What is a business? - 1.2 Flashcards

1
Q

Why do businesses change different forms?

A

Mainly growth. As a sole trader grows they may decide they need access to more capital and protection of limited liability. Accessing more capital and achieving a higher profile may result in companies going public.

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2
Q

Why do businesses choose different forms?

A

Based on what type of liability they want, funding needs or management style.

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3
Q

What is a sole trader?

A

Individuals establishing and operating a business on their own. Sole traders work for themselves.

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4
Q

What are the advantages of operating as a sole trader?

A
  • Easy to start up
  • Freedom to make own decisions
  • Profits are not shared
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5
Q

What are the disadvantages of operating as a sole trader?

A
  • Pressure of responsibility
  • Raising finance to set up and expand
  • Unlimited liability so responsible for any losses
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6
Q

What is a private limited company (LTD)?

A

Owned by shareholders although LTDs can place restrictions on who shares are sold to.

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7
Q

What are the advantages of an LTD?

A
  • Cheap to set up
  • Limited liability
  • Sell shares privately
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8
Q

What are the disadvantages of an LTD?

A
  • Regulations and laws which can be time consuming and costly
  • File certain information with government which reduces privacy for owners
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9
Q

What is a public limited company (PLC)?

A

Company which sells shares through the stock exchange. Raising large sums of capital. Often in the media due to size and importance. Generating free and low-cost publicity

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10
Q

What are the advantages of a PLC?

A
  • Limited liability
  • Easier to secure funding through shareholders
  • Credibility enhances with customers, suppliers and potential investors
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11
Q

What are the disadvantages of a PLC?

A
  • Regulations and laws which are time consuming and costly
  • Loss of control as shareholders influence decisions
  • Market fluctuations can change share prices which may not reflect company’s true performance
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12
Q

What is a public sector business?

A

Businesses owned by national or local government. Examples include airports, NHS, leisure centres.

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13
Q

What is a private sector business?

A

Owned by shareholders or individuals. Most businesses are private sectors.

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14
Q

What is a not-for-profit business?

A

Business set up with a different objective from profit. Social enterprises aim to benefit the community or society in general.

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15
Q

What are the advantages of a not-for-profit organisation?

A

-Tax exemptions allow businesses to operate without paying taxes
- Community support as they work towards social causes

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16
Q

What are the disadvantages for a not-for-profit organisation?

A

-Funding limitations as donations are unpredictable
- Comply with regulations which are time consuming

17
Q

What is limited liability?

A

Protection of owners assets and shareholders. Owners are responsible for company’s debt up to the amount they invested.

18
Q

What is unlimited liability?

A

Individual or group is responsible for actions of the business. Could loose personal assets if the business has financial problems.

19
Q

What is ordinary share capital?

A

Funds raised through ordinary shares

20
Q

Calculating ordinary share capital:

A

Ordinary share (capital= number of ordinary shares issues X nominal value per share (Minimum price at which shares can be issued)

21
Q

What is market capitalisation?

A

Total value of the issued shares of a public limited company. Can be used to measure the size of a PLC

22
Q

How to calculate market capitalisation?

A

Market capitalisation= total number of outstanding shares (shares currently held by shareholders) X current market price per share

23
Q

What are dividends?

A

Share in the profits of a company that are distributed to shareholders. Shareholders receive a specific amount for each share they own.

24
Q

What are the influences on share prices?

A

Company’s performance means share prices can be raised. Business environment such as economic climate may worry investors so demand for share prices fall.

25
Q

What is the significance of share price changes?

A

A rise in share prices shows the management team is doing well and may receive a bonus. A fall in share prices shows there is poor performance from management team and makes the company vulnerable to a takeover. Although these changes don’t have a direct impact on the company’s immediate financial position.

26
Q

What is the role of shareholders?

A

Influence decision making of companies. Each share is worth one vote. They receive an annual report which reviews performance over the last year.

27
Q

Why do shareholders invest?

A

May benefit from increase in share prices and receiving dividends. Or to make a quick return.

28
Q

What are the effects of ownership on mission?

A

For example Co-op works towards creating a better, fairer world and enhance the lives of colleagues, customers and communities. This means the business operates in a way to benefit stakeholders and not seeking to maximise profits.

29
Q

What are the effects of ownership on objectives?

A

For example, Co-op may operate with objectives that relate to its impact on stakeholders and the community.

30
Q

What are the effects of ownership on decisions?

A

Impacts complexity of decisions and speed of decision making.

31
Q

What are the effects of ownership on performance?

A

Larger organisations may be able to produce at lower costs due to specialised employees. Public companies may be more innovative as they can spend large sums on research.