MOCKS

Question 1

Sole Trader definition

Answer 1

An individual who sets up a business.

Question 2

Advantages of Sole Traders:

Answer 2

Quick and easy to set - no legal documentation required

Keep all the profits

Be your own boss so can make all the decisions

Question 3

Disadvantages of Sole Traders:

Answer 3

An overwhelming workload

Need to handle all aspects of the business when you may only specialise in a certain skill.

Unlimited liability

May be difficult to find/ raise finance.

You don’t get days off if ill or on holiday as the business will come to a halt.

Higher costs and prices as they don’t have much power over suppliers/distributors.

Question 4

Partnership definition:

Answer 4

When 2-20 people set up a business together.

Question 5

What is a deed of partnership?

Answer 5

An agreement between partners that sets out the rules of the partnership, such as how the profits will be divided.

Question 6

Advantages of a Partnership:

Answer 6

More funds are available due to multiple people being able to contribute money.

Better decisions may be made.

Each partner has different skill sets so can specialise to benefit the business.

If ill or on holiday partners can run the business in the meantime.

Question 7

Disadvantages of a Partnership:

Answer 7

Possible disagreements

Decisions may take longer to make as everyone must be consulted and should agree beforehand.

Rewards are divided between each partner.

Partners have unlimited liability.

Question 8

What is a public limited company (PLC)?

Answer 8

can advertise its shares and can be listed on the Stock Exchange

Question 8

What is a private limited company (LTD)?

Answer 8

cannot publicly advertises its shares and is often owned by family members

Question 9

What is flotation?

Answer 9

when a private limited company becomes a public limited company and has its shares listed of the Stock Exchange

Question 10

What is the Stock Exchange?

Answer 10

a market for shares of PLCs

Question 11

What is limited liability?

Answer 11

when there is a limit to the amount of money investors can lose; they can only lose the funds invested not their personal possessions

Question 12

What is unlimited liability?

Answer 12

when the personal possessions of the owners of the business are at risk if there are any problems; there is no limit to the amount of money the owners may have to pay out

Question 13

Advantages of being a private limited company (LTD):

Answer 13

Limited liability

Good reputation/ status so can attract more customers

If the business founder dies then whoever owns the most shares takes over the business

Managers can be employed to run the day-to-day whilst they retain control and profits are distributed amongst shareholders

Question 14

Disadvantages of being a private limited company (LTD):

Answer 14

Various legal procedures

A summary of the business’s financial accounts must be produced and these have to be available for the general public

Accounts must be checked by an independent account causing additional costs

The business must pay corporation tax

Additional investors become stakeholders who can influence the business.

Distribution of profits

Question 15

Advantages of being a public limited company (PLC):

Answer 15

Can advertise its shares to the general public

Public companies attract more media coverage

Have better status than private limited companies

Investors may buy shares

Question 16

Disadvantages of being a public limited company (PLC):

Answer 16

Media coverage can be bad and lead to the company having a bad reputation

Competitors could buy shares and takeover

A PLC is more regualted than an LTD which is expensive and gives information away to competitors

Owners don’t have much control over how their morals are conveyed in the business