Give disadvantages to a partnership.

Answer 7

• Unlimited liability
• Money can be difficult to borrow
• Legal costs of drawing up a ‘Deed of Partnership’
• Possible arguments
• Limit on the number of partners
• Problems if someone wants to leave

Question 8

Describe a limited company?

Answer 8

• Owned by at least 2 shareholders (people who choose to ‘buy’ a piece of a business in return for a share of the profits)
• Shareholders have limited liability.
• Shareholders vote for a board of directors.
• The company must have the word ‘limited’ in it’s name.

Question 9

Give advantages to a limited company.

Answer 9

• Shareholders have limited liability - they are not personally responsible for debt.
• Shareholders receive a share of the profits.
• Easier to raise funds to help the business grow.
• The value of shares can go up - so later could be sold for profit.
• Death or illness does not affect the company.

Question 10

Give disadvantages to a limited company.

Answer 10

• Complicated to set up with more legal procedures.
• Loss of individual control.
• Employees who are not shareholders might not be so committed to the business.
• Financial information must by law be published – so competitors could see this.
• There is a threat of being taken over by competitor companies.
• Have to share profits with shareholders

Question 11

Describe a franchise.

Answer 11

• A ‘chain’ is a group owned by one corporation, typically a large business (e.g. Burger King)
• Individuals can set up a business using a brand name that is already established.
• The owner will pay a fee to the franchiser in return for a share of the profit and the use of the brand name.
• They will also receive help from the main business

Question 12

Give advantages to a franchise.

Answer 12

• Shareholders have limited liability - they are not personally responsible for debt.
• Shareholders receive a share of the profits.
• Easier to raise funds to help the business grow.
• The value of shares can go up - so later could be sold for profit.
• Death or illness does not affect the company.

Question 13

Give disadvantages to franchise.

Answer 13

• Complicated to set up with more legal procedures.
• Loss of individual control.
• Employees who are not shareholders might not be so committed to the business.
• Financial information must by law be published – so competitors could see this.
• There is a threat of being taken over by competitor companies.
• Have to share profits with shareholders.

Question 14

What is a franchiser?

Answer 14

The person or company who sells a franchise.

Question 15

What is a franchisee?

Answer 15

A person who purchases a franchise agreement.

Question 16

Give an advantage for the franchiser.

Answer 16

They earn money from people who pay to use their company name and business idea.

Question 17

Give a disadvantage for the franchiser.

Answer 17

If a franchisee runs their business badly, this will reflect badly on the company name and damage its reputation.

Question 18

Give advantages for the franchisee.

Answer 18

• Support and training from a big company.
• They can build an business, which customers will recognize as having a good reputation.
• The franchiser provides advertising and equipment.

Question 19

Give disadvantages for the franchisee.

Answer 19

• Do not have full control of business -they have to follow rules set by the franchiser.
• Franchises can be expensive to buy.
• If the franchiser’s business fails, so will that of the franchisee.

Question 20

What is an initial franchise fee?

Answer 20

The fee the franchise owner pays in return for the right to run the business.