Business Structure

Question 1

Define ‘sole trader’.

Answer 1

When a business is owned by a single person.

Question 2

What are the advantages of being a sole trader?

Answer 2

• The owner can make all decisions.
• The owner can keep all profits.
• By not having shareholders, businesses can keep their finances to themselves so competitors will not have access to their data.

Question 3

What are the disadvantages of being a sole trader?

Answer 3

• Unlimited liability.
• More difficult for one person to raise as much money as other legal structures with more owners.
• A sole trader has to undertake more work as there are no other owners to share the workload,
• The business may not exist if the sole trader retires or dies as there are no other owners to run the business.

Question 4

Define a ‘partnership’.

Answer 4

When a business is owned by two or more people.

Question 5

What are the advantages of a partnership?

Answer 5

• More money available to help business.
• More partners - more skills and experience to lead business in the right direction.
• Share responsibilities between partners so one person doesn’t have all the pressures of running a business.
• More partners can be brought in to expand the business.
• Business affairs are private.

Question 6

What are the disadvantages of a partnership?

Answer 6

• Unlimited liability.
• Sharing profit between partners can easily lead to disagreements on what to do with profits.
• Loss of control with multiple owners, decision-making must be shared.
• Even 20 partners can only raise so much money.

Question 7

Define a ‘private limited company’.

Answer 7

This legal structure can raise money by selling shares to family or friends. Private limited companies cannot be listed on the stock market and shares cannot be sold to the public.

Question 8

What are the advantages of a ‘private limited company’?

Answer 8

• Limited liability.
• Easy and inexpensive to set up. Easier to borrow money than for a sole trader.
• Not listed on the stock market means it is possible to have close control over the way the business is run. Less bureaucracy than PLCs.
• Ltds do not have to publish their accounts as shareholders are internal and not external.
• Shareholders are not seeking short-term profits, unlike PLCs.
• Incorporation as a private limited company will protect the company name.

Question 9

What are the disadvantages of a ‘private limited company’?

Answer 9

• Strict legal requirements under the Companies Act to file annual accounts and annual returns.
• May be harder to raise capital compared to PLCs as investors are more likely to invest in PLC companies where the financial records are open to them.
• Higher accountancy costs than for a sole trader.
• Corporation tax must be paid.
• Max of £50,000 share capital investment.

Question 10

Define ‘public limited company’.

Answer 10

The shares of a PLC can be floated and traded on the stock market. Any member of the public can buy shares and become an owner of the business.

Question 11

What are the advantages of a PLC?

Answer 11

• Limited liability.
• Can have share capital investment over £50,000.
• PLCs find it easier to raise finance on the stock market.
• Regarded as lower risk investment than private limited companies.
• Suppliers likely to offer more attractive credit facilities as PLCs will be less likely to default on payments than private limited companies.
• Can gain positive publicity as a result of trading on the stock exchange.

Question 12

What are the disadvantages of a PLC?

Answer 12

• Must release their financial accounts to the world as shareholders can be any members of the public.
• The cost of floating a business on the stock market.
• Firm’s owners can get bought out if a private investor buys 51% of the shares from shareholders.
• Shareholders of PLCs usually only invest in the stock market for a quick financial return and so may not be interested in the long-term success of the business.

Question 13

Define ‘unlimited liability’.

Answer 13

If the business goes bankrupt then the owners may have their personal possessions taken from them to pay for the business debt.

Question 14

Define ‘limited liability’.

Answer 14

Owners of a business are only liable for the share capital they invested. Personal belongings will not get repossessed when debts cannot be repaid.

Question 15

What is a ‘public sector organisation’?

Answer 15

An organisation owned and controlled by the government e.g. NHS, schools, police, BBC, street lights, pavements, roads.

Question 16

What is a ‘private sector organisation’?

Answer 16

An organisation owned and run by private individuals or groups e.g. Ford, Apple, local takeaway.

Question 17

What is the aim of a ‘public sector organisation’?

Answer 17

To provide goods/services but not to make a profit from them. They are there to help local communities.

Question 18

What are the aims of a ‘private sector organisation’?

Answer 18

• To survive (small new businesses).
• To make a profit.
• To grow and become a leading brand with greater market share.

Question 19

What are the advantages of the private sector providing healthcare?

Answer 19

• Opportunity cost of government spending as more money can be used to improve other services e.g. education. Taxes can be lower if the government doesn’t pay for as many public services.
• Quality of provision may be better if it’s paid for because profit-making private firms will aim for quality and price competitiveness to compete and make profit, which will be their main aim unlike public sector firms.
• Free health care is abused, which increases waiting times. Private healthcare would be used when necessary.

Question 20

What are the advantages of the public sector providing healthcare?

Answer 20

• Better for low-income groups (income inequality issue) who may not be able to afford services like healthcare as the government doesn’t aim for profit and so costs of healthcare would be much lower.
• If free, it will be used more by the population, resulting in fewer days off sick so businesses benefit with healthy, productive workers with less absenteeism.

Question 21

What is evaluation for private sector provision of healthcare?

Answer 21

• Depends on the type of healthcare and government budgets.
• General healthcare is better than none since lower-income earners may not seek treatment.
• Government money can be freed up for other public services, this could be seen as a positive step.

Question 22

What are the four different types of not-for-profit organisations?

Answer 22

• Social Enterprises
• Cooperatives
• Charities
• Societies

Question 23

Define ‘social enterprises’.

Answer 23

Businesses that exist to benefit other people in the community and not just to make profits e.g. Eden Garden, Jamie Oliver’s Fifteen, The Big Issue.

Question 24

Define ‘cooperatives’.

Answer 24

Businesses that are owned by their members (usually employees). As a result, these stakeholders have a wider interest in the business than just making money and often use profits to meet different stakeholders’ needs e.g. Co-op supermarket, Co-op bank, Co-op funeral care, Co-op insurance.

Question 25

Define ‘charities’.

Answer 25

Charities do not exist to make profits; they exist to help different groups in society e.g. WWF, Oxfam, RSPCA.

Question 26

Define ‘societies’.

Answer 26

A group of people come together to start a club/group sharing the same interests and not for the benefits of profits e.g. local rowing club, religious events.