Unit 1 - 1.2 Business entities

Question 1

Private sector (main aim)

Answer 1

Organisations owned and controlled by private individuals and businesses
* main aim: to make profit

Question 2

Public sector (main aim)

Answer 2

Organisations owned and controlled by the government
* main aim: to provide essential goods and services

Question 3

Profit-based organisations

Answer 3

Revenue generating businesses with profit objectives at the core of their operations
* sole traders
* partnerships
* privately held companies
* publicly held companies

Question 4

Goals of profit-based organisations (3)

Answer 4

• Make a profit
• Reward the owners with profits from the business
• Return some of the profits back into the business for capital growth

Question 5

Sole traders

Answer 5

Individual ownership of a business
* usually the most common
* start up capital is obtained from personal assets
* sole traders have unlimited liability

Question 6

Unlimited liability

Answer 6

When the owners and partners of a business assume full legal responsibility for its debts

Question 7

Limited liability

Answer 7

The business protects its owners from being personally pursued for the repayment of the comapny’s debts or liabilities

Question 8

Sole traders advantages (name 4)

Answer 8

• Few legal formalities
• Profit taking
• Being your own boss
• Personalised service
• Privacy
• Quicker decision-making

Question 9

Sole traders disadvantages (name 4)

Answer 9

• Unlimited liability
• Limited sources of finance
• High risks
• Workload and stress
• Limited economies of scale
• Lack of continuity

Question 10

Partnerships

Answer 10

Businesses owned by two or more persons
* one partner must have unlimited liability (???)
* start up finance from personal funds pooled together by partners
* legal document known as ‘deed of partnership’ drawn up to formalise agreements (how profits and losses are shared)

Question 11

Advantages of partnerships (name 3)

Answer 11

• Financial strength
• Specialisation and division of labour
• Financial privacy
• Cost-effective

Question 12

Partnership disadvantages (name 3)

Answer 12

• Unlimited liability to one of the partners
• Lack of continuity (sudden end to agreement)
• Prolonged decision-making
• Lack of harmony due to disputes

Question 13

Limited liability companies

Answer 13

Businesses owned by their shareholders
* invested money to provide capital for a company

Question 14

Company

Answer 14

Incorporated businesses
* treated as legal entities separate from its owners
* means they have limited liability

Question 15

Types of companies (2)

Answer 15

• Privately held companies
• Publicly held companies

Question 16

Privately held companies

Answer 16

It’s shares are owned by friends and/or family
* cannot be traded publicly on the stock exchange market
* shareholders can only sell shares if they have prior permission from other shareholders
* many times are family businesses

Question 17

Publicly held companies

Answer 17

Can sell shares on the stock exchange
* shares held by the general public
* no permission needed for trade

Question 18

Advantages of limited liability companies (name 4)

Answer 18

• Raising finance
• Limited liability
• Continuity
• Economies of scale
• Productivity
• Taxt benefits

Question 19

Disadvantages of limited liability companies (name 4)

Answer 19

• Communication problems
• Added complexities
• Compliance costs
• Disclosure of information
• Bureaucracy
• Loss of control

Question 20

For-profit social enterpises (3 types)

Answer 20

Revenue generating enterprises with social objectives at the core of operations
* Private sector companies
* Public sector companies
* Cooperatives

Question 21

Main aims of for-profit enterprises

Answer 21

• Make a surplus (revenue greater than costs)
• Use surplus for benefit of society

Question 22

Private sector for-profit social enterprises

Answer 22

Aim to make surplus instead of relying on donations to achieve aims
* produce goods to compete with similar businesses
* often use the triple bottom line as an accounting framework for ethical business practices

Question 23

Triple bottom line

Answer 23

A sustainability framework concerned around the three Ps: People, Planet, Profit

Question 24

Public sector for-profit social enterprises

Answer 24

Sate owned to operate in a commercial way
* help raise government revenues to provide essential services to society that may be inefficient if left solely to the private sector

Question 25

Cooperatives

Answer 25

Owners are called members
* they own and run the business but are also an employee
* Aim is to create value for members by operating in a socially responsible way
* all employees have a vote
* profits earned are shared between members

Question 26

Advantages of cooperatives (name 3)

Answer 26

• Incentives to work
• Decision-making power
• Social benefits
• Public support

Question 27

Disadvantages of cooperatives (name 3)

Answer 27

• Disincentive effects
• Limited sources of finance
• Slower devision-making
• Limited promotional opportunities

Question 28

GlenWyvis - cooperatives case study

Answer 28

Scottish cooperative established in Dingwall in 2015
* purpose: to reinvigorate the community and economy
* benefit:
* job opportunities (300 people)
* more tourism = economic growth
* social sustainability through creation of own electricity and allowance of community-based investment

Question 29

Grameen Danone - private sector for-profit case study

Answer 29

Joint business between Grameen bank (Muhammad Junus) and Danone
* adress malnutrition of Bangladeshi children
* add missing nutrition into yoghurt
* people can make investments but not dividends
* beggar program for beggars to sell yoghurt

Question 30

Dividends

Answer 30

Portion of profit is paid to investors / shareholders