understanding different business forms

Question 1

define what private sector is

Answer 1

businesses that are owned by individuals or groups of individuals

Question 2

what is unlimited liability?

Answer 2

the owner/s of a business a personally liable for the debts of a business e.g a sole trader

Question 3

define limited liability

Answer 3

the owner/s of a business are only liable for the original amount of money invested into the business e.g. a shareholder

Question 4

what is a sole trader?

Answer 4

a business organisation that has a single owner

Question 5

a company is…

Answer 5

an organisation that has a separate legal identity to its owners (shareholders)

Question 6

a private limited company is…

Answer 6

a company where shares can only be sold privately with the agreement of the other stakeholders

Question 7

what’s a public limited company?

Answer 7

a company where shares can be sold on the stock market and any member of the general public can buy or sell shares

Question 8

define market capitalisation and the formula for it

Answer 8

the value of all the shares issued by a company.

current share prices x number of issued shares = market capitalisation

Question 9

what are dividends?

Answer 9

the profit payed out to shareholders

Question 10

what are not for profit organisations?

Answer 10

these include voluntary and community organisations e.g. local sports clubs, charities etc

Question 11

mutuals are…

Answer 11

they have no shareholders or owners and are run in the interest of their members who are its customers

Question 12

what are charities?

Answer 12

charitable status means that those who fund them are not liable for any debts. there are tax benefits too

Question 13

what are the main sources of finance available for private companies?

Answer 13

savings from directors, bank loans

Question 14

what is the liability for sole traders for their debts of the business?

Answer 14

unlimited liability- responsible for all debt

Question 15

what’s an advantage of a private limited company?

Answer 15

limited liability- owners aren’t personally responsible for debt

Question 16

what’s a disadvantage of private limited companies?

Answer 16

they can’t sell shares on the stock market to the public

Question 17

what’s an advantage of a public limited company?

Answer 17

they can sell shares in the stock market which can generate more capital

Question 18

why may a business be reluctant to cut its dividends?

Answer 18

the shareholders would be earning less money and therefore they may face problems if shareholders are unhappy

Question 19

what happens to market capitalisation if dividends fall?

Answer 19

market capitalisation will also fall

Question 20

what are social entrepreneurs?

Answer 20

individuals who set up a business (private company) to make a positive change to society and use the profits to achieve their aims

Question 21

what’s an unincorporated business?

Answer 21

a business which has no legal difference between the owners and business itself. as a result, the owners have unlimited liability (sole traders, partnerships)

Question 22

define an incorporated business

Answer 22

a business where the legal identity of the firm is separate from the owners. as a result, owners have limited liability (private/public companies)

Question 23

what’s a public sector?

Answer 23

organisations owned by central or local government e.g NHS