Topic 1C: Types of Business Entities

Question 1

What are the three main types of business?

Answer 1

Sole trader
Partnership
Limited liability company

Question 2

What is a sole trader?

Answer 2

A business owned and run by one persons, employing one or two assistants to control their work. Individual business and personal affairs are for legal and tax purposes, identical

Question 3

What is limited liability company?

Answer 3

Means the business debts and the personal debts of the business owners are legally separate. The shareholders cannot be sued for the shares of the business unless given personal guarantee

Question 4

What is a partnership?

Answer 4

These are arrangements between individuals to carry on business in common with a view to profit. Involves obligations to others and so is governed by a partnership agreement. If not LLPs, partners are liable for debts and liabilities if the partnership is sued

Question 5

What is the business entity concept?

Answer 5

The fact that all three business entities are treated as separate from their owners.

Question 6

What is the difference between shareholders and directors of limited companies?

Answer 6

Shareholders are the owners who have limited rights as shareholders over the day to day running of the company. Provide capital and receive a return (dividends)

Board of directors are appointed to run the company on behalf of shareholders with autonomy. Directors are often shareholders.