Understanding Different Business Forms

Question 1

Define public sector companies

Answer 1

Public sector companies are companies owned and controlled by the government-they are funded by central and local governments as well as operated by public bodies they may still very charges for certain services

Question 2

Define limited liability

Answer 2

Owners can lose the value of their original investment but are not responsible for debts of the business.The business may be declared bankrupt but owners cannot lose personal possessions

Question 3

What are the factors of limited companies?

Answer 3

Need to become incorporated to become a company rather than a business
Memorandum and articles of association required
Need to register at companies house

Question 4

Describe limited companies

Answer 4

-owned by shareholders
-run by the board of directors
-have a separate legal identity
-shareholders have limited liability
-have to keep up to date accounts

Question 5

What is a share?

Answer 5

A percentage of the business

Question 6

How do shareholders benefit from buying shares ?

Answer 6

Dividends-paid from the businesses profits
Increase ownership
Profit-> share value

Question 7

How can limited companies raise finance ?

Answer 7

New shares created and sold to either the existing owners or people outside the business

Buying new shares gives them part ownership and entitlement to a share if the profits but the money can be used for growing the business

No need for interest payments or business plans to obtain this finance -relatively quick and easy

Question 8

What are the issues of selling shares ?

Answer 8

Reduced control in business
Risk of takeover
Make less profit

Question 9

Describe a private limited company

Answer 9

Smaller than plcs and cheaper to set up
£15 to register an ltd with companies house
Have limited liability
Can issue and sell shares to raise finance
Sales of shares have to be agreed by other directors

Question 10

Examples of ltds

Answer 10

Ltds are often small companies but can grow to be quite large eg JCB Virgin

Question 11

Benefits of being an ltd

Answer 11

Limited liability
Better brand reputation
More respected
Less chance of takeover
People who invest care about the company
Fewer shareholders fewer to spread profits between

Question 12

Drawbacks of being an ltd

Answer 12

More difficult to sell shares smaller pool of people
Takes a while to set up
Disagreement from shareholders over people wanting to purchase shares makes raising finance more difficult

Question 13

Describe a public limited company

Answer 13

Larger than an Ltd
Measure by market capitalisation-total value of issued shares
Can issue and sell shared but plcs can do on stock market=flotation occurs
Can advertise and do not need approval to from other directors
Plcs share prices are in the papers and ltds aren’t

Question 14

What are the benefits of being a PLLC?

Answer 14

Limited liability
Ability to issue and sell new shares to raise finance
More wide variety of shareholders
To raise finance – stock market
Make it easier to buy out other companies

Question 15

What are the disadvantages of being a plc?

Answer 15

More shareholder so more profit shared
Possibility of takeover
Loss of control

Question 16

Define market capitalisation

Answer 16

The value of a company that’s traded on the stock market kit calculated by multiplying total number of shares by share price

Question 17

Why do many private limited companies change to be public limited companies?

Answer 17

They can sell more easily and easier to buy out other companies

Question 18

Why did some PLCs change back to be LTDs?

Answer 18

You can now know who buys the shares and you can manage control also you can prevent hostel takeover. An example of this is virgin which change from a plc to an LT.D

Question 19

Who buys shares?

Answer 19

In the UK, individuals own less than 15% of shares
Foreign investors own more than 50% with shares in UK
As well as UK individuals banks pension funds insurance companies

Question 20

What are the benefits of buying shares?

Answer 20

Receive a share of profits via dividends
Increase in share price will increase value owned

Question 21

What are the risks of buying shares?

Answer 21

Share prices can fall for a variety of reasons
Low profits equals low dividends

Question 22

What happens in a recession?

Answer 22

Demand for goods and services for resulting in low sales revenue and therefore lower profits mean and share prices for and the business is likely to reduce their dividend payments or even pay no dividends

Demand for shares fallen supply shares increase causing share price to fall even further
This can also cause shareholders to sell shares

Question 23

What are ordinary shares?

Answer 23

Most ideas and they are most risky as you only are paid after those who lent money are paid back

Question 24

What is the role of shareholders?

Answer 24

Can influence decision-making as one share equals one vote buying more shares equals more votes if you earn 51% then you control the business

All companies must have an AGM shareholders are invited in every shareholder must receive a copy of the companies annual report that reviews performance

At the AGM, the directors managers given overview and respond to questions

Shareholders may not have a strong influence on policies often about things such as pay increase and bonuses for senior managers

Question 25

What are the influences on share prices?

Answer 25

Companies performance
Business environment in which it trades in
The above two of the major influences on demand and supply of shares
Financial results and trading performance updates are provided twice a year
Information that could influence share prices have to be declared to shareholders these are called regulatory announcement

Question 26

What are the reasons for share prices going up?

Answer 26

Stock market at all-time high
Rumours of takeover
Increasing interest rates

Question 27

What are the reasons for share prices going down?

Answer 27

Government introducing new taxes
Large scale products recall
Rising unemployment and recession

Question 28

What happens when share prices rise?

Answer 28

Management receive bonuses
Easier to share capital
Banks willing to offer loans

Question 29

What happens when share prices fall?

Answer 29

Difficulty to raise capital
Vulnerability to take over
Pressure on management

Question 30

What are the effects of Mission statement, on a sole trader?

Answer 30

Maybe unlikely to have a mission statement but sole owner provide sense of direction

Question 31

Are the effects of objectives on sole traders?

Answer 31

May centre run meeting personal goals such as generating sufficient income

Question 32

What are the decisions made by sole traders like?

Answer 32

Potentially rapid and responsive but lacking support and possibly information

Question 33

What are the effects of performance on SOLE traders?

Answer 33

Ownership allows businesses to be responsive to customers needs but may not be too price competitive

Question 34

What are the effects of mission objectives decisions and performance on a private limited company

Answer 34

Mission May Centre on maintaining family run business or reputation

Objectives -Could relate to satisfactory level of profits or financial stability i to ensure continued survival

Decisions – more complex is more people likely to be involved. May have more information available and some specialist input.

Performance – scale of this type of business varies hugely performance could be based on meeting personal needs or on benefits of being large scale

Question 35

What are the effects of mission objectives decisions and performance on public limited companies?

Answer 35

Mission – mission can play an important role to project the companies image to provide a focus for consistent decision-making

Objective – likely to relate to cost prices business and market share linked to financial performance in the long term

Decisions – can be very complex and have long-term implications. Some decisions require specialist input needs to be based on extensive information. Many routine decisions also needs to be made

Performance – access to capital and pressure from shareholders likely to place emphasis on being competitive in terms of price customer service or desirable product

Question 36

What are the effects of mission objective decisions and performance on not for profits?

Answer 36

Mission mission can be important in establishing the ethos of the business and underpinning all decision-making

Objectives – likely to be non-financial and can be less easy to measure such as benefit in the community or protecting the environment

Decisions – may lack specialist social objectives may cloud judgement

Performance – probably measured in non-financial terms but need to perform well enough to financially to meet other goals