Ch-2: Types of business organisations

Question 1

Define:

Limited Liability

Answer 1

The liability of owners are limited to the amount they invested. Business is a seperated legal unit

Question 2

Define:

Unlimited liability

Answer 2

The liability of owners are not limited to the money invsted. Owners can be held responsible for the debts of businesses

Question 3

Define:

Sole traders

Answer 3

Business operated and owned by just one person. The owner is called proprietor

Question 4

What are the advantages of sole trader

Answer 4

1. Easy to set up
2. He/She is his/her own boss

Question 5

What are the disadvantages of sole trader

Answer 5

1. Unlimited liability

Question 6

Define:

Partnership

Answer 6

Partnership is a form of business where two or more people agree to jointly own a business

Question 7

Define:

Partnership agreement

Answer 7

Partnership agreement is a written, legal agreement/contract formed between partners

Question 8

What is the max number of partners?

Answer 8

20

Question 9

If one partner dies what happens?

Answer 9

If one partner dies, the whole business is destroyed

Question 10

What are the advantages of partnership

Answer 10

1. More capital
2. Responsibilities are shared

Question 11

What are the disadvantages of partnership

Answer 11

1. Unlimited liability

Question 12

Define:

Limited partnership

Answer 12

These businesses are partnerships that offer partners limited liability but shares can’t be bought or sold

Question 13

Define:

Dividends

Answer 13

Payment made to the shareholders from the profit made by the company

Question 14

What are the 2 types of ltd companies?

Answer 14

1. Private
2. Public

Question 15

Define:

Private ltd company

Answer 15

Incorporated businesses where owners have seperate legal identities. They can make contracts. Shares are not sold to public

Question 16

What are the advantages of private ltd company?

Answer 16

1. Capital raised by selling shares

Question 17

What are the disadvantages of private ltd companies?

Answer 17

1. Legal formalities
2. Accounts are public

Question 18

Define:

Public ltd company

Answer 18

Incorporated business where shareholders sell shares to the public. These are suitable for large business

Question 19

Define:

what are incorporated and unincorporated business

Answer 19

Incorporated business are limited liability and unincorporatd business are unlimited liability

Question 20

What are the advantages of public ltd companies?

Answer 20

1. Shares sold to public, tradeable in stock exchange

Question 21

What are the disadvantages of public ltd companies?

Answer 21

1. legal formalities
2. Accounts are public

Question 22

Define:

Joint ventures

Answer 22

When two or more businesses start a new project together sharing risks, capital and profits

Question 23

Define:

Franchise

Answer 23

Business based upon the use of brand names, promotional logos, and trading methods of existing business

Question 24

Differentiate Franchisor and Franchise

Answer 24

Franchisor (ex: burger king) sells license to operate the business to Franchise (One starting the business using the name of the franchisor)(like opening a branch of the brand at a different location)

Question 25

What are the advantages of franchisor?

Answer 25

• Rapid expansion
• Reduced risks

Question 26

What are the disadvantages of franchisor?

Answer 26

• Chance of bad reputation
• legal disagreements

Question 27

What are the advantages of franchise?

Answer 27

• Lower business failure rate
• Training for staff given

Question 28

What are the disadvantages of franchise?

Answer 28

• License fee to be paid
• Less freedom of work