chapter 4 - types of business organisation

Question 1

definition of:
incorporated business

examples?

Answer 1

-companies that have separate legal identities from owners and have limited liabilities

• private limited company
• public limited company

Question 2

definition of:
unincorporated business

examples?

Answer 2

-companies that don’t have separate legal identities from their owners and have unlimited liabilities

• sole trader
• partnership

Question 3

definition of:

sole trader

Answer 3

a business owned by one person

Question 4

definition of:

partnership

Answer 4

a form of business in which two or more people agree to jointly own a business

Question 5

definition of:

public limited company

Answer 5

a business owned by shareholders but they cannot sell shares to the public

Question 6

definition of:

public limited company

Answer 6

a business owned by shareholders but they can sell shares to the public and their shares are tradeable on the stock exchange

Question 7

definition of:

franchise

Answer 7

a business based upon the use of the brand names, promotional logos and trading methods of an existing successful business

Question 8

definition of:

joint venture

Answer 8

where two or more businesses start a new project together, sharing capital, risks and profit

Question 9

definition of:

dividends

Answer 9

payments made to shareholders from profits (after tax) of a company

Question 10

definition of:

annual general meeting

Answer 10

a legal requirement for all companies where shareholders may attend and vote who they want to be on the board of directors of the coming year

Question 11

definition of:

shareholders

Answer 11

the owners of a limited company who buy shares which represent part-ownership of the company

Question 12

definition of:

limited liability

Answer 12

the liability of shareholders in a company is limited to only the amount they invested

Question 13

definition of:

unlimited liability

Answer 13

owners of business can be held responsible for the debts of business they own

Question 16

advantages and disadvantages of private limited company?

Answer 16

advantages:
- increase capital from sales of shares
- continuity
- limited liability, separate legal identity

disadvantages:

• cannot sell to public
• not easy to transfer shares

Question 17

advantages and disadvantages of public limited company?

Answer 17

advantages:

• can sell to anyone
• rapid expansion possible
• continuity
• limited liability, separate identity

disadvantages:

• complex legal formalities (time consuming)
• disclosure of accounts (more regulations and controls to protect interests of shareholders)

Question 18

advantages and disadvantages of sole trader

Answer 18

advantages

• one man control
• one man ownership
• no sharing of profits and risks

disadvantages

• one man’s capital
• unlimited liability, no separate legal identity

Question 19

definition of:
franchisee

advantages and disadvantages?

Answer 19

uses idea or product to sell it to customers

advantages

• chances of failure reduce cuz well known product
• franchisor pays advertising
• supplies obtained from franchisor
• fewer decisions to make (price, product, store layout)
• training for staff provided
• banks often willing to lend due to low risk

disadvantages

• less independence
• unable to make decisions that would suit local area
• license fee paid annually

Question 20

advantages and disadvantages of joint venture?

Answer 20

advantages

• sharing of costs
• risks are shared

disadvantages

• profits shared
• disagreements over important decisions
• clash of cultures

Question 21

definition of:

public corporation

Answer 21

a business in the public sector owned and controlled by the gov

Question 22

advantages and disadvantages of public corporation?

Answer 22

advantages

• essential services provided by gov
• avoid monopolists
• gov can nationalise it if business failing

disadvantages

• no private shareholders to increase capital
• no close competition, lack of incentive
• subsidies lead to inefficiency

Question 23

definition of:
social enterprise

what do they do?

Answer 23

• a business with both social objectives as well as to make a profit
• generate income through business activities, reinvest profits into public/ community mission

Question 24

definition of:
cooperatives

how does it work?

Answer 24

-a business which is owned and run jointly by its members who share profits and benefits

• all members have equal rights regardless the amount they invested
• profits equally shared

Question 25

advantages and disadvantages of partnership ?

Answer 25

advantages

• raise capital from partner
• share ideas
• continuity
• responsibilities shared
• partners can specialise

disadvantages
-unlimited liability

Question 26

definition of:
franchisor

advantages and disadvantages?

Answer 26

a business with a product or service idea that it does not want to sell to consumers directly

advantages

• franchisee buys license from them to use brand name
• expansion of franchised business is faster than franchisor financing all new outlets
• management of outlets is the responsibility of franchisee
• all products sold must be obtained from franchisor

disadvantages

• poor management lead to bad reputation
• franchisee keeps profit