Ownership and control

Question 1

What is a Sole trader?

Answer 1

A sole trader is the single owner of a business and makes all the
decisions. Sole traders are responsible if anything goes wrong.

Question 2

Does a Sole trader have limited or unlimited liability?

Answer 2

A sole trader has unlimited liability.
This means that if the business fails the owner is responsible for all the debts of the business and may lose their possessions.

Question 3

Advantages of a Sole Trader?

Answer 3

■ Full control over decision making
■ Get to keep all the profits
■ Financial privacy

Question 4

Disadvantages of a Sole trader?

Answer 4

■ They may not gain economies of scale because they cannot buy
in bulk, so customers pay more for their goods.
■ They may not benefit from specialisation and division of labour.
In a small business with few employees, people will have to do
more than one job and not just the one they are best at.

Question 5

Aims of Sole Traders?

Answer 5

Not just to make profit, but also to survive.

Question 6

What happens if the business owner of a Sole trader dies?

Answer 6

the business will have lack of continuity. If the owner of the business dies, then that is the end of that business.

Question 7

What is a Partnership?

Answer 7

A partnership is an agreement between two or more people to own and take responsibility for a business. Including starting funds, liability for debts, profit, decisions, etcetera.

Question 8

What legal document is needed to draw up a Partnership?

Answer 8

Usually a deed of partnership is drawn up. This states -
■ how much money each partner will put in to start the business
■ how profits and losses are to be shared
■ what each partner will have responsibility for
■ how the partnership will be ended.
Having a deed of partnership can prevent problems and
disagreements in the future.

Question 9

Does a Partnership have limited or unlimited liability?

Answer 9

A Partnership has unlimited liability, which means a partner could be responsible for some debts even if they were caused by another partner.

Question 10

What happens if a business owner of a Partnership dies?

Answer 10

Partnerships have a lack of continuity. If one of the partners dies,
then the partnership is ended.

Question 11

Aims of Partnerships?

Answer 11

Partnerships usually have more capital then sole traders so an aim may be to expand, as well as to survive and make a profit.

Question 12

Advantages of a Partnership?

Answer 12

■ More effective decision making
■ Increased Capital
■ Shared workload / Specialisation

Question 13

Disadvantages of a Partnership?

Answer 13

■ Disagreements between the partners may make decision-making
difficult.
■ Having to share profit means that the person who does the most
work may not be the one who gets the greatest reward.

Question 14

What is a silent partner?

Answer 14

A partner which has invested capital in the business but isn’t involved in the running of the business.

Question 15

What is a limited company?

Answer 15

A company which has a separate legal identity from its owners.

Question 16

What is a Private limited companies (Ltd)?

Answer 16

The owners of a private limited company are known as shareholders. Shareholders have to be invited by the business before they can purchase a share of the business. A share is a portion or percentage of a company.

Question 17

What is a Public limited companies (Plc)?

Answer 17

In a Plc, shares are sold to the public on the stock market. People who own shares are called ‘shareholders’, which often gets them more capital. They become part owners of the business and have a voice in how it operates.

Question 18

How do limited companies get their capital?

Answer 18

Limited companies get their capital by issuing shares. For each share
bought there is an equal amount of ownership, an equal amount of
say in the running of the business and an equal share in any profits.

Question 19

Does a Plc and Ltd have limited or unlimited liability?

Answer 19

Limited companies have limited liability. This means that if the
business has debts, the owners are only responsible for the amount
of capital that they put into the business (the amount of money
that they paid for the shares that they bought).

Question 20

Disadvantages of a limited company?

Answer 20

The person originally setting up the limited company can lose
control of the business because there is a divorce of ownership
and control. The owners appoint directors who appoint managers
all of whom may have different aims for the business.

Question 21

Advantages of a Private limited companies (Ltd)?

Answer 21

■ Continuity
■ Limited Liability
■ More Control
■ Raising Capital is easier

Question 22

Disadvantages of a Private limited companies (Ltd)?

Answer 22

■ Shared Profit
■ Lack of financial privacy
■ Limit on capital
■ Set up costs

Question 23

Advantages of a Public limited companies (Plc)?

Answer 23

■ Raising capital is easy because of shareholders
■ Limited Liability
■ Continuity

Question 24

Disadvantages of a Public limited companies (Plc)?

Answer 24

■ Threat of hostile takeover
■ Lack of control
■ Set up costs
■ No financial privacy

Question 25

What are the two documents required for a Limited company?

Answer 25

1. The “Memorandum of association.” > Basically the outside view of the company eg. name, function, objectives
2. The “Articles of association.” > Basically the inside workings of the company eg. How board meetings will work, how profits will be split, duties of the directors