Types Of Ownership

Question 1

Sole trader

Answer 1

Any business that is owned and controlled by one person. However a sole trader can employ other people to work in the business

Question 2

Benefits if sole trader

Answer 2

Keep all profit
Make all the decisions and so they get made quicker
Can usually set up with little finance
Quicker and cheaper to set up as sole trader
Sole traders do not have to publish their accounts

Question 3

Disadvantages of sole trader

Answer 3

Shortage of capital - difficult to get a bank loan

If the owner of the business is Ill there is nobody else to run the business

Sole traders have to work long hours

Continuity

Shortage of skills as sole traders may not be skilled in all aspect of the business

Unlimited liability

Question 4

Unlimited liability

Answer 4

The owner of the business risks losing their personal possessions to pay off debts of the business if it fails or owes money

Question 5

Partnership

Answer 5

A partnership is a business which is owned and controlled by a minimum of two people

Question 6

Advantages of partnership

Answer 6

More skills to offer

More capital can be raised to help operate or grow

Workload and ideas are shared and in even if illness there is another to work

Easy and cheap to setup

Financial information remains private to the partners

Question 7

Disadvantages of partnership

Answer 7

Profit has to be shared
May be disagreements
Decision making becomes slower

Partnerships with unlimited liability put the personal possessions of themselves and their partner at risk

Question 8

Sleeping partner/limited partner

Answer 8

They invest money into the business but do not take part in the day to day running of the business or any decision making

Question 9

LLP (limited liability partnership)

Answer 9

Least 2 people (like normal partnership )

If the business fails, partners in LLP have limited liability which means personal assets are somewhat safe

Profit still split (not often equally)

LLP have to publish their accounts, unlike normal partnerships

Main advantage is limited liability

More costly to set up

Has to be registered with companies house which costs money and is time consuming

Question 10

Deed of partnerships

Answer 10

Partnership is a more complicated form if ownership than a sole trader. Therefore a deed of partnership needs to be drawn up which:

Provides information about the responsibilities of each partner
State how profit and losses will be shared
Details how much capital each partner has contributed

Question 11

Companies

Answer 11

Businesses where the owners are shareholders

Question 12

Shareholders

Answer 12

The owners of a private and public limited companies

Question 13

Shares

Answer 13

A unit of ownership in limited companies

Question 14

Limited liability

Answer 14

This is when the responsibility for the debts of the of the company is limited to the amount that the shareholder has out in.

E.g if the business gets into large debt shareholders only loose the money they invested and no other amounts of money of personal assets

Question 15

Difference between sole traders and limited companies

Answer 15

Sole traders have unlimited liability whereas limited companies have limited liability

Question 16

What does Ltd mean

Answer 16

Simply stands for limited
(As in private limited company)

Question 17

What does PLC stand for

Answer 17

Public Limited Company

Question 18

What is the difference between Ltds and PLCs

Answer 18

Anyone can buy shares of a public limited company whereas shares of a private limited company can only be bough by friends and family (by invite)

Question 19

What are two things shareholders of limited companies get?

Answer 19

A say in the business (a vote in the annual meeting) and they get a dividend

Question 20

What is a dividend

Answer 20

A share of the yearly profit

Question 21

What percentage do you need to own to be a majority shareholder

Answer 21

51% or more of the shares

Question 22

Disadvantage of limited companies

Answer 22

You have to pay dividends to your shareholders

They are expensive to set up

Accounts are not private

Question 23

What is a major risk of public limited companies

Answer 23

Risk of company being taken over

This is because shares can be bought on the stock exchange without owners permission (only the shares they put for sale). If someone buys more than 50% of the shares they become the majority shareholder and owner of the business

Question 24

What is the minimum amount of capital for a PLC

Answer 24

£50,000

Question 25

Stakeholders

Answer 25

Anybody who has an interest in the business.

There are external and internal stakeholders

Question 26

Internal stakeholders

Answer 26

Those inside the business such as:

Employees
Shareholders

Question 27

External stakeholders

Answer 27

Those outside the business:

Competitors
Governments
Society/wider communities