forms of business organizations

Question 1

sole trader

Answer 1

is a person who has total ownership and responsibility for managing his/her business

Question 2

characteristics of sole trader

Answer 2

he or she manages the business but may have the services of family and friends
he or she has personal relationship with the client
he or she enjoys all the profit and bears all the risks

Question 3

why are people a sole trader

Answer 3

independence, simple organisational structure and secrecy.

Question 4

disadvantages of a sole trader

Answer 4

limited source of finance: the sole trade depends on personal savings or profits and on loans made on the security of personal property.
lack of leisure time- the sole trader has to work long hours and may not be able to take a vacation
unlimited liability- if the business falls even the personal possessions of the owner will be sold in order to pay off the debts of the business if necessary

Question 5

define partnership

Answer 5

is an association of two to twenty partners operating a business for the common goal of making a profit.

Question 6

characteristics of partnerships

Answer 6

the minimum members are two and maximum is 20 members except banking where the minimum is 10
profits are shared equally or as stated in the partnership deed.
capital is provided by the partners as agreed.

Question 7

Partnership deed should have

Answer 7

the name of the partners
the nature of the business and the date of the commencement
the amount of capital put into the business by each partner

Question 8

advantages of partnerships

Answer 8

more capital can be obtained than as a sole trader
it is possible to have limited liability by being a limited partner
the workload is shared thus partners can take a vacation and enjoy more leisure time

Question 9

disadvantages of partnerships

Answer 9

unlimited liability-all ordinary partners are fully liable
capital- is limited to all 20 partners
binding- all partners stand to lose if one partner makes a bad mistake

Question 10

cooperatives

Answer 10

are businesses that are formed and operated by its members.

Question 11

principles of cooperatives

Answer 11

there is democratic control
membership is open to its construents
there is limited interest on capital investments

Question 12

characteristics of cooperatives

Answer 12

they are voluntary non-profit making organisations
they are managed and controlled by its members
the members are also the clients

Question 13

types of cooperatives

Answer 13

financial cooperatives e.g credit unions
agricultural cooperatives e.g the farmer cooperatives which supply agricultural products
consumer cooperatives
service cooperatives

Question 14

advantages of cooperatives

Answer 14

members pool their resources
members are the owners
there is shared decision making
community bond is strengthened

Question 15

disadvantages of cooperatives

Answer 15

decision making is slow and therefore clients may miss opportunities
the membership may not have the expertise necessary to build the organisation

Question 16

define company

Answer 16

is a business entity that has been incorporated,

Question 17

two types of companies

Answer 17

private limited companies
public limited companies

Question 18

private limited company

Answer 18

is an incorporated business organisation consisting of two to fifty members who aims to make profits. The membership is restricted to family and friends

Question 19

characteristics of private limited company

Answer 19

-limited liability shareholders have limited liabilities
the word limited must be in the name
membership is between two to fifty members

Question 20

advantages of private limited companies

Answer 20

-a larger capital base than sole trader or partnership because the membership is larger
the company has a separate legal identity from the ownership

Question 21

disadvantages of private limited companies

Answer 21

capital is limited since the membership is limited to fifty
selling of shares is restricted to the private grouping
the company must file its financial reports with the Registrar of companies

Question 22

public limited company

Answer 22

is an incorporated company, which offers shares to the public

Question 23

characteristics of public limited company

Answer 23

there must be at least 7 shareholders with no limit on the maximum number of shareholders
the shares are traded openly in the stock market
the public limited company must be incorporated

Question 24

advantages of public limited company

Answer 24

it is easier to obtain finance
shareholders have limited liability. Ownership and control have separated.

Question 25

disadvantages of public limited company

Answer 25

the legal requirements may be time consuming and costly
the accounts have to be made public

Question 26

multinational corporations

Answer 26

are a network of firms that operate in multiple countries but owned and controlled by a single group of shareholders.

Question 27

state corporations

Answer 27

are independent organizations set up by the government to carry out a service

Question 28

nationalized industries

Answer 28

are firms which were once privately owned, but have been taken over by the government