Types Of Ownership

Question 0

Give some advantages of being a sole trader

Answer 0

Quick and easy to set up
Not necessary to have a lot of capital
A sole trader is their own boss
Job satisfaction
Decisions can be made quickly
All profits are kept(after tax)
Business affairs are private

Question 1

What is a sole trader?

Answer 1

A business owned and run by one person

Question 2

What are the disadvantages of being a sole trader?

Answer 2

• Unlimited liability
• Banks may not lend money as the business is a risk due to their small size
• Difficult to grow due to a lack of finance
• Work long hours for little reward
• Poor economies of scale, difficult to compete with larger companies

Question 3

Define unlimited liability

Answer 3

The possibility of personal assets, such as a car or home, being repossessed in the situation of bankruptcy or debt

Question 4

How many people can form a partnership?

Answer 4

Between 2 and 20

Question 5

How many partners are responsible for the debts of the business?

Answer 5

All partners are equally responsible

Question 6

What should be signed when a partnership is formed?

Answer 6

A deed of partnership

Question 7

What is the deed of partnership and why is it beneficial?

Answer 7

It sets out the rights of each partner, for example profit share and holiday allowance. It is useful if the business fails and a partner tries to claim more than they are entitled to

Question 8

What is a sleeping partner?

Answer 8

A partner who invests in the business but has nothing to do with the everyday running of it

Question 9

How many people can a partnership employ?

Answer 9

As many as they like

Question 10

State some advantages of a partnership

Answer 10

• Easy to set up
• Partners can share work, which can lead to specialisation
• Extra capital can be brought into the business
• Risks of the business are shared
• Partners can cover for each other, eg during holidays or illness

Question 11

State the disadvantages of a partnership

Answer 11

• Unlimited liability
• Limited source of finance because the business is a risk
• Slower decision making
• Profits must be shared between partners
• Any decision made by one partner is legally binding on the others
• Limit to the number of partners

Question 12

What are the two types of limited companies?

Answer 12

Private- Ltds

Public- PLCs

Question 13

What are the owners of a limited company called?

Answer 13

Shareholders

Question 14

What must be held each year?

Answer 14

The Annual General Meeting(AGM)

Question 15

Who do the shareholders appoint and to do what?

Answer 15

A Board of Directors to run the company

Question 16

Where can PLCs be listed?

Answer 16

On the stock market

Question 17

State the advantages of an Ltd

Answer 17

• Limited liability
• Better tax advantages than sole traders
• Better ownership and control, the board of directors are usually the shareholders
• Continuity, the company has everlasting life (unless it is wound up or goes into liquidation)
• Bank loans are more likely, less risk than sole trader

Question 18

State the disadvantages of an Ltd

Answer 18

• Shares cannot be sold to the general public, limits amount of capital
• Dividends have to be paid to shareholders as a form of ‘interest’ on their investment
• Loss of privacy, accounts can be views by rival companies
• Ltds pay corporation tax on profits
• Not many benefits of economies of scale, eg bulk buying and cheaper borrowing