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Business Studies Term 1 2017 > Types of Business Organisations > Flashcards

Types of Business Organisations Flashcards

1
Q

What is an unincorporated business?

A

An unincorporated business is a business usually owned by one person and is not legally registered or recognised as a company. The owner/s of an unincorporated business are the ones who hire staff, buy capital, or borrow money.

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2
Q

What is an incorporated business?

A

Incorporated businesses are businesses which have a separate legal identity from their owner/s. In an incorporated business, it is the business that hires staff, buys capital or borrows money.

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3
Q

What is another name for a sole trader?

A

A sole proprietor.

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4
Q

What is a sole trader/sole proprietor business?

A

A sole trader/sole proprietor is a business in which there is one owner who makes all the decisions and is responsible for the day-to-day running of the business. A sole trader is self-employed and can employ others.

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5
Q

How does a sole trader raise finance?

A
  1. Personal savings
  2. Bank loans
  3. Loans from friends and family
  4. Re-mortgaging
  5. Government grants potentially
  6. Possible redundancy payments
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6
Q

What happens if a sole trader business fails?

A

The owner of the sole trader business will be responsible for any of the debts of the business because they have unlimited liability.

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7
Q

What are some advantages of a sole trader?

A
  1. Easy to set up with few legal requirements.
  2. Receives all profits after tax.
  3. The owner is their own boss and they have full control of the business.
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8
Q

What are some of the disadvantages of a sole trader?

A
  1. The owner of the sole trader has unlimited liability.
  2. The owner is fully responsible for all business decisions and management which can lead to longs hours and few holidays.
  3. May lack the finance to expand or buy equipment.
  4. May lack the skills needed to run the business successfully and efficiently.
  5. The business will not survive if the owner cannot or decides not to continue the business.
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9
Q

What is a partnership?

A

A partnership is an unincorporated business owned by two or more partners (usually a limit of around 20 partners). The partners are self-employed and can employ others and take on new partners.

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10
Q

What is a Deed of Partnership?

A

A Deed of Partnership is a legal document that sets out the rules of a partnership. It is not normally a legal requirement in most countries when setting up a partnership.

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11
Q

What rules of a partnership does a Deed of Partnership typically cover?

A

A Deed of Partnership typically covers:

  1. How how money each partner has to put into the business.
  2. Who is responsible for the decision making.
  3. How the profits of the partners are to be shared or used.
  4. Arrangements for removing or adding a partner.
  5. Arrangements for dissolving the partnership.
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12
Q

How is a dispute settled when no partnership agreement has been created?

A

Any dispute when no partnership agreement has been created is normally settled on the basis that each partner shares equally in the management and responsibility for decision making. Profits and debts are shared equally

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13
Q

How does a partnership raise finance?

A
  1. Personal savings of the partners
  2. Bank loans (as a bank loan can be taken out by each individual partner, the total cost of the loan can be reduced).
  3. Any other way a sole trader can also finance their business, except both partners can do it so reducing the cost and potentially the risk.
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14
Q

What are some advantages of partnerships?

A
  1. Relatively easy to set up and few legal requirements.
  2. Partners can bring new skills and ideas to the business.
  3. The risk of running the business can be reduced as the risk is usually shared.
  4. Partners can bring finance to the business for expansion.
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15
Q

What are some disadvantages of partnerships?

A
  1. Decision making may be slowed.
  2. There may be disagreements between partners on important decisions.
  3. If one of the partners is lazy, inefficient, or dishonest, the business may lose money and one of the partners may have to work harder.
  4. At least one of the partners has to have unlimited liability.
  5. Raising additional finance may be hard as many countries place a limit on the number of partners allowed in a partnership.
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16
Q

What is a limited company?

A

A limited company is an incorporated business and is a legal entity separate from it’s owners. Limited companies have limited liability. There are two types of limited companies, private limited companies and public limited companies.

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17
Q

What are the owners of a limited company called?

A

The owners of a limited company are called shareholders.

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18
Q

How is a limited company set up?

A
  1. The company must be registered on the companies register.
  2. The company must provide legal documents outlining the purpose and structure of the business. These documents include:
    - the name and aims of the company.
    - the number of shares issued.
    - the rights and duties of the directors and shareholders.
  3. Once approved, the company is issued with a Certificate of Incorporation. This allows the company to start trading.
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19
Q

What does a shareholder with more than half the shares in a limited company have?

A

They have controlling interest.

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20
Q

Who appoints directors in a limited company?

A

The shareholders at the Annual General Meeting (AGM) of directors and shareholders.

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21
Q

What do directors do in a limited company?

A

Directors form the board of directors and are responsible to the shareholders for the day-to-day running and long term running of the business.

22
Q

How do private limited companies raise finance?

A
  1. By the sale of shares, this is typically restricted to the amount that can be raised by a small number of shareholders.
  2. Borrowing from banks and other financial institutions.
23
Q

What happens when a limited company goes into debt?

A

If the company cannot pay it’s creditors, the company will go into liquidation, this means that the assets of the company will be sold and the proceeds used to pay all or a proportion of the company’s debts.

24
Q

What are some advantages of a private limited company?

A
  1. It is incorporated and owners have limited liability.
  2. Access to greater sources of finance.
  3. As a separate legal entity it can be transferred to new owners.
25
Q

What are some of the disadvantages of private limited companies?

A
  1. Complicated to set up.
  2. Subject to more legal constraints.
  3. Needs approval of all other shareholders to sell shares.
26
Q

What is the main difference between private and public limited companies?

A

Public limited companies can sell their shares on the stock exchange whereas private limited companies cannot.

27
Q

Why do most companies decide to go public?

A

It allows them to have an almost unlimited source of capital.

28
Q

What are some advantages of public limited companies?

A
  1. The owners have limited liability.
  2. Access to large sources of funding.
  3. Can be transferred to new owners.
  4. No restrictions on buying and selling shares.
29
Q

What are some disadvantages of public limited companies?

A
  1. Complicated and expensive to set up.
  2. Subject to more legal constraints (eg. Every year must be audited).
  3. Slow internal communications and decision making due to it’s size.
  4. Director may be voted out leading to lack of management continuity.
  5. May be liable to takeover.
  6. Separation of ownership from control (this is called divorce) may lead to disagreements between the business and it’s owners.
30
Q

What is divorce of control?

A

The separation of ownership of a company (by the shareholders) from it’s control (by the directors).

31
Q

What are creditors?

A

Creditors are people or organisations to whom money is owed.

32
Q

What is a franchise?

A

A franchise is an agreement that allows one business to trade under another business and sell the other company’s products or services.

33
Q

What is a franchiser?

A

A franchiser is the business granting the franchise.

34
Q

What is a franchisee?

A

The business being granted the right to sell the franchiser’s products.

35
Q

What types of businesses may own and run a franchise?

A

Sole traders, partnerships and limited companies.

36
Q

What sources of finance may a franchise use?

A

The sources of finance for the franchisee are largely the same as the type of business that they are. Whether that is a sole trader, partnership or limited company. Sometimes the franchiser may help with finance for the franchisee.

37
Q

What does the initial cost of purchasing a franchise depend on?

A
  1. The product being sold.
  2. The type of premises.
  3. The equipment required.
  4. The company selling the franchise.
38
Q

How does a franchisee go about purchasing and running a franchise?

A
  1. They must pay an initial sum of money to the franchiser.
  2. Every year they must pay a fee to the franchiser normally based on a percentage of sales (this must be paid if the franchisee make a loss).
39
Q

What are the main advantages in a franchise for franchisees?

A
  1. By operating under the name and logo of a much larger company, a franchise business has a much greater chance of success.
  2. The franchisee can receive the benefits of things like advertising and training of staff.
  3. Franchisee operate as though they were a larger business, this allows them to benefit from things like bulk buying.
40
Q

What are the main advantages for a franchiser?

A
  1. The franchiser is able to expand without committing resources.
  2. The risk is spread between both businesses.
41
Q

What are the main disadvantages of a franchise?

A
  1. The franchiser is dependent of the success of the franchisee.
  2. The franchisee is dependent of the success of the franchiser’s product.
  3. The franchisee has little control of the business compared to a sole trader or partnership.
  4. Franchisee’s have little or no say in areas like product development.
  5. The franchisee has to pay an annual fee, regardless if the franchisee makes a loss.
42
Q

What is a co-operative?

A

A co-operative is a type of business jointly owned by members (these members may be individuals or business organisations).

43
Q

What is the purpose of co-operatives?

A

Co-operatives exist for the mutual benefit of members, these members share equally in decision making and typically receive a share in profits made by the co-operative.

44
Q

What are the four types of co-operatives?

A
  1. Retail co-operatives.
  2. Trading co-operatives.
  3. Worker co-operatives.
  4. Housing co-operatives.
45
Q

What is a retail co-operative?

A

A retail co-operative is a business which buys in (a cheaper method of buying things usually) and resells it to it’s members at an cheaper price.

46
Q

What are trading co-operatives?

A

Trading co-operatives are businesses formed to sell an distribute the products or services of their members. Normally small businesses join together to form a larger business (the trading co-operative) in order to gain the benefits of a larger business.

47
Q

What are worker co-operatives?

A

Worker co-operatives are businesses owned and operated by their employees.

48
Q

What are housing co-operatives?

A

Housing co-operatives are businesses which develop, maintain, and manage low cost housing on behalf of their members.

49
Q

What are joint ventures?

A

A business formed between two or more private sector businesses or in the private sector and public sector in order to undertake a typically large task by pooling resources.

50
Q

Why are joint ventures set up?

A

Joint ventures are usually set up to:

  1. Provide access to new markets
  2. Increase capacity
  3. Share risk and costs between partner businesses.
  4. Give access to greater resources, eg. Specialised staff, technology and finance.
51
Q

What are the disadvantages of joint ventures?

A
  1. Can be disagreements and disputes over policy and management.
  2. The partner businesses may have different objectives for the joint venture.
  3. Problems can arise if there is an imbalance in levels of expertise, investment or assets brought to the venture by the different partner businesses.
  4. Different cultures and management styles can result in poor integration and co-operation.

Business Studies Term 1 2017 (11 decks)

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