Chapter 1.4 Types Of Business Organisation

Question 1

Types of business organisation in private sector

Answer 1

• sole traders
• partnerships
• private limited companies
• public limited companies
• franchises
• joint ventures

Question 2

Sole trader

Answer 2

Business owned and operated by just one person (the sole proprietor)

Question 3

Advantages of sole trader business

Answer 3

• few legal regulations to follow
• being ur own boss , complete control over business(no need to consult others)
• flexibility in work hours/holidays/prices/employees
• close contact with customers(respond to their needs quickly )
• incentive to work hard-profits kept all by themselves
• don’t need to share info at business to others(can be kept secretive)

Question 4

Disadvantages of sole trader business

Answer 4

• no one to discuss with
• unlimited liability , fully responsible fort any debts the business have, liability is not limited to the investments they make (as don’t have a separate legal identity with the business)
• limited source of finance (can’t expand)(can’t benefit from economic of scale)
• no continuity in business(after death of owner)

Suitable for news businesses / businesses that don’t need much capital/needs personal interaction with customers(cuz usually sole trader-small business)

Question 5

Partnerships

Answer 5

Form of business in which 2 or more ppl agree to jointly own a business

Question 6

Partnership agreement

Answer 6

(Recommended to have)
A written , legal agreement between business partners to prevent disagreements (on who gets more profit/invests quantity of capital)

Question 7

Advantages of partnership

Answer 7

• more capital(can expand)
• responsibilities are shared
• new ideas

Question 8

Disadvantages of partnership business

Answer 8

• Unlimited liability(is an unincorporated business-does not have separate legal identity)
• time wasted on discussing
• trust issues

Suitable for ppl that wanna avoid legal complication/when partners are well known to each other

Question 9

Join stock companies

Answer 9

private limited companies + public limited companies

-have board of directors (appointed by shareholders to run and manage company)

Question 10

Private limited companies

Answer 10

Two or more owners who can sell its shares to only ppl known by the owner(family and friends)

Question 11

Public limited companies

Answer 11

2/more owners who can sell its shares to any individual into the public through stock exchange

Question 12

Advantages of join stock companies

Answer 12

• limited liability
• continuity
• can sell shares(raises capital -can expand )
• can even advertise shares for public limited companies

Question 13

Disadvantages for Join stock companies

Answer 13

• required to disclose financial info -other companies could use this to learn company secret
• must hold annual general meeting (for shareholders to be notified at company performance/decisions)-expensive to hold
• cannot sell shares to public for private limited companies (less capital)

Question 14

Franchise

Answer 14

Business based upon the use of branding of an existing business. Owner of business(franchiser)grants licence to another business(franchisee) to use their business idea

Question 15

Franchisor advantages

Answer 15

• rapid and low cost expansion
• franchisee will advertise their products/services and sell appropriately
• can assess new suggestions from franchisee
• do not have to run operation(franchisee will)

Question 16

Disadvantages for franchisor

Answer 16

Profits will be shared with franchisee

• affect reputation if franchisee fails(dependent )
• need to supply raw material

Question 17

Advantages for franchisee

Answer 17

• low chance of failing (based on and established brand/trademark)
• will gain support from franchisor
• materials are supplied from franchisor

Question 18

Disadvantages for franchisee

Answer 18

• cost of setting up
• no full control(have to follow rules given by franchisor)
• profits shared with franchisor
• need to advertise business themselves

Question 19

Joint ventures

Answer 19

When 2/more business start a new project tgt

Question 20

Advantages for joint ventures

Answer 20

• reduces risks
• cut costs
• brings diff expertise
• market potential for each business involved increases

Question 21

Disadvantages for joint ventures

Answer 21

• if any mistakes, will damage reputation for every business involved
• decision making takes a lot of time

Question 22

Public sector corporations

Answer 22

Businesses owned by government

Question 23

Advantages for public sector corporation

Answer 23

• rescue important business by nationalism
• can provide essential services
• reduces waste of resources(land)

Question 24

Disadvantages for public sector corporation

Answer 24

• motivation not high as is npt profit drive

- no competition, no incentive to improve