Business Structure

Question 1

What are some of the features of ‘sole trader’ businesses?

Give a least two examples.

Answer 1

At least two from:

• The business is owned by one person.
• It does not require a lot of money to set up.
• It is unincorporated.
• It has unlimited liability.

Question 2

Give at least two advantages of being a ‘sole trader’.

Answer 2

At least two from:

• The business idea is easy to set up.
• They are usually small so little money is needed to set it up.
• The owner can keep all profits.
• The owner can make all decisions.
• Business accounts can be kept private (not published to shareholders)
• They can provide specialist services (electrician, plumber)
• Sole traders can respond to customers’ needs quickly

Question 3

Give at least two disadvantages of being a ‘sole trader’.

Answer 3

At least two from:

• Unlimited liability
• Money may be difficult to get (for example a loan)
• Costs of running the business is usually higher.
• The prices the business charges customers may be higher.
• Holidays can be more difficult to take.
• The owners may have to work long hours.
• The owner’s ill health may cause the business to close.

Question 4

Give at least three examples of the features of partnerships.

Answer 4

At least three from:

• These businesses tend to be larger.
• Two or more people run a business and aim to make a profit.
• The maximum number of partners who are part of a partnership is usually twenty people.
• Money is usually provided by the partners.
• They are unincorporated.
• They have unlimited liability (except for sleeping partners).

Question 5

What is a sleeping partner?

Answer 5

• Someone who has put money into the partnership, but doesn’t play an active role in the day to day running of the business.

Question 6

What is a deed of partnership? Give at least three examples of what this outlines.

Answer 6

• Is a legal document that states the rules of the business, and should include the following:

At least three from:

1) Who the partners are.
2) How much money each partner has put into the business.
3) How profit should be shared.
4) What happens when a partner needs to leave.
5) What happens if a new partner joins.

Question 7

Give at least two examples of the features of limited liability partnerships (LLPs).

Answer 7

• The business is incorporated – legally the owners are separate from the business.
• The partners have limited liability.
• Accounts must be submitted to Register of Companies

Question 8

Give at least three advantages of partnerships.

Answer 8

At least three from:

• Easy to set up and a Deed of Partnership is important.
• They are usually small so little money is needed to set it up.
• Responsibilities and decisions can be shared between partners.
• It can be run as a family business.
• Accounts can be kept private.
• Partners will invest money into the business.

Question 9

Give at least three disadvantages of partnerships.

Answer 9

At least three from:

• Unlimited liability (not for sleeping partners or LLP’s)
• Money may be difficult to obtain.
• Legal costs are incurred if a Deed of Partnership is created.
• Partners argue.
• Have a maximum of twenty partners.
• Problems are caused when partners leave because the partner may not be replaced quickly.

Question 10

Give at least two examples of the features of private limited companies (LTD).

Answer 10

Any three from:

• It is a company which is owned by at least two shareholders.
• Share are sold privately to friends and family.
• Profits are paying dividends to the shareholders.
• Shareholders have limited liability.
• These businesses MUST be incorporated.
• The company must have the word ‘limited or LTD’ in their name.

Question 11

Give at least two advantages of private limited companies.

Answer 11

At least two from:

• You can get money by selling shares.
• The firm is bigger.
• Shareholders have limited liability.
• The business is likely to employ specialists.
• Death and illness won’t affect the running of the business.
• Shares can be sold to family members.

Question 12

Give at least three disadvantages of private limited companies.

Answer 12

At least three from:

• Shares can’t be sold on the stock market.
• Accounts are not private.
• Incorporated – must be a separate legal company.
• The business is more expensive to set up.
• They have to share profits by paying dividends.
• Not all decisions are made by the owners.

Question 13

Give at least three examples of the features of public limited companies (PLC).

Answer 13

At least three from:

• These are the biggest type of business format in the UK.
• Shares are sold to the public on the stock exchange.
• Shareholders have limited liability.
• Shareholders vote for a board of directors who run the business.
• The company must have the words PLC in their name.
• Accounts must be published and made available to everyone who wants to see them.

Question 14

Give at least three advantages of private limited companies (PLCs).

Answer 14

At least three from:

• The business can get money by selling shares to the general public.
• The firm is bigger.
• The shareholders have limited liability.
• The company will employ specialists for example lawyers.
• Debt and illness won’t affect the running of the company.
• Shares can be given to workers.

Question 15

Give at least three disadvantages of private limited companies.

Answer 15

At least three from:

• The firm can be taken over by another business.
• Accounts are not private.
• The business must incorporated.
• It is more expensive to set up the PLC.
• The business has to share profits by paying dividends.
• Not all decisions are made by shareholders (owners).

Question 16

What is meant by limited liability?

Answer 16

• The owners can only loose the money that they have put into the business.
• They don’t have to pay off debts using their own money.

Question 17

What is meany by the term dividends?

Answer 17

• How limited companies give profit to their shareholders.

- Dividend is the name given to the amount of profit each shareholder gets.

Question 18

Give at least two examples of the features of community interest companies.

Answer 18

At least two from:

• Limited liability company incorporated under the Companies Act 2006 by the Registrar of Companies.
• They have a specific aim of providing benefit to a community.
• Regulated under the Companies Act 2004.

Question 19

What is the asset lock?

Answer 19

Important part of community interest companies as it ensures that these companies are running in order to benefit the community.
- Assets belonging to CIC’s must be retained within the CIC or used in the community for the purposes in which it was formed. The asset lock controls this.

Question 20

What conditions must be met before a transfer of assets is made in a community interest company via asset lock?
Give at least three examples.

Answer 20

At least three examples from:

• It is made for full consideration (i.e. at market value), so that the CIC retains the value of the assets transferred.
• It is made to another asset locked body (a CIC or charity or an a permitted Industrial and Provident Society, or non-UK based equivalent) which is specified in the CIC’s articles of association.
• It is made to another asset locked body with the consent of the Regulator.
• It is otherwise made for the benefit of the community.

Question 21

Give at least one example of the advantages of CICs.

Answer 21

At least one from:

• The company has a clear commitment to social goals which may encourage members of the public or potential investors that the company is good and is working for the benefit of everyone rather than specific individuals.
• They have access to certain types of finance - some finance providers may choose to offer finance to CICs rather than a privately run other business.

Question 22

Why is the fact that community interest companies are set up as limited companies advantageous?
Give at least three reasons.

Answer 22

At least three from:

• The business has limited liability which gives the people involved in the running of the business confidence and reassurance that their personal belongings and finances are not at risk if the CIC fails.
• The limited company structure is likely to be familiar to those responsible for running the organisation and relatively simple to operate, especially compared to a charity.
• The company is quick to set up.

Question 23

Give at two examples of the disadvantages of community interest companies.

Answer 23

At least two from:

• The formalities of the incorporation may be complex and incur a cost.
• Ongoing responsibilities will need to be carried out e.g. some form of accounts will need to be filed each year and the is a requirement to create and maintain company registers and file information with Companies House.
• The company may potentially raise less money for their cause than if they were established as a registered charity because CICs don’t receive the same tax breaks as charities and so cannot claim a number of tax reliefs on most income, capital gains and profits.

Question 24

Give at least three examples of the features of cooperative businesses.

Answer 24

At least three from:

• Membership of the business is voluntary - members can become part of and leave the business when they wish to do so.
• The membership is not limited depending on race or other characteristics.
• The finances of a cooperative businesses are contributed to by members through the purchase of shares.
• There is limit to the maximum number of shares that a member can buy.
• Each member is only allowed one vote as to how the business is run.

Question 25

Give at least two examples of the advantages of cooperative businesses.

Answer 25

At least two from:

• Cooperative members have a voice in the control of the organization, and, within the limits of majority rule, it therefore supplies the kind of service they want.
• Members are also the owners, they have a financial interest in the success of the cooperative.
• Cooperatives can more easily obtain discounts on supplies and other materials and services. Suppliers are more likely to give better products and services because they are working with a customer of more substantial size.

Question 26

Give at least one example of the disadvantages of cooperative businesses.

Answer 26

At least one from:

• Cooperatives may suffer from slower cash flow since a member’s incentive to contribute depends on how much they use the cooperative’s services and products.
• If members do not fully participate and perform their duties, whether it be voting or carrying out daily operations, then the business cannot operate at full capacity.