Forms of business Flashcards
1
Q
Disadvantages of being a sole trader (6)
A
- Unlimited liability
- May not have all the skills needed to handle all areas of the business
- Making all decisions can be stressful
- Can be difficult to raise finance
- Heavy workload
- Might be charged higher interest rate on loan as bank wants to cover potential losses
2
Q
Advantages of being a sole trader (3)
A
- All the profit
- Independence in making decisions and control
- Less documentation required
3
Q
Advantages of private limited company (4)
A
- Limited liability -> encourages investment
- Easier or raise finance as the company can sell shares
- Stable form of structure - the company continues to exist even when the shareholders change
- Original owners are likely to retain control
4
Q
Disadvantages of private limited companies (5)
A
- Shareholders have to agree about how profits are distributed
- Greater administrative costs than setting up as sole trader or partnership
- Finance limited to ‘’friends and family’’
- Less privacy - public disclosure of company information, but not as extreme as plc
- Director’s legal duties are stricter
5
Q
A company -
A
- business organisations that has its own legal identity and that has limited liability
6
Q
Incorporation -
A
- the process of establishing a business as a separate legal identity that allows it to benefit from limited liability
7
Q
Market capitalisation -
A
- total value of issued shares of a public limited company
8
Q
Advantages of public limited companies (3)
A
- Access to capital
- Publicity
- Ability to takeover
9
Q
Disadvantages of public limited companies (3)
A
- Decisions taken in short term interest to encourage investment
- Loosing control over the business as shares are sold -> might not be the main shareholder anymore
- Takeover without consent when shareholders are selling their shares to other businesses
10
Q
Privatisation -
A
- process when the state sells businesses that it has previously owned and managed to private individuals and businesses
11
Q
Public corporations -
A
- enterprises owned by the state but offering products for sale to the public and private sector businesses, might be managed by central government or local governments
12
Q
Public services -
A
- includes organisations that provide services to the whole nation
13
Q
Municipal services -
A
- services offered by local governments and councils
14
Q
Not for profit businesses -
A
- set up for a purpose and can be a part of both private and public sector. Owners operate them for strong belief in particular idea, providing hobby or replacing employment
15
Q
Mutual businesses -
A
- run for the benefit of their members such as consumers, employees, suppliers or the local community
16
Q
Cooperatives -
A
- well-known example of mutual businesses and run by groups of people (members) each of whom has a say in the management of the business. Must reflect their ethical values: honesty, openness, social responsibility and caring for others. Principals: voluntary and open membership, democratic member control, provision of education, provision of training and information and concern for the community
17
Q
Types of cooperatives (3)
A
- Consumer cooperatives (customers are members)
- Worker cooperatives (owned and operated by employees)
- Producer cooperatives (group of businesses work together to benefit from factors such as increased bargaining power)
18
Q
Criticism of cooperatives
A
Lack of skills that is not suited for some positions, relying on elected members who may be well intentioned, but not suited for their roles.
19
Q
Primary sector -
A
- the economic sector that resolves around the extraction of raw materials
20
Q
Secondary sector -
A
- sector that involves manufacturing, production and transportation
21
Q
Tertiary sector -
A
- selling goods or providing service to the consumers
22
Q
Private sector -
A
- owned by private entrepreneur
23
Q
Public sector -
A
- owned by government
24
Q
Charity -
A
- organisation that fundraisers to help people in need
25
Q
Social enterprise -
A
- organisation that applies commercial strategies to maximise improvements in financial/social and environmental well-being
26
Q
Sole trader -
A
- an individual owning the business on his own, cannot sell shares
27
Q
Ltd -
A
- raise funds from investors, such as friends and family, but not from general public as it’s shares are not listed on the stock exchange
28
Q
Unlimited liability -
A
- owners may have to use their own personal funds to pay any debts
29
Q
Limited liability -
A
- shareholders are not responsible for the company’s debt, might only lose their investment
