Topic 1.4.1 The options for start up and small businesses

Question 1

What is unlimited liability?

Answer 1

The owner’s personal assets are personally responsible and are at risk for the debts of the business-they are one entity.

Question 2

What is limited liability?

Answer 2

The owner is responsible for all of the debts in the business up to the value they have financially invested, their personal assets are not at risk and amount invested are separate entities.

Question 3

Types of business ownership

Answer 3

Sole trader
Partnership
Private limited company
Franchise

Question 4

What are the advantages of being a sole trader?

Answer 4

Full control.This means that a business owner can make all the decision they want in the business and are responsible.As a result increases satisfaction for the owner.
Owner keeps all profit

Question 5

Disadvantages of sole trader?

Answer 5

Unlimited liabilty. This means that the owner’s personal assets are at risk for he debts of the business.As a result,this could lead to business failure if the owner has no other money to reinvest into the business.

Question 6

Advantages of partnership?

Answer 6

Unlimited liability. This means that a owners personally assets are not at risk and only the money they have invested into the business are.As a result,this reduces the risk of owner’s personal assets being seized.
Decisions are shared.This means that a business has more help on key decisions due to more knowledge from partners.As a result reduces the risk of business failure.

Question 7

Disadvantages of partnership?

Answer 7

Unlimited liability
Partners-conflicts between them

Question 8

Advantages of private limited company

Answer 8

Limited liability
Shares can expand the business

Question 9

Disadvantages of private limited company.

Answer 9

Not full control over the business
Competitors can view financial history.This can lead to competitors getting an advantage over you. As a result reduces the amount of customers coming to your business and more will go to competitors.

Question 10

Advantages of franchise

Answer 10

Less risk involved.This is because the brand is already well known by people.As a result,the business can find it easier to make profit from more customers which can help lead to buiness success.

Question 11

Disadvantage of franchise?

Answer 11

Franchisee don’t keep all the profits.This is because the franchisee has to pay royalty fees - a percentage of its profits to the franchisor. As a result,less motivation for the franchisee.
-Less independence. This is because franchisee has to tell the franchisor about the decisions they are doing.As a result less satisfaction.