Business Structures

Question 1

What are 2 advantages of a Company?

Answer 1

• Easier to sell the business or pass it on to others as it is a separate entity.
• Easier to attract funds and investment (investors can become shareholders)

Question 2

What are 2 advantages of a Partnership?

Answer 2

• Partners can share skills and expertise. For example, a panelbeater may join forces with a car painter to provide a total body repair service for cars.
• Partners can share the risk and responsibility of the business. Partners can take holidays or sick leave more easily.

Question 3

What are 2 advantages of a Sole Trader?

Answer 3

• The owner can often work his or her own hours and run the business as he or she sees fit.
• All profits are the property of the owner.

Question 4

What are 2 disadvantages of a Company?

Answer 4

• Directors need to clearly understand their responsibilities.
• Limited liability advantages are often eroded in practice by the need to provide personal guarantees to lenders or creditors.

Question 5

What are 2 disadvantages of a Partnership?

Answer 5

• The Partnership is not a separate legal entity from themselves. This means that all the partners are jointly liable for the debts of the business. Personal assets may be sold to pay these debts.
• If one partner goes bankrupt, the personal assets of the others can be sold to pay his or her share of the business debts.

Question 6

What are 2 disadvantages of a Sole Trader?

Answer 6

• The owner takes all the responsibility for the business.

- Sickness or holidays may cause problems in running the business.

Question 7

What is the definition of Unlimited Liability?

Answer 7

If the business fails, the personal assets of the owner can be used to pay business debts

Question 8

What is the definition of Limited Liability?

Answer 8

If the business fails the personal assets of the owner cannot be used to pay business debts