understanding different business forms

Question 1

what is the private sector

Answer 1

part of the economy that is not state controlled, and is run by individuals and companies, usually for profit

Question 2

what is the public sector

Answer 2

the refers to all the businesses and organisations which are owned and run by the government.

Question 3

what are some factors that affecting choosing business forms

Answer 3

• finances
• size
• taxes
• profit
• risks
• ownership
• liability

Question 4

explain what unlimited liability is

Answer 4

owners are personally responsible for the debts of the business. meaning their personal possessions such as their cars etc would pay for debts should the business go bankrupt.

Question 5

explain what limited liability is

Answer 5

the business has its own legal identity

Question 6

what is a sole trader?

Answer 6

a business that is owned and run by one person.

Question 7

strengths of a sole trader

Answer 7

• don’t need to register anywhere
• owner keeps all the profits
• cant sell shares so have complete control
• are their own boss - no arguments

Question 8

weaknesses of a sole trader

Answer 8

• unlimited liability - can take personal possessions if the business goes into debt
• completely control - no other option
• can’t sell shares so no extra money
• little start up capital to begin with

Question 9

strengths of a private limited company

Answer 9

• limited liability - can only take assets that belong to the business to pay off debts
• own legal structure
• can use lots of ways to raise finance

Question 10

weaknesses of a private limited company

Answer 10

• Profits must be shared with the shareholders in the form of dividends
• corporation tax
• have to pay to register the business

Question 11

strengths of a public limited company

Answer 11

• Limited liability – can only take assets that belong to the business to pay off debts
• own legal structure
• can use all types to raise finance

Question 12

weaknesses of a public limited company

Answer 12

• Profit must be shared with the shareholders in the form of dividends
• £50,000 raised money to register with the Companies’ House
• corporation tax

Question 13

what are shareholders?

Answer 13

the owners of a limited company

Question 14

what are the two ways shareholders gain their financial reward from share ownership?

Answer 14

• a share of the profits earned by the company
• growth in the value of their shareholding (compared with the cost of buying the shares)

Question 15

what is market capitalism?

Answer 15

the total market value of the issue shared capital of the company

when demand for shares increases, shares prices increases to.

Question 16

how do you calculate market capitalism

Answer 16

current share value x number of shares issues = market capitalism

Question 17

factors that affect share price

Answer 17

• number of shares available - more available, more people wanting to invest
• business expansion - shareholders will receive more dividends due to an increase in profit margins
• investment - share value will increase and so more people will want to buy them
• publicity
• e-commerce
• recession - devalue shares significantly.