businesses in the private sector

Question 1

what does it mean to be incorporated

Answer 1

status bestowed on a business after it has acquired its own identity and is able to trade in its own name without its owners being responsible and liable for any actions.

Question 2

what is unlimited liability

Answer 2

a situation in which the owners of a business stand to lose all the money they invested in the business as well as their personal assets.

Question 3

define bankrupt

Answer 3

legally declared to be unable to pay its debts, resulting in its creditors having the opportunity to organise the sale or takeover of its assets in an effort to settle outstanding amounts.

Question 4

what is a creditor

Answer 4

any person or economic entity to whom money is owed. The creditors of a business are traders from whom it bought on credit.

Question 5

what is liability

Answer 5

what you stand to lose

Question 6

what is a sole trader

Answer 6

a person who owns a business operated by himself.

Question 7

define sole proprietorship

Answer 7

a business that has one owner who keeps all the profits.

Question 8

advantages of sole proprietorship

Answer 8

• The owner makes all decisions, keeps all the profits and is usually highly involved in all aspects of the business. The result is that he or she develops a close relationship with the customers and knows first-hand how the business is doing.
• Decisions are made more quickly because consultation time is minimal.
• The business is easy to start - there are fewer legal requirements to start and operate a sole proprietorship.
• Sole-trader businesses are usually small and, as a result, they need less capital to be established.

Question 9

what is collateral

Answer 9

is an asset owned by the borrower, which is offered as security for a loan, with the understanding that the collateral may be seized if the loan is not properly serviced.

Question 10

disadvantages of a sole proprietorship

Answer 10

1. The owner faces unlimited liabilities.
2. Although not a large amount, what little capital is needed to start the business may not be available from traditional sources such as banks. Banks are reluctant to lend to sole traders, because they:
   • have unlimited liability
   • lack collateral to secure loans
   • are small and hence seen as a risk.
   3 The business suffers from a lack of continuity - it usually dies with the owner.
   4 The owner must endure long working periods, usually being the first to get to work and the last to leave.
   He is also unable to go away on holiday or for a long period of time.
   5 The owner must depend on his or her own resources and ideas to keep the business running. Where these are limited, he or she may not be able to access any external help.

Question 11

what is a partnership

Answer 11

a partnership is a business owned by between two and 20 people, who have a common aim of making a profit.

Question 12

what is a partnership deed

Answer 12

a document which outlines the terms, conditions and agreement that govern the establishment and operation of a partnership.

Question 13

define sleeping partner

Answer 13

a partner who contributed capital to the establishment of the business but who is not involved in the management and operation of the partnership and, as a result, enjoys limited liability

Question 14

advantages of partnerships

Answer 14

• Having more owners mean mire ideas to be shared.
• Each partner can contribute capital to the business; additionally, the business may have a better chance to raise extra capital from banks since partnerships are less risky than sole proprietorships.
• The risk of continuity that exists for sole-proprietorships is reduced for partnerships.

Question 15

disadvantages of partnerships

Answer 15

• Owners still have unlimited liability
• membership is limited to 20 people; this restricts the capital the business can raise and growth ponies of the business.
• partners may have disagreements that affect the continuity of the partnership.

Question 16

what is an co-operative

Answer 16

Is an incorporated business that has been established by a group of individuals to cater for their common needs.

Question 17

define surplus

Answer 17

describes the excess of the co-operative’s income over its expenditure.

Question 18

what is a marketing co-operative

Answer 18

a co-operative that sources markets for its members, usually by merging the small portions that each member is able to produce so as to attract buyers who are interested in large bulks.

Question 19

another term for retail co-opeatives

Answer 19

consumer confidence-operatives

Question 20

what is retail co-operative

Answer 20

a co-operative that offers savings to its members by buying in bulk at wholesale prices and selling back to the members at reduced prices.

Question 21

what is workers co-operative

Answer 21

a co-operative where workers own and operate the business and pay themselves from the revenues it generates.

Question 22

what is producer co-operative

Answer 22

a co-operative that tries to source or assist members in buying or accessing machinery and equipment.

Question 23

what is an economy

Answer 23

a system in which production, distribution and consumption takes place