LO2:Ownership types

Question 1

what is a sole trader?

Answer 1

A sole trader is a single person who sets up their own business and they own it. It is relatively easy to set up as all the individual needs to do is register with HMRC.

Question 2

advantages of a sole trader

Answer 2

Easy to set up
The owner makes all the decisions
The owner can decide what to do with any profits made

Question 3

disadvantageous of a sole trader

Answer 3

It is difficult for the owner to take time off
There is a large amount of responsibility for the owner
Unlimited liability

Question 4

what is a partnerhsip?

Answer 4

A partnership is the name given to a business that is owned and operated by two or more people. To sets this up the business owners must register with HMRC.

Question 5

advantages of a partnership

Answer 5

Running of the business is shared so it is easier to take holidays or time off if ill
Likely to have more capital to set up as funds are coming from more than one person.
Owners may bring different skills to the business

Question 6

disadvantages of a partnerhsip

Answer 6

Partners could disagree on business decisions
Can be complicated for partners to join or leave
Unlimited liability

Question 7

what is a Private Limited company Ltd

Answer 7

A private limited company can be a large or small business, and anyone who owns a business can set it up as a private limited company Ltd, with a private limited company the owners are known as shareholders, shareholders need to be invited to the business before they can purchase a percentage of the business.

Question 8

advantages of private limited companies

Answer 8

The owners have limited liability
It gives individuals the opportunity to be their own boss
Any new shareholders need to be invited the business; this protects the business from outside influence
Shares in the business can be sold to raise money

Question 9

disadvantages of private limited companies

Answer 9

There is often more paperwork
In some instances, other people can view he business finical information
It can be very time consuming
The business may require outside professional help to manage its finances
Shareholders will expect to receive a percentage of profits.

Question 10

what is a public limited company?

Answer 10

In PLC shares are sold to the public on the stock market. They become part owners of the business and have a voice of how it is operated.

Question 11

advantages of a public limited company

Answer 11

The business has the ability to raise additional finance through shared capital.
The shareholders have limited liability
Increased negations opportunities with suppliers in terms of prices become larger businesses can achieve economics sales.

Question 12

disadvantages of a public limited company

Answer 12

It is expensive to set up, requires a minimum of £50,000
More complex accounting and reporting requirements
There is a greater risk of hostile takeover by a rival company as the company cannot control who buy shares.
Shareholders will expect to receive a percentage of profits as dividends
Shareholder may clash when making decidions.

Question 13

what is unlimited liability?

Answer 13

The owners have all responsibility for all debts of a business, even if the business has no money, they must pay debts

Question 14

what is limited liability?

Answer 14

If a business cannot pay its debts, owners have limited liability so are not responsible for repaying this money

Question 15

What is state/government owned businesses?

Answer 15

This is when a government identifies the aims and objectives of the organisation and appoints a board of directors to run it.

Question 16

advantages of state owned businesses

Answer 16

Some businesses/ industries are vital, support from the government ensures that these industries survive.

In some industries it would be inefficent to have more than one provider of a product or service

The government can support large businesses that are struggling to survive

Question 17

disadvantages of state owned businesses

Answer 17

Large businesses/industries may be inefficent due to diseconomics of scale and higher prices may be charged to customers

Businesses that are not answerable to shareholders regarding profits may not priotise cost control.

These businesses can be used for polictical gain.

Question 18

what are charities?

Answer 18

This includes voluntary and community groups, trade unions, charitable trust and charities.They may make profit however with profit that they earn they will invest the money again.

Question 19

advantage of charities

Answer 19

Advantages for small charitable groups are the same for sole trader

Quick and easy to set up

They also share advantages with limited companies

Question 20

disadvantages of charities

Answer 20

Disadvantages are the same for sole trader

They often depend on volunteers, which can make it difficult to maintain support

Disadvantages are the same for those with limited companies

Setting up a formal charities is expensive

Question 21

what is a community interest company?

Answer 21

Limited companies that aim to benefit the community or trade with a social purpose rather than earning high profits for shareholders, although shareholders may get a small return most profits are invested into the community or a social enterprise.

Question 22

advantages of a community interest company

Answer 22

the company has its own legal identity

The representation of the business may be enhanced

Question 23

disadvantages of a community interest company

Answer 23

The articles of association and the memorandum of association must be completed and sent to the registrar of companies

Tax must be paid on profits