(PAPER 1) 1.5.4 Forms Of Business

Question 1

Sole trader definition

Answer 1

When one person sets up a business on their own. They are a sole owner
- unincorporated business (owner and business treated like the same thing)

Question 2

+&- of sole trader

Answer 2

+ they get all profits
+ have complete control of business and decision making
+ independent
- unlimited liability- can take personal assets if business goes into debt
- difficult to raise finance
- no additional inputs= sometimes bad decisions made

Question 3

Private limited company definition

Answer 3

A business that is owned by shareholders. These shareholders must be family or friends
Shareholders are investors who are part owners of a business. They invest in the business in return for a share of the profits and voting rights

Question 4

+&- of private limited company

Answer 4

+ limited liability
+ shares only sold to friends and family= people you can trust and less likely to have conflict with
- could loose some control- depends on how many shares are sold
- have to pay shareholders for investing- paperwork and cost of setting up

Question 5

partnership definition

Answer 5

a business that is owned by a group of two or more people (unincorporated)

Question 6

+&- of partnership

Answer 6

\+ more ideas and contributions 
\+ share responsibility and workload = less pressure
- unlimited liability
- share profits
- conflict

Question 7

other forms of businesses

Answer 7

• franchising
• social enterprise
• lifestyle businesses
• online businesses

Question 8

franchise definition

Answer 8

a licence to use another businesses name and business model in return for a payment

Question 9

franchisor definition

Answer 9

a business that sells the rights to use its name and logo to another business or entrepreneur

Question 10

franchisee definition

Answer 10

a business or entrepreneur that buys the rights to use the name and business model of another business

Question 11

social entrepreneurship

Answer 11

started with the aim of improving human and environmental well-being, rather than making profit for the owner. e.g. cooperatives, charities

features:
- small
- local businesses

Question 12

lifestyle businesses

Answer 12

making enough money but also provide flexibility needed to sustain a particular lifestyle

features:

• likely to be a lifestyle/ hobby of the owner
• small and local

Question 13

online businesses

Answer 13

technological advances allowing for business opportunities - lower costs - higher potential revenues

features:
- cheaper to operate
- location not important

Question 14

growth of PLC and stock market flotation

Answer 14

• listing on a stock exchange and so allow the general public to purchase shares
• a business must have a minimum of £50000 share capital
• there are considerable regulatory requirements involved both to float on the stock market and every year afterwards

Question 15

reasons for floating

Answer 15

• to access big amounts of finance (share capital)

- brand image and reputation

Question 16

advantages and disadvantages for the franchisee

Answer 16

+ established brand name
+ support and advice from franchisor
- royalty payments and initial fee
- not 100% in control

Question 17

advantages and disadvantages for the franchisor

Answer 17

+ rapid growth
+ regular payment through royalty payments
- loss of control (reputation)
- regular training and support given to franchisee

Question 18

public limited company definition

Answer 18

a business owned by shareholders and listed on the stock exchange

Question 19

advantages and disadvantages for a public limited company

Answer 19

+ access to substantial finance
+ credibility/ status
- cost- expensive to set up and remain
- poor press/ reputation

Question 20

what is meant by sock market flotation

Answer 20

listing a company on the stock exchange so allowing general public to purchase shares

Question 21

reasons why businesses may decide to return to private limited company status

Answer 21

1. take back control of the business ( buy back shares)

2. reduce diseconomies of scale (as the business has grown too large)

Question 22

assess the impact of changing from a sole trader to a private limited company

Answer 22

> definition: a private limited company is a business that is owned by shareholders- have have to e family and friends

+ you get limited liability so if the business were to fail, their personal assets would be safe, you would only loose what was invested- less risky
- could loose control of the business and not able to make all the decisions yourself or be your own boss- wrong decisions could be made- loss of independence that he has built up. - feel lack of motivation and his feel like his skills are not acknowledged enough

> conclusion: positive impact because less pressure and input from other to make right decisions
although their is potential to loose control, if they don’t mind sharing some of the decision making then extra input could benefit the business. The most important factor for ______ is