Choosing The Right Legal Structure For The Business

Question 1

Incorporated businesses

Answer 1

Privates limited company (LTD)

Public limited company (PLC)

Question 2

Unincorporated business definition

Answer 2

The identity of the business and owner is the same.

Question 3

Incorporated business definition

Answer 3

A firm with a legal identity that is separate from the individual owners.

Question 4

Unlimited liability definition

Answer 4

In which the owners of a business are liable for all the depts that the business incur

Question 5

Limited liability definition

Answer 5

In which the liability of the owners of a business is limited to the fully paid-up value of the share capital

Question 6

Sole trader definition.

Answer 6

A business owned by one person, but owner may employ other people

Question 7

Features of a sole trader

Answer 7

Unlimited liability

Limited capital to expand

Question 8

Advantages of a sole trader

Answer 8

Easy and cheap to set up
Few legal formalities
Owner takes all profit
Greater independence

Question 9

Disadvantages of a sole trader

Answer 9

Unlimited liability
Limited capital for investment and expansion
No sick pay
Difficulties If wanted to go on holiday

Question 10

Partnership definition

Answer 10

Is a form of business in which two or more people operate for the common goal of making a profit

Question 11

Features of a partnership

Answer 11

Normally unlimited liability but can be limited
Has potential for more capital
Decisions and responsibilities are shared

Question 12

Advantages of a partnership

Answer 12

May have a wide range of skills and knowledge between each other
Able to raise greater amounts of capital than sole traders
The pressure on owners is reduced as decisions are made jointly

Question 13

Disadvantages of partnership

Answer 13

Control is shared among partners
Arguments are common among partners
Can mostly be unlimited liability

Question 14

Private limited company definition

Answer 14

Is a small to medium-sized business that is usually run by the family or the small group of individuals who own it.

Question 15

Private limited company features

Answer 15

Can keep its affairs reasonably private
Tend to be limited in size
Limited liability

Question 16

Advantages of private limited company

Answer 16

Limited liability
more flexible than a Plc
Has access to more capital than unincorporated businesses

Question 17

Disadvantages of private limited company

Answer 17

Shares less attractive as can’t be traded on stock exchange
Less flexible of expansion needs finance
More legal formalities than for an unincorporated business

Question 18

Public limited company definition.

Answer 18

Is a business with limited liability, a share capital of over £50,000, two shareholders +, two directors and a qualified company secretary & usually a wide spread of shareholders

Question 19

Features of a public limited company

Answer 19

Shares cab be traded on the stock exchange
Easier for these to raise finance
Has to have Plc after the consent name

Question 20

Advantages of a public limited company

Answer 20

Has limited liability
Easier to raise finance
Greater scope for new investment
Can gain positive publicity as a result of trading in stock exchange

Question 21

Disadvantages of public limited company

Answer 21

Greater scrutiny of its activities
Has to publish a great deal of financial info about its performance
Founders of firm may loose control in their shareholding falls below 50%

Question 22

Not-for-profit organisations features

Answer 22

Aim to break even financially
They are non-governmental organisations
Have a governing body responsible for managing their affairs
Many use volunteer staff

Question 23

Unincorporated businesses

Answer 23

Sole trader

Partnership