1 - Type Of Business Organisations

Question 0

Define: partnership

Answer 0

A minimum and a max of 20 partners own the business

A deed of partnership states how profit will be shared and how the business will be run

Question 1

Define: sole trader

Answer 1

One person owns the business

Question 2

Define: private limited company

Answer 2

Private = ltd

• shares are sold to private investors, ( managers, friends, family, wealth backers)

Question 3

Define: public limited company

Answer 3

Public = plc
-These companies sell their shares on the stock exchange to the public.
-They must have a issued share capital >50,000 and are usually the largest companies
-

Question 4

Define: unincorporated

Answer 4

The business and owners are the same ‘thing’ or equal. If the business runs up lots of debts, then the owners do too

Question 5

Define: unlimited liability

Answer 5

The owners are personally responsible for all business debts, so personal possessions may be lost to pay for debt

Question 6

Define: incorporated

Answer 6

The business and the owners are different ‘things’ or not equal. If the business runs up lots of debts, the owners are not responsible for it all
( only all the amount they have have invested )

Question 7

Define: limited liability

Answer 7

The responsibility of debt for the owners ( shareholders ) is limited to the amount of money they have have invested in the business

Question 8

What are the common features of unlimited liability

Answer 8

• the owners pay income tax is paid on profit.

- financial information is private - stays with the owners

Question 9

What are the common features of limited liability

Answer 9

• companies are owned by shareholders
• the business has a separate legal entity from owners - incorporated
• corporation tax is paid on profit
• financial info is available to public
• board of directors run the company. Directors are elected by shareholders at the annual general meeting

Question 10

What are the advantages of a sole trader

Answer 10

• easy to set up
• owner has 100% control
• owner can keep 100% of profit
• the company’s financial info stays private

Question 11

What are the advantages of partnerships

Answer 11

• more capital available from new partners
• more specialist skills and ideas available from partners
• easy to set up
• financial info is kept private
• illness not a problem
• sleeping partners (take no part in running the business) can contribute capital

Question 12

What are the advantages of a private limited company

Answer 12

• limited liability
• company has separate legal identity from owners - incorporated
• continuity - company continues to trade in the event of death of one of the owners ( shareholder )

Question 13

What are the advantages of public limited company

Answer 13

• Limited liability
• company has separate legal identity from owners - incorporated
• continuity - company continues to trade in the event of death of one of the owners (shareholders)
• can raise large sums of finance through sales of shares, more that ltd

Question 14

What are the disadvantages of sole traders

Answer 14

• unlimited liability
• possible shortage of capital, can’t always borrow money
• illness ( days off = no profit )
• hard work needed
• owner might not be able to sell/pass business on
• shortage of skills

Question 15

What are the disadvantages of partnerships

Answer 15

• Unlimited liability
• profit has to be shared among partners
• disagreements between partners
• can still be short of capital

Question 16

What are the disadvantages of private limited company

Answer 16

• financial info has to be made available to public - competitors can see it
• corporation costs money and takes time
• shares cannot be sold to general public, so capital might be short
• shareholders will expect a share of the profits in the form of dividends

Question 17

What are the disadvantages of public limited company

Answer 17

• Financial info has to be made available to public in the form of an annual report so competitions can see it
• corporation costs time and money
• takeover - it is possible for companies to buy up large amount of shares and take over the ownership of the company and can then make important decisions.

Question 18

What are co-operatives

Answer 18

Some independent producers (dairy farmers) work together and trade as though they are a single larger business (and get a better price). Power in numbers

Question 19

What is a social enterprise

Answer 19

A business that is run for the benefit of the community. Not all the profits are kept by the owners - some are put back into the community projects.

Question 20

What ere multinational companies

Answer 20

• They operate in more than one country. Usually large PLCs that have a head office in one country with offices/factories in other countries e.g Sony
• the advantage of these is that production can be located in countries where labour costs are lower
• Disadvantage is communication problems caused by location in different countries

Question 21

What is a franchise

Answer 21

• It is not a type business arrangement but is a marketing arrangement.
• an existing business (franchisor) sells the right to uses the business name, products and logo to another business (franchisee)
• the franchisee pays a royalty (share of the profits) to the franchisor

Question 22

What ere the advantages of franchises

Answer 22

• Reduces risk of failure
• training advice on how to run the business
• national advertising and promotion campaigns may be paid for by franchisor

Question 23

What are the disadvantages of franchises

Answer 23

• a large amount of initial capital may be required
• losses have to be paid for by the franchisee
• annual royalty payment based on profit or sales revenue required
• all supplies must be purchased from the franchisor a the price they determine

Question 24

What is a charitable organisation

Answer 24

They exist in order to provide a service to other people and are run on a not for profit basis