(Types of business organisation) Unit 4

Question 1

sole trader

Answer 1

a business owned by one person

Question 2

legal regulations of a sole trader

Answer 2

> owner must register and send annual accounts to gov and tax office
a name must be registered
they must observe the laws

Question 3

types of business organizations

Answer 3

> sole traders
partnerships
private limited companies
public limited companies
franchises
joint ventures

Question 4

Advantages of being a sole trader

Answer 4

> few legal regulations
they are their own boss
freedom to choose own holidays
close contact with customer
incentive to work all profits go directly to them
doesn’t have to give information to anyone else

Question 5

Disadvantages of being a sole trader

Answer 5

> no one to discuss business matters
does not have the benefit of limited liability
sources of finance are limited
business is likely to stay small / cannot benefit from economies of scale
if sick no one to take over business

Question 6

Limited liability

Answer 6

the liability of shareholders in a company is limited to only the amount they invested

Question 7

Unlimited liability

Answer 7

the owners of a business can be held responsible for the debts of the business they own. investment is not limited to amount they invested.

Question 8

Partnership

Answer 8

a form of business in which two or more people agree to jointly own a business

Question 9

Partnership agreement

Answer 9

written and legal agreement between business partners

Question 10

Advantages of a partnership

Answer 10

> more capital can be invested/ allow expansion for the business
responsibilities are now shared
both partners are motivated to work both will benefit from profit.

Question 11

Disadvantages of a partnership

Answer 11

> no limited liability/ creditors could then force them to sell their own property
no separate legal identity
partners can disagree
the other partner can suffer from loss if one partner is dishonest

Question 12

Unincorporated business

Answer 12

one that has no seperate legal identity

Question 13

incorporated business

Answer 13

companies that have seperate legal identities from their owners

Question 14

shareholders

Answer 14

the owners of a limited company. they buy shares that represent part ownership of a company

Question 15

private limited companies

Answer 15

businesses owned by the shareholders but they cannot sell shares to the public

Question 16

Advantages of private limited company

Answer 16

> shares can be sold to a large number of people
all shareholders have limited liability/ shareholders can’t be told to sell their possessions
people who started the company are able to keep control of it
continuity

Question 17

Disadvantages of a private limited company

Answer 17

> cannot sell shares to the public
legal formalities
accounts are available for public to see
not easy to transfer shares

Question 18

Public limited company

Answer 18

businesses owned by shareholders but they can sell shares to the public and their shares are tradeable on stock exchange

Question 19

Advantages of public limited company

Answer 19

> offers limited liability
continuity
can sell shares to the public
rapid expansion is possible/specialist managers appointed

Question 20

Disadvantages of public limited company

Answer 20

> legal formalities
disclosure of accounts and other information
divorce between ownership and control
expensive to go public

Question 21

franchise

Answer 21

business based on the use of brand names

Question 22

advantages of franchise

Answer 22

to franchiser
> buys a license
> expansion is much faster
> management is the responsibility of the franchise

to franchisee
> chances of business failure are less
> franchisor pays for advertising
> training of staff provided by the franchisor
> all supplies are obtained from a central source

Question 23

disadvantages of franchise

Answer 23

to franchisor
> poor management could lead to a bad reputation
> franchise keeps profit

to franchisee
> less independence
> may be unable to make decisions that would suit local area
> license fee must be paid

Question 24

Joint venture

Answer 24

two or more businesses start a new project together

Question 25

advantages of joint venture

Answer 25

> sharing of costs
local knowledge when joint venture company is based in the country
risks are shared

Question 26

disadvantages of joint venture

Answer 26

> if new project is successful then the profit will be shared
disagreements might occur
the two joint business partners may have different ways of running a business

Question 27

public corporation

Answer 27

a business in the public sector that is owned and controlled by the state

Question 28

advantages of public corporations

Answer 28

> some industries are so important that only the government should own water and electricity.
it would ensure that monopolies are not taking advantage of people
if an important business is failing then the gov can step in and take over
public services are often in the public sector, radios, tv

Question 29

disadvantages of public corporations

Answer 29

> no private shareholders to insist on high profits and efficiency
government subsidies can lead to inefficiency as managers will think if business fails government will step in
no close competition to public corporations, lack of incentive to increase consumer choice
governments can use these businesses as political reasons