Topic 1.4- Making the Business Effective Flashcards
What is limited liability?
Limited liability means that when paying back debts, the owner’s business assets are only at risk ( not personal)
What is unlimited liability?
Unlimited liability is when both personal and business assets are at risk when paying back debts.
Give 2 features of a business owner operating at limited liability.
- has its own legal identity,
- owners are not personally responsible for its debts.
Give 2 features for a business owner operating at unlimited liability
- does not have its own legal identity
- personally responsible for all debts of the business.
What is a sole trader?
A sole trader is a business that is owned and run by one person. ( usually small businesses)
Give 3 advantages of operating as a sole trader
- quick and easy to set up
- makes own decisions
- keeps the profits
Give 3 disadvantages of operating as a sole trader
- risk of unlimited liability
- high level of responsibility
- works long hours
- harder to obtain finance- no access to share capital
What is a partnership?
A partnership is a type of business that has 2 or more owners ( usually lawyers or doctors)
Give 3 advantages of operating as a partnership
- quick and easy to set up as there is more finance being invested
- shared decision-making by the owners- expertise
- shared responsibility for debt by the owners
Give 3 disadvantages of operating as a partnership
- profit and rewards are shared
- there is the risk of unlimited liability
- conflict amongst owners can occur
What is a private limited company (LTD) and who are they owned by?
An incorporated company owned by shareholders ( invited by the business)
Give 3 advantages of operating as an LTD.
- the owners have limited liability
- shares can be sold to raise money
- shares are known to the shareholders- less conflict
- ideas can be shared
Give 3 disadvantages of operating as an LTD.
- shared profits - diluted
- financial documents are released to the public
- no access to the stock exchange- harder to raise finance
What is a franchise?
the right given by one business to another to sell goods or services using its name.
What is a franchisee
buys a franchise and usually pays a fee
What is a franchisor?
a business that gives franchisees the right to sell their products and services in return for a fixed sum of money
Give 3 advantages of setting up a franchise
- established business ( including customer base)
- lower risk ( than setting up a new business)
- the franchisor provides support and training
Give 3 disadvantages of setting up a franchise
- profit is shared with the franchisor
- no independent decision making
- expensive to set up- high start up costs
- if reputation is damaged in one store it can affect the franchise as a whole
Name the factors that influence business locations
proximity to :
- the market
- labour
- materials
- competitors
What is E-commerce?
The selling and buying of goods or services over the internet
How does e-commerce impact location decisions?
Allow businesses to choose cheap locations, because there is no requirement to be located near to customers
Give 3 benefits of e-commerce
- lower costs
- flexible working hours
- access to a much larger market of potential customers
How does proximity to the market affect business location?
- needs to be located near target market
- passing trade benefits
importance of proximity to labour when making decisions on business locations ( 2)
- located in an area with high unemployment means wages can be kept low
- located in an area that has people with skills relevant to the job role
