18 - Forms of a business and business choices

Question 1

sole trader

Answer 1

owed by a self employes individual
* easy to start up
* owner keeps profits
* unlimited liability

Question 2

partnership

Answer 2

business owned by 2+ individuals
* shared repsonibiltiy over owners
* unlimkted liability
* joint ownership

Question 3

PLC (private limited company)

Answer 3

sell shares privately
* must become leaglly incorporated
* limited liability
* higher status than sole trader
* more acsess to capital

Question 4

LTD (public limited company)

Answer 4

largely publicly owned companies, sell shares to public
* size measured by market capitalisation
* ability to take over other bsuinesses
* can lose control of business though

Question 5

limited liability

Answer 5

the liabiltiy of the owners is detached from the business. they will only lose their original investment, not their personal belongings like homes or cars

Question 6

incorporation

Answer 6

the process of setting up a seperate legal identity for the business, limiting the liability of the owners ect

Question 7

limited partnership

Answer 7

very rare
when one owner provides capital but has no part in managment, will lose orriginal investment but nothing else

Question 8

a franchise

Answer 8

limited company that licenses out the right for indiviudals to set up identical operations under their name in a new region

Question 9

benefits of franchising

Answer 9

good way to grow the business
the franchisee pays fee and royalty payments

Question 10

risks of franchising

Answer 10

the franchise may damage the brand name if run poorly

Question 11

benefits of franchising (ON THE FRANCHISEE)

Answer 11

recieve a ready made business
provided with tarining and support

Question 12

negatives of franchsiing (ON THE FRANCHISEE)

Answer 12

expesnive set up fees and little freedom
royalty payments (all shares got back to the franchisor)

Question 13

Benefits of operating as an LTD

Answer 13

• limited liability
• easier to rase capital through shareholders
• owners may pay less tax than if they operate as a asole trader

Question 14

negatives of operating as an LTD

Answer 14

hard to set up
accounts are published and publicy available
cant raise large amounts from shareholders

Question 15

benefits of operating as a PLC

Answer 15

huge amounts of money can be made through selling shares
easier to raise finance
size makes it easier t gain economies of scale

Question 16

negatives of operating as a PLC

Answer 16

accounts available to the public
external pressure from media or pressure groups
board of dirctors accountable to external shareholders

Question 17

social entrprises

Answer 17

non profit organisations such as charities.
may pay lower tax

Question 18

stock market flotation

Answer 18

sellings shares on the stockmarket and becoming a PLC

Question 19

factors effecting the price of a business’ shares

Answer 19

company’s perfromance
the business environment

Question 20

when share prices rise

Answer 20

• managers may get a bonus
• easier to raise caputal
• consumers with shares are more likely to spend
• may recieve good publicity

Question 21

when share prices fall

Answer 21

vulnerable to a takeover
indicates poor perfomance
hard to raise capital

Question 22

opportunity costs

Answer 22

the cost is the benefit lost from the next best alternative, for example launching a new advertising campaign instead of investing in employee tarining

Question 23

non-moentary opporunity costs

Answer 23

usually difficult to calcuate financial loss, especially if the choice effects the brand awarness, employee morale or good will

Question 24

trade offs

Answer 24

the loss and compromise of another option or factor.
fro example improving productivity may redue quality

Question 25

factors effecting business decisions

Answer 25

long term/short term benefits
advantages and disadvanatges of each option
investment appraisal
risk v rward