Types of Business Organizations

Question 1

define Sole Trader/Sole Proprietorship

Answer 1

A business organization owned and controlled by one person. Sole traders can employ other workers, but only he/she invests and owns the business.

Question 2

Advantages of sole trader

Answer 2

1. Easy to set up: there are very few legal formalities involved in starting and running a sole proprietorship.
2. Full control: Decision-making is quick and easy
3. Sole trader receives all profit: Since there is only one owner
4. Personal: the owner can easily create and maintain contact with customers, which will increase customer loyalty.

Question 3

Disadvantages of a sloe trader

Answer 3

1. Unlimited liability: This is because the business and the investors are the legally not separate (unincorporated).
2. Full responsibility
3. Lack of capital
4. Lack of continuity: If the owner dies or retires, the business dies with him/her.

Question 4

define Partnerships

Answer 4

a legal agreement between two or more people to own, finance and run a business jointly and to share all profits.

Question 5

Advantages of a partnership

Answer 5

1. Easy to set up: very few legal formalities are required to start a partnership business.
2. Partners can provide new skills and ideas
3. More capital investments

Question 6

disadvantages of a partnership

Answer 6

1. Conflicts: arguments may occur between partners while making decisions.
2. Unlimited liability
3. Lack of capital: smaller capital investments as compared to large companies.
4. unincorporatedbusiness

Question 7

define limited companies

Answer 7

companies that can sell shares, and become a shareholder (owner) of the company. Shareholders then receive dividends (part of the profit; a return on investment).

Question 8

two types of limited companies

Answer 8

Private Limited Companies: One or more owners who can sell its’ shares to only the people known by the existing shareholders like family and friends.
Public Limited Companies: Two or more owners who can sell its’ shares to any individual/organization in the general public through stock exchanges

Question 9

Advantages of limited companies

Answer 9

• Limited Liability: this is because, the company and the shareholders have separate legal identities.
• Raise huge amounts of capital: selling shares to other people
• continuity: the business will continue even if one of it’s owners retire or die.

Question 10

Disadvantages of limited companies

Answer 10

• Private Limited Companies cannot sell shares to the public.
• Public Ltd. Companies require a lot of legal documents
• Public Ltd. Companies may have managerial problems
• Public Ltd. Companies, there may be a divorce of ownership and control.
• Public and Private Limited Companies must also hold an Annual General Meeting (AGM)
• Required to disclose financial information

Question 11

define Franchises

Answer 11

The owner of a business (the franchisor) grants a licence to anothe r person or business (the franchisee) to use their business idea

Question 12

advantages and disadvantages to the FRANCHISOR for Franchising

Answer 12

ADVANTAGES:-
1. Rapid, low cost method of business expansion
1. Gets and income from franchisee in the form of franchise fees and royalties
1. Franchisee will better understand the local tastes and so can advertise and sell appropriately
1. Can access ideas and suggestions from franchisee
1. Franchisee will run the operations

DISADVANTAGES
1. Profits from the franchise needs to be shared with the franchisee
1. Loss of control over running of business
1. If one franchise fails, it can** affect the reputation** of the entire brand
1. Franchisee may not be as skilled
1. Need to supply raw material/product and provide support and training

Question 13

advantages and disadvantages to the FRANCHISEE for Franchising

Answer 13

ADVANTAGES:-
1. An established brand and trademark, so chance of business failing is low
1. Franchisor will give technical and managerial support
1. Franchisor will supply the raw materials/products

DISADVANTAGS:-
1. Cost of setting up business
2. no full control over business- need to strictly follow franchisor’s standards and rules
1. Profits have to be shared with franchisor
1. Need to pay franchisor franchise fees and royalties
1. Need to advertise and promote the business in the region themselves

Question 14

define Joint Ventures

Answer 14

Joint venture is an agreement between two or more businesses to work together on a project.

Question 15

Advantages and Disadvantages of joint ventures

Answer 15

advantages:-
* Reduces risks and cuts costs
* Each business brings** different expertise** to the joint venture
* The market potential for all the businesses in the joint venture is increased
* Market and product knowledge can be shared to the benefit of the businesses

Disadvantages:-
* Any mistakes made will reflect on all parties in the joint venture, which may damage their reputations
* The decision-making process may be ineffective due to different business culture or different styles of leadership

Question 16

define Public Sector Corporations and what are there aims

Answer 16

Public sector corporations are businesses owned by the government and run by directors appointed by the government.

Public corporations aim to:
1. to keep prices low so everybody can afford the service.
1. to keep people employed.
1. to offer a service to the public everywhere.

Question 17

Public Sector Corporations
Advantages and Disadvantages

Answer 17

Advantages:
1. Some businesses are considered too important to be owned by an individual. (electricity, water, airline)
1. Other businesses, considered natural monopolies, are controlled by the government.
1. Reduces waste in an industry.
1. Rescue important businesses when they are failing through nationalisation
1. Provide essential services to the people

Drawbacks:
1. Motivation is low because profit is not an objective.
1. Subsidies lead to inefficiency. It is also considered unfair for private businesses
1. There is normally no competition to public corporations, so there is no incentive to improve
1. Businesses could be run for government popularity