Unit 1 - What is a business?

Question 1

Who own businesses in the private sector?

Answer 1

Individuals

Question 2

Who owns businesses in the public sector?

Answer 2

Government

Question 3

What is a Sole-Trader?

Answer 3

A business that is not registered and owned by just one person.

Question 4

What is a Private Limited Company? (LTD)

Answer 4

A business that has various shareholders that are sold shares through private relations.

Question 5

What is a Public Limited Company? (PLC)

Answer 5

A business with multiple shareholders, who acquire shares through the stock exchange.

Question 6

What are Not-For-Profit organisations?

Answer 6

Businesses that have another purpose than to make profit. This might be to help society or to supply services to helpful causes.

Question 7

What are mutuals?

Answer 7

Businesses that don’t have owners or shareholders and its primary purpose is to serve it’s members.

e.g. Local community, employees, customers. etc.

Question 8

What are charities?

Answer 8

A business that uses all it’s profits (money provided gifted) and reinvests back into itself, to better reach it’s social objectives of helping people.

Question 9

What are social enterprises?

Answer 9

A social enterprise is a business that uses profits made from sales to reinvest into the business, to help achieve social objectives that help people.

Question 10

What is the meaning of privatisation?

Answer 10

The process of turning public businesses private.

Question 11

What is the meaning of nationalisation?

Answer 11

The process of turning private businesses public.

Question 12

Advantages of being a Sole-Trader? (4)

Answer 12

• Owner keeps all profit made without having to pay dividends to shareholders.

-Complete control of company and decisions are the owners’. No consent is needed from shareholders.

-Cheap to set-up.

-Cheap to shut down business.

Question 13

Disadvantages of being a Sole-Trader?

Answer 13

-Unlimited reliability.

-Hard to raise capital, as there are no shareholders to provide investment.

-Work long hours as the companies responsibilities are all yours (owners) to endure.

Question 14

Advantages of Private Limited Company? (LTD) (6)

Answer 14

• Investors are chosen privately.

-Limited reliability, which means that business debt is compensated by only taking the money you have invested into the company and not other external sources like your house.

-Professional image.

-Name protection.

-Cheap to set-up £12.

-Potential tax savings (income can be spread over multiple years, which means high tax can be avoided).

-National insurance avoidance.

Question 15

Disadvantages of Private Limited Company?(LTD)

Answer 15

-Director details and company financials are available for public viewing, allowing open scrutiny.

-Can’t sell on the stock exchange, which means that potential access to quick investors is denied.

Question 16

Advantages of a Public Limited Company? (PLC)

Answer 16

-Access to the Stock exchange (quick investment opportunity/ easier to raise large cap)

-Good for public image (PLC acronym next to company title is highly respected)

-Limited liability (can only lose money invested into business)

-Easier for business growth (access to the stock exchange investors - provide haste large capital)

-Directors and owners can manipulate the amount of tax they have to pay by giving themself a combination of a business salary and dividends.

Question 17

Disadvantages of a Public Limited Company?(PLC)

Answer 17

-Loss of control over company (too many shares are sold, that exceed owners or directors) due to TAKEOVER.

-Must public a great deal of information and obey by strict rules established by company house (time consuming)

-Before making major decisions, shareholders have to be council and may be harder to elicit consent.(shareholders may rally against decisions and stop them from happening).

-Expensive to set-up, must have £50,000 worth of share capital. (hard to come-by for some businesses)

-Have to pay dividends to shareholders (many shareholders will want dividends for their investment, which leaves less profit behind.

Question 18

What is a annual general meeting? (AGM)

Answer 18

A annual meeting, where all interested investors are provided with the information regarding the performance of the business and issues at hand.

Question 19

Why LTD over Sole-Trader?

Answer 19

• Limited liability. (owner doesn’t have to compensate for business debt with private property, instead money invested into the company is provided as compen)

-Having LTD acronym alongside business name. (enables business to portray a professional image that is highly regarded)

-Beneficial investors. (chosen investors can provide capital that can be used for achieving company objectives in easier fashion)

-Tax benefits. (don’t have to pay income tax, corporation tax is low, and directors can minimise personal tax by taking a mixture of salary and dividends)

-Company name protection. (LTD’s are registered and publicly established)

Question 20

Why PLC over LTD?

Answer 20

• PLC acronym next to company name. (PLC acronym is more fonded over than LTD acronym)

-Stock exchange . (access to stock exchange allows company shares to be sold more frequently, which provides large capital actively)

Question 21

Meaning of Capital growth?

Answer 21

Growth in the value of shares.

Question 22

Meaning of market capitalisation?

Answer 22

The total value of all issued share capital.

Question 23

How to you calculate market capitalisation?

Answer 23

Individual share price (current) X number of shares issued.

Question 24

What is ordinary share capital?

Answer 24

Value of issued share capital when the business first floated on the stock exchange.

Question 25

What does floating mean?

Answer 25

First time a company gives over percentages of a such company for purchase, in the form of shares.

Question 26

Internal factors that affect share prices?

Answer 26

-Leaders behaviours and attitude to risk
-Financial performance (higher profits = higher dividends = higher share price)
-Arrival of new directors
-Company receiving financially significant contracts

Question 27

External factors that affect share prices?

Answer 27

-State of economy
-Level of interest rate
-Changes in customer taste
-What competitors are doing.

Question 28

What is a business?

Answer 28

A organisation that makes goods and services to satisfy customers..

Question 29

What are 4 reasons why businesses set objectives?

Answer 29

-Objectives can give clear targets that can be used to motivate employees.

-Used to provide the stepping stones that will help focus and direct employees towards a overall goal.

-Provides business targets against which progress can be monitored to measure business performance.

-Provide framework for decision making.

-Provides potential investors clarity on thought.

Question 30

What is a mission statement?

Answer 30

A statement highlighting the overriding goal of the business and the reason behind its existence.

Question 31

What are the internal factors that affect business objectives?

Answer 31

-Business performance (if the business is doing well vs if it’s barely surviving)

-Culture of the organisation (what the owners on goals and beliefs about the business might be)

-Short termism vs Long termism (whether the business is focussed on short or long term plans)

Question 32

What are the external factors that effect business objectives?

Answer 32

-Economic environment ( the financial status of the average population)

-What competitors are doing (rival movement may encourage certain targets to be made to maintain equal opportunity)

-Relative power of stakeholders (those who have power within the company might dictate objectives, to better suit their needs).

Question 33

What are Mutuals?

Answer 33

Businesses owned by their members:
- employees
- customers