Types of business ownerships

Question 1

Name 4 different options to start a start-up or small business

Answer 1

1. Sole trader
2. Partnership
3. Private limited company
4. Franchising

Question 2

Sole trader-

Answer 2

-is an individual owning the business on his own, can employ people, they do not share the ownership

Question 3

Disadvantages of being a sole trader (5)

Answer 3

1. Unlimited liability
2. May not have all the skills needed to handle all areas of the business
3. Making all decisions can be stressful
4. Can be difficult to raise finance
5. Heavy workload

Question 4

Advantages of being a sole trader (3)

Answer 4

1. All the profit
2. Independence in making decisions and control
3. Less documentation required

Question 5

Partnership -

Answer 5

-where is business is started or owned by more than one person

Question 6

Main document of partnership is:

Answer 6

Partnership agreement

Question 7

Advantages of partnership (6)

Answer 7

1. Simple to form a business together
2. Minimal paperwork once partnership agreement is set up
3. Partners can provide specialist knowledge and skills
4. Jobs can be shared
5. Greater potential to raise finance
6. Any losses will be shared

Question 8

Disadvantages of partnership (6)

Answer 8

1. Unlimited liability
2. Partners have to live with decisions of others
3. Decision-making can be longer
4. Harder to raise finance than a company
5. Short life, as if one partner leaves or dies the partnership ends
6. Profits have to be shared

Question 9

Unlimited liability -

Answer 9

-the owners may have to use their own personal funds to pay any debts, possibly through the sale of their homes or other assets, if there is not enough money in the business to pay these debts fully

Question 10

Limited liability -

Answer 10

• shareholders are not responsible for the company’s debts, might only lose their investment

Question 11

Limited companies-

Answer 11

• a company is formed when a business is set up to have a separate legal identity from its owners. Will be run by a board of directors

Question 12

Private limited companies -

Answer 12

raise funds from investors, such as friends and family, but not from general public, as its shares are not listed on the stock exchange

Question 13

Advantages of private limited company (4)

Answer 13

1. Limited liability
2. Easier or raise finance as the company can sell shares
3. Stable form of structure - the company continues to exist even when the shareholders change
4. Original owners are likely to retain control

Question 14

Dividend -

Answer 14

• a share of profit, reward for being a shareholder

Question 15

Disadvantages of private limited companies (5)

Answer 15

1. Shareholders have to agree about how profits are distributed
2. Greater administrative costs than setting up as sole trader or partnership
3. Finance limited to ‘’friends and family’’
4. Less privacy - public disclosure of company information, but not as extreme as plc
5. Director’s legal duties are stricter

Question 16

Business location, what to consider (6)

Answer 16

1. Location of raw materials
2. Proximity to market (how close to people)
3. Competition
4. Nature of business activity
5. Labour (how people get to work)
6. Costs (rent)

Question 17

Difference between products and services

Answer 17

Products are tangible, service are intangible

Question 18

How to become a franchise?

Answer 18

To become part of a franchise, a new business must pay a fee. In return, it gets to join the franchise and benefit from using its name, products, training, marketing and equipment. Buying into an already established brand can help to reduce the risk of the business failing for the franchisee

Question 19

Franchisee -

Answer 19

• a business that agrees to manufacture, distribute or sell branded products under the licence of a franchisor.

Question 20

Franchisor -

Answer 20

• a business that gives franchisees the right to manufacture, distribute or sell its branded products in return for a fixed sum of money or royalty payment.

Question 21

Advantages of becoming a franchise (4)

Answer 21

1. The franchisee gets access to free training and marketing
2. The franchisee is part of an established business
3. It can be easier to make money
4. It is lower risk for a new entrepreneur than setting up a new business

Question 22

Disadvantages of becoming a franchise (4)

Answer 22

1. The franchisee has to pay a percentage of its profits to the franchisor. This is known as royalties
2. It can be expensive to set up
3. The franchisee cannot make individual business decisions without consulting the franchisor
4. Other franchises can be set up locally, which can cause competition for customers