Unit 4 : Types of Business Organization

Question 1

Define Unincorporated Business

Answer 1

a business that does not possess a separate legal identity from its owner ( unlimited liability )

Question 2

Define Incorporated Business

Answer 2

business with a separate legal identity ( public/private companies )
( Limited Liability )

Question 3

Define Unlimited Liability

Answer 3

the owner can be held responsible for the business’s debts. this has greater risk as the owner is putting his personal possessions and living at risk

Question 4

Define Limited Liability

Answer 4

the liability of the shareholders in a company is limited to only the amount they invested. this has less risk as the owner is only risking the capital that they invested and legal charges won’t affect the owner directly

Question 5

Define Sole Trader

Answer 5

a business owned and controlled by one person - the owner, who is the sole proprietor. this is a form of an unincorporated business

Question 6

6 Advantages of being a Sole Trader

Answer 6

1. fewer legal regulations ( easier to set up )
2. complete control
3. flexible working times
4. ability to respond quickly to the needs and wants of customers
5. all profits go to owner
6. complete secrecy in business matters

Question 7

6 Disadvantages of being a Sole Trader

Answer 7

1. decisions are hard to make alone
2. no separate legal identity / unlimited liability
3. restricted funds, harder to expand business
4. may have to work for longer hours
5. harder to compete with larger firms
6. may not have proper skills to run a business

Question 8

Define Partnerships

Answer 8

a form of business in which two or more people agree to own a business jointly. it is a form of unincorporated business

Question 9

Define Deal of Partnership

Answer 9

the written and legal agreement between business partners. It’s not essential but recommended

Question 10

5 things a Partnership Agreement contains

Answer 10

1. amount of capital invested by each partner
2. tasks that each partner will do
3. how profits will be distributed
4. how long it will last
5. arrangements for absence, retirement and how partners could be let known

Question 11

4 Advantages of Partnerships

Answer 11

1. easy to set up partnership deed
2. greater access to funds
3. shared decision making
4. shared management and workload

Question 12

5 Disadvantages of Partnerships

Answer 12

1. unlimited liability
2. sharing profits
3. if one partner leaves, the business ceases to exists
4. all partners may disagree on a decision and consultation takes time
5. difficult to raise finance

Question 13

Define a Private Limited Company

Answer 13

business owned by shareholders but cannot sell shares to the public (can only sell to family and friends)

Question 14

Define Shareholders

Answer 14

owners of a limited company who buy shares represent part-ownership of the company

Question 15

4 Advantages of Private Limited Companies

Answer 15

1. raise capital from sales of shares
2. limited liability for shareholders
3. separate legal identity
4. continuity of business

Question 16

4 Disadvantages of Private Limited Companies

Answer 16

1. can’t sell shares to public
2. many legal formalities
3. accounts are available for the public to see
4. it’s not easy to transfer shares

Question 17

Define Articles of Association

Answer 17

contains the rules for managing the company

Question 18

Define Memorandum of Association

Answer 18

contains vital information about the company and the directors

Question 19

Define a Public Limited Company

Answer 19

businesses owned and controlled by the shareholders, but they sell to the public, and their shares are tradeable on the stock exchange

Question 20

4 Disadvantages of Public Limited Companies

Answer 20

1. can sell shares to the public
2. rapid expansion is possible
3. limited liability
4. continuity of business

Question 21

4 Disadvantages of Public Limited Companies

Answer 21

1. many legal formalities
2. disclosure of accounts and other information
3. separation between ownership and control
4. expensive to go public

Question 22

Define Annual General Meeting (AGM)

Answer 22

a yearly meeting where shareholders may attend to vote for a board of directors for the upcoming year

Question 23

Define Dividends

Answer 23

payments made to shareholders from the profit of a company. they are the return for investing in the company

Question 24

Define a Franchise

Answer 24

an agreement of a business based upon an existing brand/business

Question 25

Define Franchisee

Answer 25

the company that received permission to conduct business using the company’s name and brand. has to pay an original fee to the franchisor and a percentage of its profit for the privilege.

Question 26

Define the Franchisor

Answer 26

the company that allows another company to conduct business using the company’s name and brand

Question 27

4 Advantages to the Franchisor

Answer 27

1. franchisee buys the license which gives them another source of finance
2. expansion is faster
3. management is the franchisee’s responsibility
4. percentage of the sale revenue is given to the franchisor every year

Question 28

3 Disadvantages to the Franchisor

Answer 28

1. bad reputation if one of their branches has poor management
2. the franchisee keeps some of the profit
3. training and advertising is paid for by the franchisor

Question 29

5 Advantages to the Franchisee

Answer 29

1. chances of business failure is reduced
2. franchisor pays for advertising
3. fewer decisions to make with the independent business
4. franchisor provides training
5. banks are more willing to lend to franchisees due to the low risk

Question 30

4 Disadvantages to the Franchisee

Answer 30

1. less independence
2. unable to make decisions that suit the local area
3. franchisor has power to withdraw agreement and prevent use of the premises
4. license fee has to be paid to the franchisor

Question 31

Define Joint Venture

Answer 31

when two or more business join together to create a new business

Question 32

3 Advantages of Joint Ventures

Answer 32

1. sharing costs
2. shared experience and knowledge
3. risks shared

Question 33

3 Disadvantages of Joint Ventures

Answer 33

1. profits are shared if project is successful
2. conflicts in decision making may occur
3. different methods of running the business creates conflicts

Question 34

Define Public Corporations

Answer 34

a business in the public sector that is owned and controlled by the government

Question 34

6 Advantages of Public Corporations

Answer 34

1. government ownership could be essential to some industries
2. consumers are not taken advantage of
3. reduces wasteful competitiors
4. can help in stabilizing failing businesses to create job opportunities
5. allows access of essentials to everyone
6. continued even if in losses

Question 34

5 Disadvantages of Public Corporations

Answer 34

1. profit objective is not as important compared to private sector industries
2. managers rely too much on the government causing inefficiency
3. can be unfair to private sector if subsidies are provided to the public sector
4. lack of competition can decrease many activities
5. can be used for political reasons like preventing business from opportunities like other profit making businesses