forms of business organisation

Question 1

what is an unincorporated business

Answer 1

the owner is the business and has unlimited liability (sole trader, partnership)

Question 2

what is incorporated business

Answer 2

there is a legal difference between business and owners with limited liability (private/public limited company)

Question 3

what is a sole trader

Answer 3

individual who is sole owner of business they are personally liable for all debts of business

Question 4

what are advantages of being a sole trader

Answer 4

low start up costs - few legal processes can begin trading almost immediately

profits - owner keeps all profits

have all the control over business make all decisions

Question 5

disadvantages of being a sole trader

Answer 5

unlimited liability - if business occurs large debt owner is responsible

raising capital - banks reluctant to lend

very competitive - forced to charge higher prices as they are a small business no EOS

Question 6

what is a partnership

Answer 6

between 2-20 people join together sharing the responsibility of running the business

Question 7

what is deed of partnership

Answer 7

sets out the roles and input of each partner as-well as how profits are shared and how much each partner contributes both financially and labour

Question 8

what are sleeping partners

Answer 8

business partners who put their money into the partnership but have no active role in business

Question 9

what might cause disputes in a partnership

Answer 9

not agreeing on decisions
share profits
wages

Question 10

advantages of partnership

Answer 10

low start up costs
profits divided equally
lots of experience
raising capital easier due to more partners

Question 11

disadvantages of partnership

Answer 11

unlimited liability
loss of authority - partners have to consult each other
lack of continuity - business can dissolve

Question 12

what type of tax does sole traders and partnerships pay

Answer 12

income tax

Question 13

what two documents are required to set up as a limited company

Answer 13

memorandum of association and articles of association

Question 14

what is the memorandum of association

Answer 14

document containing company name, what the business does and details of shareholders

Question 15

what is the articles of association

Answer 15

document must contain list of directors and other powers, distribution of shares

Question 16

what is a private limited company

Answer 16

company where sale of shares is restricted
owned and ran by shareholders (friends and family)

Question 17

what are advantages of LTD (private)

Answer 17

limited liability - not personally reliable for debts
continuity - not impacted by death of shareholders
control - small number of shareholders means greater control

Question 18

disadvantages of LTD (private)

Answer 18

lack of privacy - required to submit financial statements

set up costs - time consuming and costly

can’t sell shares to public

Question 19

what is a public limited company (plc)

Answer 19

usually a large well known business which is owned by shareholders and ran by directors/shareholders

Question 20

what are the advantages of a public limited company

Answer 20

raising capital
limited liability
continuity

Question 21

disadvantages of plc

Answer 21

set up costs
lack of privacy
threat of takeover

Question 22

what type of tax do plc and ltd pay

Answer 22

corporation tax

Question 23

what is a franchise

Answer 23

agreement between two parties giving one the rights to market a product using their trademark in return for royalties

Question 24

advantages of franchisor

Answer 24

growth opportunities - business expands quicker

profits automatically increase with these franchise

minimal administration work

Question 25

disadvantages of franchisor

Answer 25

no control over store could damage rep if store has bad manager

communication issues may occur

Question 26

advantages of franchisee

Answer 26

well known brand already established

receive training and support to help store be successful

access to finance as banks consider them low risk

Question 27

disadvantages of franchisee

Answer 27

fees to franchisor - front up costs swell as percentage of profit or sales rev

loss of control - franchisor can give strict guidelines that must be followed

Question 28

what is a social enterprise

Answer 28

business with social objectives whose surplus is reinvested in business or community

Question 29

why do social enterprises exist

Answer 29

fulfilling social or environmental needs
tackle social problems

Question 30

advantages of social enterprise

Answer 30

receive donations which is given out to communities to help livelyhood

Question 31

disadvantages of social enterprise

Answer 31

dependancy on funds
greater risk if they make a loss no donations can be made

Question 32

what is the voluntary sector

Answer 32

purpose is to improve and enrich society exists to create social wealth

Question 33

benefits of trading as a charity

Answer 33

workers are volunteers
wider range of products as they are donated

Question 34

drawbacks of trading as a charity

Answer 34

dependant on funds
greater risk