Forms of Business

Question 1

What are private sector businesses

Answer 1

companies owned by shareholders or individuals (most UK businesses)

Question 2

what is the difference between unincorporated and incorporated businesses

Answer 2

• for unincorporated businesses, the owner is the business and there is no legal difference, there is for incorporated businesses
• unincorporated businesses have unlimited liability whilst incorporated businesses have limited liability
• most unincorporated businesses are sole traders and incorporated businesses are PLC’s

Question 3

what does unlimited liability mean

Answer 3

the business owners are personally responsible for all debts the business has, so personal assets may be used to pay off these debts

Question 4

key points about sole traders (who is it run by?, liability?, profts?, records?)

Answer 4

• run by an individual who owns the whole business
• unlimited liability
• legally required to keep a record of income and expenses annually
• profits are classed as income and are therefore taxable

Question 5

advantages of being a sole trader

Answer 5

• keep all profit
• full control over business
• private records
• free and easy to set up

Question 6

disadvantages of being a sole trader

Answer 6

• unlimited liability
• possibly may have to pay more tax
• workload may be too much
• no profit made if ill

Question 7

what is a partnership

Answer 7

when two or more people share the costs, risks, and responsibilities of being in a business together

Question 8

what are ‘sleeping partners’

Answer 8

partners who invest in a business but do not manage it

Question 9

benefits of being in a partnership

Answer 9

• shared risks and costs
• more scope for specialist skills
• private records
• more capital can be raised

Question 10

drawbacks of being in a partnership

Answer 10

• unlimited liability
• arguments may occur
• partnership can be dissolved easily (death, bankruptcy etc.)
• trust is significant