Unit 1 - Business Activity and Influences on Business (Appropriateness of different forms of ownership)

Question 1

Factors affecting the appropriateness of different forms of ownership

Answer 1

• Growth
• Size
• The need for finance
• Control
• Limited liability

Question 2

Growth

Answer 2

Many businesses start small and gradually get bigger. Most businesses change their legal status as they grow. This is because they need to raise more capital.

Question 3

Size

Answer 3

Larger businesses like public limited companies with thousands of employees and huge turnovers. These businesses hard to run effectively if they are not limited companies but their are exceptions.

Question 4

The need for finance

Answer 4

One of the main reasons for a business to change it’s legal status. Often only way to get more money for is to change the type of organisation.

Question 5

Control

Answer 5

Some owners prefer to stay in control of the business and this can be why they stay as a sole trader.

Question 6

Limited liability

Answer 6

Some owners switch to limited companies to protect themselves financially.

Question 7

Other factors

Answer 7

-The type of business activity may influence the choice of legal.
- The way in which a business plans to use its profits may be important.
- Different stakeholders such as employees and shareholders might influence the choice of organisation.

Question 8

Objectives and the type of organisation

Answer 8

It is likely that the different types of business organisation will have different objectives:
- Small sole traders might be happy to make a modest amount of profit - just enough to fund a comfortable lifestyle.
- Family businesses and other medium-sized private limited companies often do not wish to go public because they are afraid of losing control.
- Most multinationals want to grow. Their aim is often to get bigger and bigger so that they can dominate global markets.