1.5.4. Forms of Business

Question 1

How many people operate a sole trader?

Answer 1

1

Question 2

How is a sole trader financed?

Answer 2

Either by personal savings, family/friends or a loan from a financial institution.

Question 3

What is the owner of a sole trader taxed on?

Answer 3

The profit that the business makes.

Question 4

What records must a sole trader owner keep?

Answer 4

Proper and financial records of all income and expenditure.

Question 5

What does the owner of a sole trader not have to publish?

Answer 5

Business accounts.

Question 6

What must a sole trader owner complete for HM Revenue and Customs?

Answer 6

A self assessment tax return.

Question 7

Who is responsible for a sole trader’s National Insurance contributions?

Answer 7

The owner.

Question 8

What are the advantages of a sole trader?

Answer 8

• owner keeps all the profit
• owner makes all decisions
• relatively simple business to start up

Question 9

What are the disadvantages of a sole trader?

Answer 9

• owner is partially responsible for all debts and losses (unlimited liability)
• owner must take total responsibility for efficient and effective running of business
• owner has limited ability to raise capital for expansion as business is usually small with a limited asset valuation for use as collateral security

Question 10

How many people are in a partnership?

Answer 10

2 or more.

Question 11

What act lays down fixed conditions that partners must follow?

Answer 11

Partnership Act 1890

Question 12

What is a partnership agreement?

Answer 12

A legal document detailing how the partnership is to operate, and all partners must agree.

Question 13

How is a partnership financed?

Answer 13

Self raised or from loans.

Question 14

What is each partner taxed on?

Answer 14

Their share of the profits

Question 15

What must partners keep records of?

Answer 15

All expenditures and incomes.

Question 16

Advantages of partnerships?

Answer 16

• capital/risks/ideas are shared
• each partner can specialise in different areas
• normally raises capital easier because business is larger and has greater asset valuation

Question 17

Disadvantages of partnerships?

Answer 17

• profit is shared
• equally responsible for debts
• decision making can be slow

Question 18

PLC’s exist…

Answer 18

…in it’s own right.

Question 19

What are the finances of PLC’s separate to?

Answer 19

The personal finances of owners.

Question 20

What are shareholders protected by?

Answer 20

Limited liability.

Question 21

What does limited liability mean?

Answer 21

That if the company fails, shareholders only lose the amount of capital that they have invested in the company.

Question 22

What act must LTD’s follow?

Answer 22

The Companies Act 2006

Question 23

How many shares must a LTD have?

Answer 23

At least one

Question 24

Can a LTD issue shares to the general public?

Answer 24

No.

Question 25

Where must a LTD be registered?

Answer 25

Companies House.

Question 26

How many directors must a LTD have?

Answer 26

At least one.

Question 27

What does a LTD director do?

Answer 27

Makes all management decisions.

Question 28

What must a LTD file?

Answer 28

Annual accounts with Companies House.

Question 29

What are advantages of a LTD?

Answer 29

- less risky as shareholders are protected by Limited Liability - this encourages more people to invest, which gives the company a larger capital base - has perpetual existence, which means that even if a shareholder dies, the company will exist in its own right

Question 30

Disadvantages of a LTD?

Answer 30

- cannot offer shares to the general public - profit is distributed to shareholders (limits profit for expansion/reinvestment) - must file annual accounts

Question 31

What is a franchise?

Answer 31

When the owner of an established business grants the right to sell their product/service in exchange for monetary consideration.

Question 32

Advantages for franchisor?

Answer 32

- receive lump sum income on top of a regular agreed percentage of profit - name of business gets more widely promoted

Question 33

Advantages for franchise?

Answer 33

- trades under established business name | - has access to network of help and support from franchisor

Question 34

Disadvantages for franchisor?

Answer 34

- loss of control over operation of business | - reputation can be damaged

Question 35

Disadvantages for franchise?

Answer 35

- must conform to image and characteristics of franchise | - part of profits must be paid to franchisor

Question 36

Why do not-for-profit businesses trade?

Answer 36

In order to benefit the community or social purpose for which it was set up.

Question 37

What is the profit from not-for-profit businesses used for?

Answer 37

Reinvested into the community or used to support principles for which they were formed.

Question 38

Instead of shareholders, what do not-for-profit's have?

Answer 38

Trustees who are gaurantors.

Question 39

What restricts distribution of profit to members of not-for-profits?

Answer 39

Memorandum of Association.

Question 40

What can not-for-profit's apply for?

Answer 40

Charitable status.

Question 41

Why are online businesses attractive for potential owners?

Answer 41

There are very few costs involved and can start with very little capital.

Question 42

What do lifestyle businesses often start as?

Answer 42

Sole practitioners or partnerships with limited opportunity for growth.

Question 43

Other than profit maximisation, what are some reasons for setting up lifestyle businesses?

Answer 43

- financial comfort - flexibility - quality of life

Question 44

What are the finances of PLC's separate to?

Answer 44

The finances of shareholders.

Question 45

How many shareholders must a PLC have?

Answer 45

At least 2.

Question 46

A PLC must have issued shares to the value of what before they can trade?

Answer 46

£50,000

Question 47

How do PLC's issue shares?

Answer 47

Through stock exchange.

Question 48

Where must a PLC be registered?

Answer 48

Companies House

Question 49

Where does a PLC's finances come from?

Answer 49

Public share issue, debenture issue, borrowings and retained profits.

Question 50

What must a PLC file?

Answer 50

Annual accounts.

Question 51

What are advantages of a PLC?

Answer 51

- can obtain very large amounts of capital - usually dominate market and have extensive asset base, so find it easy to obtain loans - benefit from Economies of Scale because of their huge size

Question 52

What are disadvantages of a PLC?

Answer 52

- can get too large and impersonal, causing employees to lose sense of identity and demotivation/communication problems - small group of directors make all the decisions, which might not be widely agreed within company - large hierarchical structure works against fast/effective decision making - hostile takeovers

Question 53

What are hostile takeovers?

Answer 53

Being unwillingly taken over by another company.