Lecture 10: Business

Question 1

Define sole trader and its disadvantages

Answer 1

• Easy to set up => can employ people & have a business name
  
  • Private business (taxed as self employed)
    Disadvantages
  • No difference between business assets and personal - so easy to move assets and money in and out of business => all your assets are liable if you go into debt, there is no separation between your own stuff and business
    Credibility and trust - will clients believe in you? => cant get investments

Question 2

Define partnership and its disadvantages

Answer 2

• Same as sole trader but group of partners i.e. doctors, lawyers => benefits i.e. shared expertise and talent, shared burdens
  
  • Raise capital from new partners (buying in), can arrange for other partners to be bought out
  • Partners taxed as self employed
    Disadvantages
  • All partners liable for debts
  • No separation between personal and partnership assets
  • Lack of hierarchy

Question 3

Define limited liability company/ private limited company (Ltd.) and its disadvantages

Answer 3

• Business is legal individual => separate business assets and owners
  
  • Share sold privately (to get investment) => company can be bought/sold
  • More credible => more trust from clients as it has stronger legal framework
    Disadvantages
  • Complex to start, needs professional help => accounts filed with government and company registered
  • Public business affairs
  • Money and assets are companies =>cannot be easily moved in and out
    Investors can still demand personal guarantees

Question 4

Define public limited company (plc) and its disadvantages

Answer 4

• Public traded shares
  
  • Must currently have 50K in issued share capital (i.e. shares values owned by shareholders)
  • Shares sold publicly on stock exchange to obtain capital for investment and growth
    Disadvantages
  • Shareholders have control => competitors can buy shares to control your business
  • Share prices fluctuate
    Larger legal and admin burden

Question 5

Define the business scales

Answer 5

• Small: 0-49 employees, turnover 249 employees

Question 6

Define risks of different scale businesses

Answer 6

• Small businesses = cashflow and sustainability, time and commitment, intellectual property
  
  • Medium business = longer term growth, increased complexity ofnon core work (e.g. accounts), vulnerable to competitors
    Large businesses = increased distance from core work, increased complexity, too large an investment with too small a profit, i.e. unilever and proctor gamble

Question 7

Define place in business

Answer 7

• Start up = risky, learn more and faster, difficult to grow

Larger established business = security, benefit from others experience