Business Structures

Question 1

What are 2 Advantages of a sole trader?

Answer 1

Easy to start and run
No registration or formal documentation is required.
Full control of business.

Question 2

What are 2 Advantages of a partnership?

Answer 2

No registration is required to start a partnership.
An effective way to share business costs.
Expertise is shared.

Question 3

What are 2 Advantages of a company?

Answer 3

More credibility in the marketplace.
Easier to attract loans and investments.
Investors can become shareholders.
Easier to sell the business or pass it on as it is to a separate entity.
Limited Liability

Question 4

What is unlimited liability?

Answer 4

If the business fails the personal assets of the owner can be used to repay business debts.

Question 5

What is limited liability?

Answer 5

If the business fails the personal assets of the owner can not be used to repay business debts.

Question 6

What are 2 disadvantages of a sole trader?

Answer 6

Owners have unlimited liability for all business taxes and debts, putting their personal assets at risk.
Sole proprietors can lack credibility in the marketplace.
Harder to attract loans and investments.
Harder to sell the business.
The business only lasts the lifetime of the sole trader.

Question 7

What are 2 disadvantages of a partnership?

Answer 7

Partners may be liable for debts incurred by other partners.
Putting personal assets at risk.
Control is shared.
Possible partnership conflicts.
The partnership ceases if a partner leaves/dies.

Question 8

What are 2 disadvantages of a company?

Answer 8

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.
control is divided or shared.