Forms of Business Ownership

Question 1

Why do businesses start?

Answer 1

People may want to be their own boss
Want to make money
Share a passion or idea
The fam of being successful

Question 2

How do businesses start?

Answer 2

Decide on the product
Design a business plan
Study the market
Research prices of similar products
Work out costs of production
Market research
Research where the product is best sold
Advertise
Register the product

Question 3

What is a micro business?

Answer 3

1 - 9 employees and less than £1.7m turnover

Question 4

What is a small business?

Answer 4

10 - 49 employees and less than £5.6m turnover

Question 5

What is a large business?

Answer 5

More than 249 employees and less than £22.8m

Question 6

What is medium business?

Answer 6

50 - 249 employees and less than £22.8m turnover

Question 7

What is the public sector?

Answer 7

Includes everything that is owned by the government

Question 8

What is the private sector?

Answer 8

All businesses which are owned and run by private individuals

Question 9

What are unincorporated businesses?

Answer 9

Sole trader (one owner)
Partnership (2-20 partners)

Question 10

What are incorporated businesses?

Answer 10

Private limited company (owned by a few shareholders)
Public limited company (owned by many shareholders)

Question 11

Unlimited liability meaning

Answer 11

If the business fails, the owner would have to sell their personal belongings if necessary in order to pay off debts owed.

Question 12

Advantages of sole trader

Answer 12

Freedom to be your own boss
You get all the profits
Do not have to make your accounts public
More freedom from government regulation, so business can be more flexible

Question 13

Disadvantages of sole trader

Answer 13

Amount of capital is limited - banks often are reluctant to lend
Long hours needed
Low level of expertise - multiple skills are required for some businesses
Unlimited liability

Question 14

How do partnerships protect from unlimited liability

Answer 14

Deed of partnership -
amount of capital contributed by each partner
How much say each partner has
How profits are shared out

Question 15

Advantages of partnership

Answer 15

Low start up cost
Shared workload
More capital available
More effective/ shared decision making - each person brings views and ideas
Financial privacy - financial affairs do not have to be published and therefore business dealing is left in private

Question 16

Disadvantages of a partnership

Answer 16

Potential for conflict between partners
Unlimited liability
Lack of continuity- if one partner dies the partnership dissolves
Lack of capital - due to small number of partners

Question 17

Advantages of private limited company

Answer 17

Not open to hostile takeover
Benefits from economies of scale
Shareholders will have limited liability
More access to capital - no limit to number of members
More privacy than PLC
More flexible than a PLC
Specialisation

Question 18

Disadvantages of private limited company

Answer 18

Profits to be shared out among shareholders
Still limited in capital - not able to sell shares publicly limited capital for expansion and growth
On going costs of a Ltd.

Question 19

Advantages of public limited company

Answer 19

Raise more capital if required - can issue shares for sale to the general public
Easy to borrow money from banks
Extra capital is useful in case of takeover

Question 20

Disadvantages of a public limited company

Answer 20

Very expensive start up - time consuming due to official procedures with UK law
Many aspects of company affairs have to be made public which helps competitors - due to UK law
Have to concentrate on keeping shareholders happy.

Question 21

What is a franchise?

Answer 21

An arrangement in which An established business name is sold to an individual who can start trading under that name.

Question 22

What is a franchisor and franchisee?

Answer 22

Franchisor- the business or person selling the right to sell its branded product
Franchisee- the company of person paying the franchisor for the right to sell a branded good

Question 23

Advantages for franchisor

Answer 23

Increased opportunities for faster growth
Economies of scale, they can buy in bulk which is cheaper
They get the % of franchisee’s revenue annually
They are not involved in the running of the business on day to day basis

Question 24

Advantages for franchisee

Answer 24

Guaranteed high sales
Can benefit from global brand advertising
Quality of inventory will be high as they are supplied through contracts with franchisor

Question 25

Disadvantages for franchisor

Answer 25

If franchisee does not provide a good service this could damage the whole reputation of the franchise
They do not have day to day control so they can’t interfere with the running of the franchisee’s business

Question 26

Disadvantages for franchisee

Answer 26

Significant yearly fees to pay to franchisor
The franchisor will probably have significant input into how the business is run. My make the franchisee feel like a manager instead of owner

Question 27

Public corporations definition

Answer 27

Market bodies that produce g/s for sale and at least 50% of its income comes from sales

Question 28

Municipal enterprises definition

Answer 28

Organisations and activities run by local councils

Question 29

What is a social enterprise?

Answer 29

An organisation that marries the social mission of a non-profit programme with the market-driven approach of business. It has social aims and reinvests a large proportion of its profits into the community.

Question 30

What is the work of a social enterprise?

Answer 30

To provide employment
To provide a sense of community
To solve an environmental problem