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Q22-3.5 Business Awareness > Understanding Business > Flashcards

Understanding Business Flashcards

1
Q

What is a sole trader?

A

-an individual who owns and runs the business

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2
Q

What is a partnership?

A

-a number of individuals between 2-20 working together in business and sharing profits

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3
Q

What is a limited liability partnership?

A

-number of individuals working together which has been incorporated as a separate legal entity

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4
Q

What is a private limited company?

A

-separate legal entity
-shares are not traded on stock exchange

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5
Q

What is a public limited company?

A

-separate legal entity
-shares are traded on stock exchange

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6
Q

What is a not-for profit organisation?

A

-charities and public sector organisations
-the money is used to achieve objectives

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7
Q

What are key characteristics of a sole trader?

A

-owner is independent
-all profits belong to them
-easy to set up
-owner has unlimited liability
-can invest personal capital
-hard to take holiday

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8
Q

What are the 2 financial statements of a sole trader?

A

-statement of P&L
-statement of FP
-produced annually at the financial year end
-don’t need to make annual returns to companies house

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9
Q

What are sole trader responsible for to HMRC?

A

-annual income tax returns
-stating the profit of the business
-if registered for VAT = quarterly or annual VAT returns

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10
Q

What are key characteristics of partnerships?

A

-all partners contribute capital
-profits are shared in accordance to agreement
-each partner is liable for debts of the WHOLE business
-decisions make take longer
-partners may specialise in particular areas
-loss of a partner may affect the running of the business

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11
Q

What are the financial statements of a partnership?

A

-statement of P&L
-statement of FP
-don’t need to make annual returns to companies house

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12
Q

What are partnerships responsible to HMRC for?

A

-if registered for VAT = quarterly or annual VAT return
-each partner is responsible to HMRC for their annual income tax returns (stating their share of profit in partnership)

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13
Q

What is included in a partnership agreement?

A

-division of profits between partners
-partners salaries/commission
-whether interest it to be allowed on partners capital + the rate
-whether interest it to be charged on partners drawings + the rate

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14
Q

What is goodwill?

A

-the difference between the value of a business as a whole, and the net value of its separate assets and liabilities

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15
Q

How is an LLP set up?

A

-set up through legal incorporation
-requires certain documents to be sent to Registra of companies
-advisable to have a Members agreement
-must have 2 or more ‘designated members’

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16
Q

What are the financial statements of an LLP?

A

-statement of P&L
-statement of FP
-supporting notes to financial statements
-auditors report

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17
Q

What is the difference between an LLP and limited partnership?

A

-a limited partnership must appoint at least one general partner and one limited partner

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18
Q

What is a general partner?

A

-has unlimited liability
-responsible for the day-to-day running of the business

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19
Q

What is a limited partner?

A

-often formed for projects that will last for a short period of time
-predominately providing investment for the project in return for a share of the returns

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20
Q

A company may become a PLC if it has:

A
  1. more than £50,000 of issued share capital
  2. at least 2 shareholders
  3. at least 2 directors
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21
Q

A company may be a Ltd if it has:

A
  1. no minimum requirement for issued share capital
  2. at least 1 shareholder
  3. at least 1 director (can be the shareholder too)
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22
Q

How do Ltd companies incorporate?

A

-by registering under the Companies Act 2006
-submit documents to Registrar of Companies

23
Q

What must Ltd companies annual accounts comprise of?

A

-statement of P&L
-statement of FP
-supporting notes
-directors report
-auditors report

24
Q

What are 5 advantages of incorporation?

A
  1. liability for members and shareholders is limited to the amount they have invested
  2. continue existence of the business as a separate legal entity
  3. enhancement of credibility
  4. easier access to finance
  5. transfer of ownership may be easier
25
Q

What are 3 disadvantages of incorporation?

A
  1. more complex requirements of setting up + additional costs
  2. info filed to companies house is public
  3. business finances must be kept separate from those of the owners
26
Q

What are public sectors?

A

-provide services to the UK
-owned by the central and local government
-funded by taxes

27
Q

What are charities?

A

-set up to provide charitable activities within the scope of the charity
-income from donations and funding

28
Q

What are the main rules governing charities set out in?

A

-Charities Act 2011
-Charity Commission
-Statement of Recommended Practice Accounting and Reporting by Charities or FRS 102

29
Q

What rules must charities follow?

A
  1. follow charity law
  2. purpose must be for public benefit
  3. governed by a trust deed
  4. independent of other organisations
  5. register with the Charity Commission
30
Q

What is a trust deed?

A

-sets out the name of the charity, its objects and powers
-deals with appointment of trustees
-how meeting are to be run
-required financial statements

31
Q

What must charities financial statements comprise of?

A

-statement of financial activities
-statement of FP
-cashflow statement
-supporting notes
-trustees annual report
-auditors report

32
Q

What are common features of business organisations?

A
  1. structure
  2. common objectives and team working
  3. co-operation
  4. responsibility, authority and division of work
33
Q

What is intangibility?

A

-a service doesn’t provide a physical product

34
Q

What is inseparability?

A

-a service cannot be separated from it’s consumption by customer

35
Q

What is perishability?

A

-any unused service cannot be stored for future use

36
Q

What is variability?

A

-a service will be tailored to the needs of an individual customer

37
Q

What are 4 funding sources?

A
  1. borrowing
  2. new capital
  3. retained profit
  4. working capital
38
Q

What is new capital?

A

-can be introduced to a business by issuing further share capital
-private = issued to shareholders or offered to a new investor
-public = share issue on stock exchange

39
Q

What is a disadvantage of new capital?

A

-it will dilute the ownership of existing shareholders

40
Q

What is an advantage of new capital?

A

-won’t have to repay interest
-not required to repay the shareholders if they don’t wish to invest in the business
-shareholders will need to sell shares privately

41
Q

What is retained profit?

A

-a business may wish to retain some of its profits to reinvest in the business
-can be a less expensive way of investing in business growth

42
Q

What is working capital?

A

-the difference between a business’s current assets and current liabilities

43
Q

What is a stakeholder?

A

-a person or organisation that has interest in another organisation

44
Q

What will the customers be interested in?

A

-quality of products
-reasonable price
-statements showing how much they owe

45
Q

What will suppliers be interested in?

A

-provide invoices and statements
-expect to be paid on time

46
Q

What are finance providers interested in?

A

-expect directors to show them the financial statements of the business before providing funds

47
Q

What are owners/shareholders interested in?

A

-how much profit the business makes

48
Q

What will employees be interested in?

A

-how well business is performing
-expect reasonable training
-

49
Q

What is a stakeholders attitude to risk?

A

-the level of risk stakeholders are willing to to accept and what they will do if they feel that the level of risk is too high

50
Q

What is risk averse?

A

-will accept a lower return or pay higher prices to avoid risk

51
Q

What is risk seeking?

A

-actively seeking out riskier options to increase the likelihood of a higher return

52
Q

What is a risk appetite?

A

-the level of risk they are prepared to accept to achieve their objectives

53
Q

What is a risk tolerance?

A

-how much risk they are able to withstand

54
Q

What is a risk threshold?

A

-the level up to which risk is acceptable

Q22-3.5 Business Awareness (5 decks)

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