Forms of Business

Question 1

Define PUBLIC LIMITED COMPANIES

Answer 1

A public limited company is owned by shareholders who are paid dividends from profits. It is run by a board of directors and shares can be sold publicly through the stock market.

Question 2

Define STOCK MARKET FLOTATION

Answer 2

Stock market flotation is when a public limited company makes their shares available to the public for the first time.

Question 3

What are the advantages of becoming a public limited company?

Answer 3

• Possible to raise large amounts of capital
• Easier for shareholders to sell shares
• Risk is likely to be shared across a higher number of shareholders.

Question 4

What are the disadvantages of becoming a public limited company?

Answer 4

• Possible loss of control
• Anyone can buy shares, so there is a risk of takeover
• Risk of short termism
• Senior managers may pursue their own goals rather than shareholders.
• Company accounts can e viewed by the public, including competitors

Question 5

Define EXITING THE STOCK MARKET

Answer 5

Exiting the stock market is when a business is taken back to private ownership .

Question 6

Define a FRANCHISER

Answer 6

A franchiser is a person or company who grants the franchisee the right to do business under their trade name and sell their products.

Question 7

Define a FRANCHISEE

Answer 7

A franchisee is a person or company that pays the franchiser for the right to operate under their trade name and sell their products.

Question 8

What are the advantages of franchising for the franchisee?

Answer 8

• Lower risk than setting up an independent business
• Ongoing system of support available from franchiser
• Exclusive area contract
• Predictable set up costs

Question 9

What are the disadvantages of franchising for the franchisee?

Answer 9

• Lack of independence
• Cost of buying the franchise is high
• Profit is shared with the franchiser
• Equipment and supplies have to be bought from the franchiser

Question 10

What are the advantages of franchising for the franchiser?

Answer 10

• Fast/low costs method of growth
• Risks are shared with the franchisee
• Franchisee is likely to be more motivated than branch managers
• They still have the option of non-franchised businesses.

Question 11

What are the disadvantages of franchising for the franchiser?

Answer 11

• Profit is share with the franchisee
• Possible loss of control
• Can the franchiser effectively manage growth?

Question 12

Define a LIMITED COMPANY

Answer 12

A limited company is one with separate legal entity to the owners. The company owns things itself such as assets, can form contracts, employee staff, sue and be sued.

Question 13

What documents are required to form a limited company?

Answer 13

1. The memorandum of association –> basic details about the company.
2. The articles of association –> sets out internal rules on arrangements within the company.

Question 14

What are the forms of social enterprises?

Answer 14

• Co-operatives
• Mutual organisations
• Community interest company

Question 15

Define an UNINCORPORATED BUSINESS

Answer 15

An unincorporated business is one that has no legal difference between the owner and the business - the owner is the business. The owner has unlimited liability for all business actions and personally owes any liabilities.

Question 16

Define an INCORPORATED BUSINESS

Answer 16

An incorporated business is one that has a legal difference between the owner and the business itself. The business is owned by shareholders who have limited liability.

Question 17

Define a SOLE TRADER

Answer 17

A sole trader is the most common type of business structure. The sole trader is the only owner of the business (and they have unlimited liability) and therefore all assets and liabilities are their personal responsibility.

Question 18

What are the advantages of operating as a sole trader?

Answer 18

• Quick and easy to set up
• Owner keeps all profits
• Owner is in full control

Question 19

What are the disadvantages of operating as a sole trader?

Answer 19

• No legal distinction between the owner and the business - owner has unlimited liability
• Sole trader may pay more tax depending on the amount of profit made.

Question 20

Define a PARTNERSHIP

Answer 20

A partnership is when the business is owned by more than one person. They have unlimited liability and all assets and liabilities are the responsibility of both owners. The Deed of Partnership determines how to partnership is run.

Question 21

What are the advantages of operating as a partnership?

Answer 21

• Simplest way for two or more people to start a business together
• The business can benefit from the work and experience of both owners.
• It is easier to raise finance than sole traders.

Question 22

What are the disadvantages of operating as a partnership?

Answer 22

• Profit must be shared according to the terms of the profit agreement
• They have unlimited liability and so there is no legal distinction between the owners and the business itself.
• One partner’s decision is legally binding on the other.
• Partners may pay more tax.
• It is harder to raise finance than companies

Question 23

Define a LIFESTYLE BUSINESS

Answer 23

A lifestyle business is a business set up by an entrepreneur to fit in with personal needs and the needs of their family. Their main aim is likely to be profit satisficing.

Question 24

Define an ONLINE BUSINESS

Answer 24

An online business is one that operates in a virtual marketplace.