1.4.1 The Options for Start-Up and Small Businesses

Question 1

Sole Trader Benefits

Answer 1

-Registration is quick, simple and cheap
-Easy to manage and operate
-Quick decision-making
-Owner keeps all the profits
-Minimal paperwork

Question 2

Sole Trader Negatives

Answer 2

-Unlimited liability
-Raising finance is harder
-The business is the owner (the business suffers if the owner becomes ill)
-Limited life as the business is the owner
-Stressful- long hours, no division of labour, no support in decision-making

Question 3

Partnership Benefits

Answer 3

-Simple to form a business
-Minimal paperwork once Partnership Agreement set up
-Partners can provide specialist knowledge and skills
-Less stressful as jobs can be shared
-Greater potential to raise finance
-Any losses are shared

Question 4

Partnership Negatives

Answer 4

-Unlimited liability
-Partners have to live with decisions of others
-Decision-making can take longer
-Harder to raise finance than a private limited company
-Short life
-Profits are shared

Question 5

Private Limited Company Benefits

Answer 5

-Limited liability
-Easier to raise finance as can sell shares
-Stable form of structure
-Original owners likely to retain control

Question 6

Private Limited Company Negatives

Answer 6

-Shareholders have to agree about how profits are split
-Greater administrative costs
-Finance limited to “friends and family”
-Less privacy- public diclosure of company information
-Directors’ legal duties are stricter

Question 7

Difference between Private and Public Limited Company

Answer 7

PLCs can offer shares to the public on a stock exchange, while private companies cannot. Public companies are also required to have at least two directors, whereas private companies can have just one

Question 8

Franchisee Benefits

Answer 8

-Still the franchisee’s own business
-The investment should be in a tried and tested format + brand
-Franchisee recieves advice, support and training
-Franchisor supplies key equipment
-Easier to raise finance
-No industry expertise required
-Easier to build customer base
-Franchisee usually given an exclusive area to operate, limiting competition

Question 9

Franchisee Negatives

Answer 9

-Expensive- substantial initial fees, ongoing royalties and comission
-Restrictions on marketing activities (not allowed to undercut nearby franchises and sell the business)
-Risk the franchisor goes out of business
-Franchise needs to earn enough to satisfy both the franchisor and franchisee

Question 10

Franchisor Benefits

Answer 10

-Rapid growth if succesful in selling franchises
-Large amounts of profit can be made
-Better brand recognition as more branches open