Unit 1.2.2 Types of Businesses

Question 1

Private limited company

Answer 1

• Incorporated business
• Owned by up to 50 shareholders
• Controlled by directors
• Shares not freely available to the public

Question 2

Limited liability

Answer 2

The business owner is not held personally responsible for the business’s debts

Question 3

Advantages of private limited companies

Answer 3

• Generates more financial capital
• Limited liability
• Can share workload

Question 4

Disadvantages of private limited companies

Answer 4

• Restrictive number of owners
• Expensive to set up + run due to legal obligations

Question 5

Public company

Answer 5

• Incorporated business structure
• Managed by directors
• Unlimited amount of shareholders (open to the public)

Question 6

Advantages of public companies

Answer 6

• Limited liability
• Tax advantages
• Greater source of management expertise

Question 7

Disadvantages of public companies

Answer 7

• Profits must be divided between owners (dividends)
• Expensive to set up + run due to legal obligations

Question 8

Government Business Enterprise (GBE)

Answer 8

• Business owned + operated by the government
• Provides general goods + services to the community where the user pays

Question 9

Advantages of GBE

Answer 9

• Provides goods + services with no market (streetlights/roads)
• Benefits lower income earners
• Low cost/free goods + services

Question 10

Disadvantages of GBE

Answer 10

• Some delivery of goods + services can be insufficient due to bureaucratic services
• Improvements/maintenance can take a while

Question 11

Social enterprise

Answer 11

• Type of business
• Aims to fulfil a community/environmental need by selling goods/services
• Rather than to maximise profit for its social entrepreneur owners or shareholders

Question 12

Advantages of social enterprises

Answer 12

• Community benefits
• Can develop positive reputations (contributing to society)
• Likely to receive financial support from other businesses/the government

Question 13

Disadvantages of social enterprises

Answer 13

• Difficult to balance the achievement of financial objectives with social objectives
• Can be difficult to obtain a bank loan (doesn’t focus on financial objectives)

Question 14

Sole trader/propietorship

Answer 14

• Business structure
• Owned + operated by one individual
• E.g. private tutor

Question 15

Unlimited liability

Answer 15

• The business owner being held personally responsible for the business’s debts
• Failure to pay business debts means personal assets can be sold to pay them off

Question 16

Advantages of sole traders

Answer 16

• Owner is free to make all decisions
• Owner retains profits
• Structure is simple + inexpensive

Question 17

Disadvantages of sole traders

Answer 17

• Unlimited liability
• Sources of capital limited: opportunity to expand is limited
• Difficult to take time off

Question 18

Partnership

Answer 18

• Business structure
• Owned by 2-20 people

Question 19

Advantages of a partnership

Answer 19

• Inexpensive to set up
• More skills
• More people to share workload

Question 20

Disadvantages of a partnership

Answer 20

• Private assets of partners not protected (unlimited liability)
• Profits shared between partners
• Chance of conflicts w/ decision making

Question 21

Business structure

Answer 21

• Category of recognisation
• Legally recognised in a given jurisdiction
• Characterised by the legal definition of that particular category

Question 22

Incorporated

Answer 22

• Establishment of the business owner + the business
• As separate legal entities

Question 23

Unincorporated

Answer 23

• A business
• W/ no separate legal existence from owners

Question 24

Types of business structures

Answer 24

• Company (public listed + private limited)
• Government business enterprise
• Social enterprise
• Sole trader
• Partnership