Types Of Ownership

Question 1

What is a sole trader?

Answer 1

A business owned and controlled by one person.

Question 2

Advantages of being a sole trader?

Answer 2

•The owner keeps all the profit. •The owner has complete control. •Quicker and easier to set up than a partnership or limited company.

Question 3

Disadvantages of being a sole trader?

Answer 3

•The owner keeps all of the profits The only source of capital is the one owners plus what he/she can borrow. •Long hours and the business will lose money when the owner ill or on holiday. •Unlimited liability.

Question 4

What is unlimited liability?

Answer 4

If the business fails the owner is responsible for all of its debts; they even have to sell personal possessions to pay the debt.

Question 5

What is a partnership?

Answer 5

A partnership is a business that is owned and controlled by more than one person.

Question 6

Advantages of a partnership?

Answer 6

•More than one source of capital. •Each partner can specialise in a different area. •The workload and responsibilities are shared. •Quicker and easier to set up than a limited company.

Question 7

Disadvantages of a partnership?

Answer 7

•The profits have to be shared among the partners. •There may be disagreements between the partners. •The partners still have unlimited liability. •The partners should produce a deed of partnership.

Question 8

What is a deed of partnership?

Answer 8

Setting out the terms and conditions under which that particular partnership would operate.

Question 9

What does a deed of partnership contain?

Answer 9

•Names of the the partners. •How much capital each partner contributed. •How the profits will be shared. •How the important decisions will be made. •What will happen if a partner wants to retire.

Question 10

What is a limited company?

Answer 10

A business that is owned by shareholders and controlled by directors.

Question 11

What is a private limited company?

Answer 11

Private limited companies cannot sell their shares on the stock market. They are often owned by people who know each other like friends or family.

Question 12

Advantages of a private limited company?

Answer 12

•More capital can be raised by selling shares. •The owners have limited liability.

Question 13

Disadvantages of a private limited company?

Answer 13

•The profits have to be shared between the shareholders. •It is slower and more expensive to set up. •The original owners can lose control if they own less than 50% of the shares.

Question 14

What is a public limited company?

Answer 14

Public limited companies can sell their shares on the stock market, anyone can buy them.

Question 15

Advantages of a public limited company?

Answer 15

•Large amounts of capital can be raised by selling shares through the stock market. •The capital can be used for expanding the company. •Expanding the company should lead to higher profits.

Question 16

Disadvantages of a public limited company?

Answer 16

•The profits have to be shared between a large number of shareholders. •The original owners may lose control if they own less than 50% of the shares. •Changing from LTD to PLC is a very expensive process.

Question 17

What is a franchise?

Answer 17

A franchise is the right given by one business (the franchisor) to another (the franchisee) to sell goods or services using it’s name.

Question 18

Advantages of being a franchisee?

Answer 18

•More customers due to successful brand name. •Support and training advice from the the franchisor.

Question 19

Disadvantages of being a franchisee?

Answer 19

•Additional costs - initial fee and regular royalties (based on revenue). •Less freedom in how they run the business. •The business may suffer if the brand name becomes unpopular.

Question 20

Advantages of being a franchisor?

Answer 20

•Income from initial cost and royalties. •Expand without paying to set up new branches. •No liability at all if a franchisee’s business fails.

Question 21

Disadvantages of a franchisor?

Answer 21

•Only earns the royalties not the profits from the new branches. •The business could lose popularity if one branch gives it a bad name.

Question 22

What is a social enterprise?

Answer 22

A profit making business that trades in goods and services for a social purpose. It is doing something that helps a social cause, such as: People, the environment, animals, the community.

Question 23

What is a co-operative?

Answer 23

Firms owned and controlled by a group of people who share the same goals.