Chap 4. Types Of Business Organisations

Question 1

Define sole trader business.

Answer 1

It is owned and controlled by only one person

Question 2

List the Advantages of being a sole trader.

Answer 2

. Easy to set up
. Can obtain government support
. Personal contact with customers increases consumer loyalty
. Own boss and can take own decisions
. Does not share profit with others
. Does not have to give information about business
. Can adjust to changes in market

Question 3

List the disadvantages of being a sole trader.

Answer 3

. Unlimited liability
. May lack capital to expand
. Bank may not lend money
. May lack necessary skills and experience to run business
. Sole trader bears all risks, responsibilities, duties and losses alone
. Lack of continuity if sick, dies, disabled or on holidays
. Tough competition with big rivals
. May not benefit from economies of scale

Question 4

Define partnership.

Answer 4

An association between 2 to 20 persons who agree to own, finance and run a business together

Question 5

List the Advantages of partnership.

Answer 5

. Easy to set up
. More contribution of capital
. Share new ideas, skills, Knowledge and experience into the business
. Share duties, responsibilities, risks and losses

Question 6

List the disadvantages of partnership.

Answer 6

. Unlimited liability
. Conflict may arise
. Discussion among partners is time consuming and delay decision making
. One partner may be dishonest and other partners could suffer losses

Question 7

Give the difference between private and Public company.

Answer 7

Private company sells shares to close friends and relatives to raise capital whereas public company sells shares to members of the public

Question 8

What is a stock exchange?

Answer 8

It is a place where buying and selling of shares occur

Question 9

Why do people invest their money in companies?

Answer 9

. To become owners of the company and gain status
. To receive dividend

Question 10

Who are the board of directors?

Answer 10

They are appointed to manage the daily operations of the company

Question 11

Give the meaning of articles of association and memorandum of association.

Answer 11

Articles of association is a document containing the rules and regulations under which the company will be managed

Memorandum of association is a document containing information about the company and its directors

Question 12

List the Advantages of private limited company.

Answer 12

. Can raise capital more easily than public company
. Shareholders have limited liability
. Shareholders receive dividend from profit
. Shareholder enjoy great status as they are the owner of a company
. Continuity is ensures after death of 1 shareholder

Question 13

List the disadvantages of private limited company.

Answer 13

. Complicated legal formalities required
. Not allowed to sell shares to members of the general public
. Required to disclose and publish detailed accounts of assets, liabilities, revenue and profits

Question 14

List the Advantages of public limited company.

Answer 14

. Limited liability
. Can raise more capital as they sell to the public
. Ease of buying and selling encourages more people to invest in company
. Continuity is ensured

Question 15

List the disadvantages of public limited company.

Answer 15

. Legal formalities required are complicated, costly and time consuming
. Rivals can buy shares leading to take over
. Board of directors run the business and not shareholders
. Accounts are published

Question 16

What is a joint venture?

Answer 16

When 2 or more businesses join together to start a new project

Question 17

List the Advantages of joint venture.

Answer 17

. Costs and risks are shared
. They can share their strengths and weaknesses
. Can benefit from economies of scale

Question 18

List the disadvantages of joint venture.

Answer 18

. They may disagree on certain issues
. Consultations and discussions may delay decision making
. Business failure by one party may or whole business at risk

Question 19

Who is a franchisor?

Answer 19

Someone who sells right to use brand name, logo and idea to franchisee

Question 20

Who is a franchisee?

Answer 20

He buys the right to use the same name, product and promotional method of another successful business

Question 21

List the Advantages to franchisee.

Answer 21

. They sell a product already well known and appreciated on the market
. Franchisor conducts advertising
. Required material obtained from franchisor
. Workers trained by franchisor
. Banks more willing to lend money
. Obtain ongoing support from franchisor

Question 22

List the disadvantages to franchisee.

Answer 22

. Expensive license fee needs to be paid
. Must give a percentage of annual revenue or profit to franchisor
. Not free to take own decisions
. Can lose contract if he fails to respect contract

Question 23

List the Advantages to franchisor.

Answer 23

. Able to expand business
. Receives percentage of profits
. Reduce financial risks as cost are borne by franchisees

Question 24

List the disadvantages to franchisor

Answer 24

. Mistakes made by franchisee may affect image of business
. Shoulders responsibility of taking strategic decisions

Question 25

What is the public sector?

Answer 25

When all businesses and organisations are owned and controlled by the government

Question 26

Define public corporation.

Answer 26

Once owned by private individuals but purchased by government

Question 27

Give the aims of public corporations.

Answer 27

. Creation of employment
. Keep prices low so that people can satisfy their needs
. Offer essential goods free of charge

Question 28

List the Advantages of public corporations.

Answer 28

. Produce essential goods and services
. Prevent consumers from being exploited by privately owned companies
. In case a big firm is failing, government will buy it to prevent people to lose their jobs

Question 29

List the disadvantages of public corporations.

Answer 29

. No profit motivation as they work for social welfare
. Absence of competition leads to lack of choice, innovation and good quality products