Week 2 NCUK

Question 1

What is a sole trader?

Answer 1

Someone who owns and runs their own business which is usually a small business. For example, a hairdresser, window cleaner, plumber, local shopkeepers or an electrician.

Question 2

What are the advantages of being a sole trader?

Answer 2

• It is easy to set up - no complicated paperwork or solicitors needed.
• It is cheap to set up - not much capital required.
• They are their own boss - don’t have to take orders from anyone so they can make their own decisions.
• Keep all of the profit.
• Business affairs can be kept private.

Question 3

What are the disadvantages of being a sole trader?

Answer 3

• Unlimited liability - could lose everything if the business fails.
• They have no-one to share workload with - can’t go on holiday or be sick.
• Finance can be difficult to raise - makes expansion difficult.
• They are incorporated - the owner and business are classed as legally the same so if anything goes wrong, it is the owner who is sued, not the business.
• There is a lot of responsibilities for one person - difficult for them to do everything

Question 4

How is finance provided for the start up of the business if the person if a sole trader?

Answer 4

It is raised by the owner through personal savings or borrowing from the bank or family and friends

Question 5

What is a partnership?

Answer 5

This is where 2-20 partners work together in a business. Examples of partnerships are solicitors, doctors, dentists and accountants.

Question 6

How is finance raised in a partnership?

Answer 6

It is raised by the partners through person savings or capital borrowed from the bank.

Question 7

What are the advantages of a partnership?

Answer 7

• More owners means more capital generated.
• Work can be shared.
• Partners can specialize in what they do best.
• Partners can cover for each other during holidays.
• Financial details of the partnership are private

Question 8

What are the disadvantages of a partnership?

Answer 8

• Profits must be shared between partners.
• All partners have unlimited liability expect from sleeping partners.
• Partners have to consult each other before decisions are made.
• Decision making can be slow.
• Partners may disagree about the running of the business.
• Each partner is legally responsible for the actions of the others

Question 9

What does LTD stand for?

Answer 9

Private Limited Company

Question 10

What does PLC stand for?

Answer 10

Public Limited Company

Question 11

Who owns limited companies?

Answer 11

The shareholders

Question 12

How is finance raised in limited companies?

Answer 12

Finance is raised by selling shares and borrowing from banks

Question 13

Who does the profit go to in limited companies?

Answer 13

The profit goes to the shareholders in the form of dividends

Question 14

What does dividends mean?

Answer 14

Dividends is the shareholders share of profits earned by an organisation

Question 15

What are the advantages of a LTD?

Answer 15

• Shareholders have limited liability.
• Specialist managers can be employed.
• Money can be raised from selling shares to family and friends.
• It is easier to expand the business.
• There is no minimum investment needed before the company can start trading

Question 16

What are the disadvantages of a LTD?

Answer 16

• They cannot sell shares on the stock market.
• Annual reports have to be produced by law.
• Expensive administrative work is required to set up a company.
• They can only sell shares to family and friends.
• Transfer of shares must be agreed by the directors