Financial management

Question 1

Types of business organistions

Answer 1

• sole trader
• partnership
• Limited liability partnership
• Private limited company
• Public limited company

Question 2

Sole trader

• What is it?
• Advantages and disadvantages

Answer 2

Business is owned and controlled by one person

Advantages

• easy to set up
• low start up cost

Disadvantages

• owner has the whole responsibility for running the business
• risk of unlimited liability where the owner may be forced to sell personal assests to cover business debts

Question 3

Partnership

• What is it?
• Adavantages and disadvantages

Answer 3

Business is owned by two or more people

Advantages

• shared responsibility which allows for specialisation
• more investment so the possibility of sleeping partners

Disadvantages

• shared responsibility can lead to disputes or conflicts between partners
• partnerships have unlimited liability

Question 4

Limited liability partnership

Answer 4

• pertners have limited personal responsibility for business debts
• must file annual returns
• structure of the business is less formal than a limited company
• do not have shareholders or directors

Question 5

Limited companies

Answer 5

• incorporated
• company has a legal existence and can sue or be sued and they own assets
• ownership split up into equal parts called shares
• shares are helpd shareholders and have a financial investment in the company
• Limited, therefore, the personal liability is no greater than the amount unpaid on the company’s share capital

Question 6

Private limited company(LTD)

Answer 6

• cannot sell shares to the public
• main shareholders include the company directors and/or family
• company applies to Registrar of Companies who will issue a Certificate of Incorporation to allow the company to trade

Question 7

Advantages and disadvantages of LTDs

Answer 7

Advantages

• easier and less expensive to set up than a PLC
• ownership and control have a close link

Disadvantages

• capital limited by extent of ownership

Question 8

Public limited company(PLC)

• What is it?
• Advaantages and disadvantages

Answer 8

If a company meets the criteria for incorporation, has a minimum amount of public shared capital and satisfactory prospectus, the Registrar will issue the company with a Trading certificate

Advantages

• potential to raise large amounts of capital from shared issues

Disaadvantages

• public access to shares makes takeover or merge a possibility

Question 9

Simplified business transactions model

Answer 9

Question 10

The Law on limited companies

Answer 10

All limited and public limited companies must submit a full annual report to the Registrar of Companies at Companies House

Question 11

What is included in the annual report?

Answer 11

• company information
• chairperson’s statement
• operating and financial review
• annual acocunts

It provides information to investors and other interested parties

Question 12

What is included in the annual accounts?

Answer 12

Accounts are due at the end of the financial year on the ccounting Reference Date(ARD)

• balance sheet
• profit and loss account
• notes about the accounts
• auditor’s report
• director’s report

Question 13

Balance sheet

Answer 13

• snapshot of the financial position of the company at a particular point in time
• provides a summary of assets and liabilities

Question 14

Profit and loss account

Answer 14

summary of sales revenue and expenses at a set period, normally a financial year, which determines the profitability of the company during that period