Types of business entities Details

Question 1

Features of the public sector

Answer 1

-Controlled and owned by the government
-Provides essential goods and services to citizens(e.g. healthcare, emergency services, etc.)
-Financed by the government through taxes and other public funds
-Answerable to the public for any actions taken

Question 2

Features of the private sector

Answer 2

-Private ownership and control
-Profits can be earned by owners
-Little to no government involvement
-Largely privately funded

Question 3

Role of the private sector(and its markets) on the economy

Answer 3

-creating employment
-helping the development and growth of the economy
-providing a wide variety of goods and services

Question 4

Constituents of the private sector

Answer 4

-Sole traders
-Partnerships
-Privately held companies
-Publicly held companies

Question 5

Features of sole trader businesses

Answer 5

-Sole trader owns and runs the business
-No legal distinction between sole trader and business

Question 6

Advantages of sole traders

Answer 6

-All profits belong to the sole trader
-Complete control over important decisions
-Flexibility(in terms of working hours, changes to operations, etc.)
-Privacy(sole traders generally only need to declare their finances to authorities for tax)
-Minimal legal formalities
-Easy, inexpensive and quick to set up
-Close ties to customers(can give a competitive advantage)

Question 7

Disadvantages of sole traders

Answer 7

-Unlimited liability
-Limited sources of finance(hard to obtain loans)
-High risk
-Workload and stress(potential ineffectiveness)
-Limited scope for expansion
-Lack of continuity(in the event of serious illness/death)

Question 8

Features of partnerships

Answer 8

-Two or more individuals(partners) create and run the business
-Governed by partnership agreements
-Have unlimitied liability
-Ownership/control/profits are not always split equally

Question 9

Potential aspects of a partnership agreement

Answer 9

-The amount of money put in by each partner
-The sharing of profits and losses by each partner
-The roles and responsibilities of each partner
-The rules around accepting new partners/withdrawal of exisiting partners
-The procedures for ending the partnership

Question 10

Advantages of partnerships

Answer 10

-Easy to set up
-Minimal legal formalities
-Greater access to finance(more people to invest in the business)
-Greater efficiency/productivity
-Financial records remain private

Question 11

Disadvantages of partnerships

Answer 11

-Unlimited liability
-Longer decision-making/potential for disagreement
-Legal and financial responsibility(mistakes made by one partner can reduce profits for all partners)
-Lack of continuity

Question 12

What happens if an individual dies while still in a partnership?

Answer 12

The deed of partnership(legal agreement) becomes invalid and will usually have to be made again(depending on the laws of the country)

Question 13

Features of companies

Answer 13

-Owned by shareholders
-Are incorporated businesses(are registered with a state so they become legal entities separate from their shareholders)
-Shareholders have limited liability

Question 14

Why is limited liability a benefit for shareholders

Answer 14

It means that they cannot lose more than the funds that they invested in the business in the event that the business incurs losses)

Question 15

RIghts of shareholders of companies

Answer 15

-vote at the Annual General meeting(where decisions are made regarding the management of the company)
-receive a part of the company’s profits in the form of dividends if these are paid

Question 16

Types of limited liability companies(corporations)

Answer 16

-privately held companies
-publicly held companies

Question 17

Features of privately held companies

Answer 17

-Are privately owned
-Shares are not sold to the wider public/traded on a stock exchange(without prior approval from all shareholders)
-Shareholders have limited liability
-Financial records are kept private

Question 18

Why would a privately held company not want to sell their shares to the wider public?

Answer 18

That way, they retain the ability to make decisions about the company and prevent hostile takeovers

Question 19

Documents required for privately held companies

Answer 19

-the Memorandum of Association(states the details of the company)
-the Articles of Association(states the internal roles and responsibilities of the board of directors and shareholders)

Question 20

Advantages of privately held companies

Answer 20

-Control and ownership
-Greater access to finances
-Limited liability
-Financial records are kept private

Question 21

Disadvantages of privately held companies

Answer 21

-Profits shared between several shareholders
-Lengthier decision-making
-Shares cannot be traded publicly to raise finances
-Privacy(businesses cannot be examined by external experts to receive advice)
-Expensive to start up and maintain

Question 22

How are shareholders usually represented in privately held companies?

Answer 22

They are represented by the board of directors(who are generally elected to run a company on behalf of them)

Question 23

Features of publicly held companies

Answer 23

-Business must publish financial accounts to the public
-Shareholders have limited liability
-Can be taken over by other companies(if they buy a large enough share of the company)
-Shares are sold to the wider public/traded on a stock exchange
-Is publicly owned(by shareholders)

Question 24

Purpose of initial public offerings(IPOs)

Answer 24

Turn the business into a publicly held company(public limited company)

Question 25

Documents required for publicly held companies

Answer 25

-the Memorandum of Association(states the details of the company)
-the Articles of Association(states the internal roles and responsibilities of the board of directors and shareholders)

Question 26

What is the licence that makes a company:
-recognisied as a separate legal entity
-capable of trading stocks

Answer 26

A certificate of incorporation

Question 27

What do shareholders of publicly held companies do?

Answer 27

They attend an Annual General Meeting to:
-vote for and elect the board of directors
-learn about the performance of the business from the CEO
-evaluate the performance of the financial year

Question 28

Advantages of publicly held companies

Answer 28

-Money can be raised through selling shares to the public
-Risks shared among numerous shareholders
-Separate legal identity(business continues operating even if a stakeholder dies)
-Shareholders have limited liability

Question 29

Disadvantages of publicly held companies

Answer 29

-Profits are shared between many shareholders
-Expensive/time-consuming to set up/maintain
-Loss of control
-Financial accounts are publicly available to be viewed

Question 30

Types of for-profit social enterprises

Answer 30

-Cooperatives
-Private sector for-profit social enterprises
-Public sector for-profit social enterprises

Question 31

Features of cooperatives

Answer 31

-Owned by its members
-Members use demographic governance to run the business
-Have limited liability

Question 32

Industries in which cooperatives are commonly found

Answer 32

-Agriculture
-Housing
-Utilities
-Wholesale and retail trade
-Heathcare
-Education
-Banking

Question 33

Cooperatives can be owned by….

Answer 33

-Producers
-Workers
-Consumers
-Residents, etc.

Question 34

Benefits of cooperatives

Answer 34

-Make a positive impact on the planet(through their core work)
-More economically sustainable than non-profit social enterprises
-Attract increasing number of customers, investors and employees(who value sustainable businesses)

Question 35

Drawbacks of cooperatives

Answer 35

-Potential issues with funding
-Issues with credibility
-Harder to remain true to purpose if business grows
-Difficulty ensuring supply chains are aligned with business’ values
-Difficulties measuring social or environmental impact

Question 36

Features of non-profit social enterprises

Answer 36

-Aims to improve social or environmental outcomes
-May receive funding from grants and donations
-May be involved in revenue-generating activities(e.g. selling goods/services)
-Any surplus required by law to be reinvested into business
-Have limited liability
-Pay no tax on surplus
-May rely on volunteers for help

Question 37

Benefits of non-profit social enterprises

Answer 37

-Have limited liability
-Pay no tax on surplus
-May be able to rely on volunteers for help
-May receive grants or donations

Question 38

Drawbacks of non-profit social enterprises

Answer 38

-Issues with funding(less involved in market-based activities)
-Hard to recruit and maintain talent(due to generally low salaries)
-Significant amount of paperwork needed to set up