Types Of Business

Question 1

What is a sole trader?

Answer 1

A single person who owns a business completely.

Question 2

Pros and cons of being a sole trader?

Answer 2

Advantages
- you keep all profits
- complete control over business and decisions
- easy to set up
- low start up costs
- financial info kept private

Cons
-unlimited liability
-stressful and or lonely
-difficult if you are ill
-

Question 3

Other names for sole trader?

Answer 3

Self employed, sole proprietor

Question 4

Define liability

Answer 4

Refers to the legal responsibility of a business towards their debts

Question 5

What is the difference between unlimited liability and limited liability

Answer 5

Unlimited liability
- owner and business are same legal identity
- an individual can lose personal assets to pay debts of a business

Limited liability
- business and owner are seperate legal identities
- individual cannot lose personal assets to pay debts

Question 6

Which types of business have limited liability?

Answer 6

Private limited companies (LTD)
Public limited companies (PLC)

Question 7

Which types of business have unlimited liability?

Answer 7

Sole traders and partnerships

Question 8

What is a partnership?

Answer 8

Firmed where a business is started and owned by more than one person

Question 9

What does a partnership agreement do?

Answer 9

It sets out how a partnership is run, how decisions are made and how profits are divided up

Question 10

Advantages and disadvantages of partnerships?

Answer 10

Advantages
- simple to form
- bring together specialist skills
- workload, ideas and losses shared
- greater potential to rase finance
- financial info kept private

Disasvantages
- possible disagreements
- you don’t keep all profits
- unlimited liability

Question 11

What is a limited company?

Answer 11

A business with limited liability. Shareholders recieve a share if the profit, known as a dividend. The business is run by a board of directors

Question 12

What is a private limited company (LTD)?

Answer 12

A limited company which can sell shares to friends and family, but not to general public.

Question 13

Pros and cons of limited companies?

Answer 13

Pros
-personal wealth of shareholders protected
-easier to raise funds
-stable form of structure
-original owners retain control

Cons
-shareholders must agree how profits are distributed
-greater administrative costs
-finance limited to friwnds and family
-less privacy - public disclosure of financial information

Question 14

What is franchising?

Answer 14

The franchisor grants a license (franchise) to another business (franchisee) to allow it to trade using the brand, name and business format. Franchisor recieves a royalty fee from franchisee

Question 15

Pros and cons of being a franchisee

Answer 15

Pros
- no need for marketing
- limited liability
- guidance & training provided
- established customers

Cons
- no control
- startup and royalty fee
- restrictions
- franchisor may go out of business
- must make enough profits for themself and the franchisor