Types of business organization Flashcards
Define sole trader
Ownership of business in the hands of one individual/person [2]
Identify two features of a sole trader. (2)
Keeps all profits
Unlimited liability
Unincorporated OR no separate legal identity
Takes all decisions OR own boss/ works for himself/herself
Has total ownership of business OR full control
Few legal requirements
Explain 2 Advantage and 2 disadvantage of sole trader (8)
Advantages
* Few legal regulations to follow when setting up/easy to set up and close
* The owner is their own boss / make own decisions / be in total control
* Freedom for the owner to choose their own hours of work/holidays etc.
* Owner has close contact with customers
* Owner keeps all the profit
* Accounting information can be kept private
Disadvantages could include:
* No one to discuss business decisions with ñ lack of ideas
* Unlimited liability
* Limited sources of finance
* May have to remain small because of limited capital / lack of economies
of scale
* There are limited opportunities for promotion / the business may lose talented staff to larger businesses
* If owner cannot work, there is no one to run the business in their
absence
* No separate legal identity ñ no continuity if owner retires/dies
* Owner may not have knowledge/expertise in all areas of running the business
* No one to share risks/losses with
For example: There is unlimited liability (1) that means the owners personal possessions are at risk of being taken to pay any debts of the business. (1)
Define partnership
Two or more people who agree to jointly own a business together [2]
Advantages and Disadvantages of a partnership
Advantages:
* Easy to set up: Very few legal formalities are required to start up a partnership
* Partners can provide new skills and ideas: The partners may have some skills and ideas that can be used to improve business profits
* More capital investments: Partners can invest more capital than what a sole trader
Disadvantages
* Conflicts: Arguments may occur between partners while making decisions. This will delay decision-making
* Unlimited liability: Their personal items are at risk if business goes bankrupt
Define private limited company (2)
A business owned by shareholders, but they cannot sell shares to the
public. [2]
Define public limited company (2)
A business whose shares can be freely bought and sold to the general public [2]
Explain two possible advantages of setting up a joint venture
with the other business
Increase capital / share costs [k] which can help reduce borrowing [an]
* Access to new knowledge / expertise [k] which could lead to greater productivity / efficiency / higher output [an]
* Access new markets [k] leading to higher revenue [an]
* Share risk [k]
* Share resources / share distribution networks / wider range of contact [k]
* Avoid/reduce competition [k] increasing market share [an]
* May be a legal requirement (in some countries) / avoid government
restrictions [k]
* Increase production capacity [k] so able to meet potential demand [an
What are advantages and disadvantages of being a franchisor
Advantages
* Rapid low cost of business expansion
* Can access ideas from the Franchisee
* Franchisee will run the operations
* An established brand and trademark, so chance of business failing is low
Disadvantages:
* Profits from the franchise must be shared with the franchisee
* Franchisee may not be skilled
* No full control over business and needs to follow the franchisors rules
* Need to supply raw materials/product and provide support and training
What are advantages and disadvantages of being a franchisee
Advantages
* Franchisor will give managerial support
* Franchisor will supply the raw materials and products
Disadvantages
* Profits have to be shared with franchisor
* Need to advertise and promote the business in the region themselves
Define joint venture (2) and advantages and disadvantages
An agreement between two or more businesses/people to work together on a project/product
Advantages
* Reduces risk and cuts costs
* Each business brings different expertise/skills to the joint venture
* market and product knowledge can be shared to benefit the businesses
Disadvantages
* Any mistakes will reflect on all businesses in the joint venture, which may damage their reputations
* The decision making process may be ineffective due to different business cultures and leadership styles
Identify two reasons for a business having objectives.
- Act as measure of success
- Provides an aim or target
- Motivate OR teamwork OR unite the business
- Gives a sense of direction OR know what to do
- Help decision making / planning / budgeting / manage business better
Explain two possible advantages to Beena of buying a franchise. (6)
Established brand / well-known brand [k] therefore no need to spend on advertising [an]
* Reduces risk of failure [k]
* Training / advice offered by franchisor [k] which saves costs [an]
* Attracts customers [k] helping to ensure / increase revenue [an]
* Easier to obtain finance / bank more willing to lend [k]
* Franchisor pays for advertising [k]
* Stock control and accounting systems often provided by franchisor [k] which can help make business more efficient [an]
* All supplies are obtained from a central source / the franchisor [k] which can help ensure quality [an]
* Fewer decisions to be made than an independent business [k]
Do you think Manisha should have a business partner? Justify your
answer.
Share workload OR responsibility [k]which could reduce her own stress OR allow her more free time [an]
More ideas OR skills [k] which could make the business more competitive [an]
Extra source of finance [k] so less need to borrow money [an]
Still has unlimited liability status OR liability for debts [k] as being a
sole trader [app] but possible losses can be shared [an]
Loss of some control [k]
Risk of disagreements OR slow decision making [k] so less
responsive to changes in customer demand [an]
Have to share profits made [k]
