Lesson 4 - Types of Business Organisations

Question 1

Define Sole Trader

Answer 1

Sole Trader is a business owned by one person

Question 2

List 3 Advantages of Sole Trader

Answer 2

1. He is his own boss
2. There are few legal restrictions when setting up
3. He has freedom to choose his holidays etc.

Question 3

List 3 Disadvantages of Sole Trader

Answer 3

1. Unlimited liability
2. No one to discuss with
3. Unincorporated

Question 4

3 People who should use Sole Trader

Answer 4

1. People who dont have much capital
2. Setting up new business
3. Will be dealing with the public since direct contact is very important for success in such businesses

Question 5

Define Partnership

Answer 5

Partnership is a form of business in which two or more people agree to jointly own a business.

Question 6

List 3 Advantages of Partnerships

Answer 6

1. Easy to set up, doesnt require lots of money
2. More capital is invested
3. Partners are motivated because any losses are shared

Question 7

List 3 Disadvantages of partnersips

Answer 7

1. Partners have unlimited liability
2. They are unincorporated
3. Partners can disagree on decisions, If one of the partners is inefficient, they all lose money.

Question 8

Define Incorporated businesses

Answer 8

Incorporated businesses are companies that have separate legal status from their owners

Question 9

List 3 things Incorporated businesses can do

Answer 9

1. Business will continue to exist if one of the owners die
2. a company can make contracts or legal agreements
3. Company accounts are kept separate from the accounts of the owners

Question 10

Define Shareholders

Answer 10

Shareholders are the owners of a limited company. They buy shares which represent part ownership of a company.

Question 11

Define Private limited company

Answer 11

A company whose shares cannot be sold to the general public.

Question 12

List 2 Advantages of Private limited companies

Answer 12

1. All share holders are have limited liabilities

2. Owners are able to keep control as long as they dont sell too many shares

Question 13

Define Dividends

Answer 13

Return to shareholders for investing in the company.

Question 14

Define a Public Limited company

Answer 14

A company whose shares can be sold to the general public

Question 15

Ownership of an PBLC

Answer 15

All share holders are invited to the AGM. They vote for directors. Directors appoint managers.

Question 16

Define AGM

Answer 16

AGM is a legal requirement for all companies. Shareholders may attend and vote on who they want to be on the board of directors for the coming year.

Question 17

List 2 Advantages of PBLC

Answer 17

1. Opportunity to raise high capital sum

2. No restriction on buying and selling or transferring of shares

Question 18

List 2 Disadvantages of PBLC

Answer 18

1. Selling shares to public is expensive

2. Difficult to set up

Question 19

Define a Join Venture

Answer 19

A joint venture is when two or more businesses start a project together sharing capital profit and risks.

Question 20

List 3 Advantages of Joint ventures

Answer 20

1. Risks are shared
2. Local knowledge when joint venture company is already based in the country
3. Sharing of costs - very important for expensive projects

Question 21

List 3 disadvantages of Joint Ventures

Answer 21

1. Profits have to be shared if business is successful
2. The two joint ventures may have different ways of running a business
3. Disagreements over important decisions may occur

Question 22

Define a Franchise

Answer 22

A Franchise is a business based upon the use of brand names, promotional logos and trading methods of an existing successful business. The franchisee buys the licence to operate this business from the franchisor

Question 23

List 2 Advantages to the Franchisor

Answer 23

1. All products sold must be from the franchisor

2. The management of the outlet is the responsibility of the franchiseee

Question 24

List 2 Disadvantages to Franchisor

Answer 24

1. Poor management of a bad outlet could lead to a bad reputation
2. Franchisee keeps profit from outlet.

Question 25

List 2 Advantages to Franchisee

Answer 25

1. Franchisor pays for Advertising

2. The chances of business failure is lower since a well known product is being sold

Question 26

List 2 Disadvantages to the Franchisee

Answer 26

1. Licence fee must be paid to franchiser and percentage of annual turnover
2. Less independence than with working with a non franchise business

Question 27

List 2 Advantages of Public corporations

Answer 27

1. Some industries are so important such as water supply that government ownership should be essential
2. Non-profitable but important programs can still be made available to public such as Radio

Question 28

2 Disadvantages of Public corporations

Answer 28

1. No shareholders to insist on higher efficiency

2. No competition so lack of incentive to increase efficiency and consumer choice

Question 29

List 2 Disadvantages of Private limited companies

Answer 29

1. Difficult to set up (legal formalities)

2. Company cannot offer its shares to the public