Section 1.4 Types of Businesses Organisations Flashcards

1
Q

What are the different types of business organisations (ownerships) in the private sector?

A
  • Sole trader
  • Partnership
  • Limited Companies (Private and Public)
  • Franchise
  • Joint venture
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2
Q

What is a sole trader?

A

A business that is owned and controlled by just one person who takes all of the risks and receives all of the profit

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3
Q

What are the advantages of a sole trader?

A
  • Easy to set up
  • Makes all the decisions
  • Complete control
  • Keeps all the profit
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4
Q

What are the disadvantages of a sole trader?

A
  • Unlimited liability (responsibility)
  • Difficult to raise funds to expand the business
  • Difficult to compete with larger firms
  • Owners may lack some essential business skills
  • Have to work very long hours to make a living
  • If sole trader dies or retires, business no longer exists
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5
Q

What is a partnership?

A

A business formed by two or more people who will usually share responsibility for the day-to-day running of the business. Partners usually invest capital in the business and will share profits

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6
Q

What are the advantages of partnership?

A
  • Greater access to finance (more than one person investing in the business)
  • Decision-making is easy as it is shared and will also lead to better decisions
  • Reduces workload
  • Easy to set up (Deed of Partnership)
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7
Q

What are the disadvantages of partnership?

A
  • Unlimited liability (Responsibility)
  • Partners must share profits
  • If one partner leaves the business ceases to exist
  • Business decisions are binding on all partners (even if they didn’t agree to it)
  • Difficult to raise additional finance to expand
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8
Q

What is an unincorporated business?

A

A business that does not have legal identity separate from its owners. The owners have unlimited liability for business debt

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9
Q

What does unlimited liability mea?

A

If an unincorporated business fails, then the owners might have to use their personal wealth to finance any business debts.

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10
Q

What is What is the difference between unincorporated companies and limited companies?

A

Unincorporated companies (sole trader, partnerships) has unlimited liability where limited companies do not as limited companies are owned by its shareholders

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11
Q

What are the two types of limited companies?

A

Private limited company

Public limited company

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12
Q

What is a private limited company?

A

Often a small to medium-sized company; owned by few shareholders who have limited liability. The company cannot sell its shares to the general public

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13
Q

What is a public limited company?

A

Often a large company; owned by many shareholders who have limited liability. The company can sell its shares to the general public

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14
Q

What do private and public limited companies have in common?

A
  • Legal documents
  • Shareholders invest their capital by purchasing shares in the company
  • Ordinary shareholders are the owners of the company
  • Shareholders have limited liability
  • Business continues even if one or more shareholders die
  • Can raise finance by selling shares
  • Profit belongs to ordinary shareholders
  • Profit is shared through the payment of dividends
  • Shareholders make decisions
  • End of year financial statements must be produced and submitted to the correct authorities
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15
Q

What is a dividend?

A

A payment, out of profits, to shareholders as a reward for their investments

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16
Q

What are the disadvantages of private limited companies?

A
  • Companies are usually small
  • Often difficult to sell shares
  • Only a few shareholders
  • Even if successful business, it may be difficult to raise additional capital
  • Often difficult to raise finance
17
Q

What are the disadvantages of public limited companies?

A
  • Legal formalities are expensive
  • Decision making may be influenced by major investors for their own objectives
  • The company is always at risk of takeover by another company
  • Legal requirement are much stricter
18
Q

What is a franchise?

A

A business system where entrepreneurs buy the right to use the name, logo and product of an existing business

19
Q

What is a franchisor?

A

Is the person or company who gives the license/ right to sell its products, in return for royal payments

20
Q

What is a franchisee?

A

Is the person who is granted the license by the franchisor to sell its products

21
Q

What are the advantages of a franchisor?

A
  • The more successful the franchise the more royalty payments the franchisor receives
  • Can expand without the need for large amount of capital
  • Franchisee will be motivated, therefore there is a high chance of the business succeeding
22
Q

What are the disadvantages of a franchisor?

A
  • If franchisee does not maintain standards, the company’s reputation can be damaged
23
Q

What are the advantages of a franchisee?

A
  • Less chance of business failure
  • Franchisee can decide the legal structure of the business
  • Franchisor provides advice and training
  • Easier to obtain loans from a bank
  • Product is already advertised nationally or internationally
  • Franchisor will check the quality of suppliers, so Franchisees are guaranteed to have quality supplies
24
Q

What are the disadvantages of a franchisee?

A
  • Initial cost of buying into a franchise is very high
  • Franchisor will take a percentage of the profit (royalty payment)
  • Franchisees have to follow very strict regulations
  • Franchises will still have to pay for local promotions they decide to do
  • Franchise is not automatically renewed
25
Q

What is a joint venture?

A

When two or more businesses agree to work together on a project and set up a seperate business for this purpose

26
Q

What are the advantages of joint venture?

A
  • Gaining new insights and expertise
  • Better resources from the other business
  • It is only temporary
  • Both parties share the risks and costs
  • There are ways to exit the joint venture
  • Low chance of business failure
  • Can create long-lasting business relationships
  • Less risk of discrimination
27
Q

What are the disadvantages of joint venture?

A
  • Vague objectives
  • Flexibility can be restricted
  • It is unlikely that companies working together share the same involvement and responsibilities
  • Imbalance of expertise, assets and investments
  • Any mistake can damage reputation all all firm of the joint venture
  • Different culture or styles of leadership can make decision-making difficult
  • Unreliable partners
28
Q

When setting up a new business, what factors can affect type of business organisation they will choose?

A
  • The number of owners - one owner (sole traders), two or more (partnership or incorporated)
  • The owner’s role in the management of the business - Example: Some owners may only want to invest in a business and not want to run it (incorporated)
  • The attitude towards financial risk - Example: If owners want less risk they will choose incorporated businesses
  • How quickly the owners want to start operating their business - quicker time to set up (unincorporated), longer time to set up (incorporated)
  • The potential size of the business - small businesses (unincorporated), larger businesses (incorporated)
29
Q

What is a public corporation?

A

A business organisation that is owned and controlled by the state

30
Q

What are the feature of a public corporation

A
  • Owned and controlled by the state
  • Financed mainly through taxations
  • They tend to have social objective rather than profit objectives
  • Prices of goods or services they provide are usually free or have very low prices