3. Types of business

Question 1

Sole traderships are usually financed through a mix of what three?

Answer 1

1. Owner’s capital
2. Loans
3. Short-term credit

Question 2

If a sole trader dies, there is no ______ succession

Answer 2

Perpetual

Question 3

Give an advantage and disadvantage of a sole tradership

Answer 3

Advantages: all decisions done preferred way of owner, no publicity requirement beyond preparing accounts for tax purposes

Disadvantages: limit to skills of one individual, unlimited liability for company’s debts, difficult to raise external finance

Question 4

Define partnership

Answer 4

The relation which subsist between persons carrying on a business in common with a core of profit

Question 5

Partners in a partnership are ____ and ____ liable for the debts of the partnership

Answer 5

Jointly, severally

Question 6

What are the three forms of partnership?

Answer 6

1. General partnerships (no separate legal identity)
2. Limited Liability partnerships (LLPs) (distinct legal identity from owners)
3. Limited partnerships

Question 7

A company is a legal entity as such under the ______ ______ 2006

Answer 7

Companies Act

Question 8

A limited company has ______ liability for its own debts

Answer 8

Unlimited

Question 9

Name two advantages and disadvantages of a company over a sole tradership

Answer 9

Advantages:

1. Separate legal personality
2. Limited liability of members
3. Perpetual succession
4. Transferability of interests
5. Security for loans

Disadvantages:

1. Separation of ownership and control
2. Ownership of assets
3. Accounting records and returns
4. Publicity
5. Regulations and expense

Question 10

Define joint venture

Answer 10

Where a separate business can be formed in which two or more businesses take a financial stake and management is provided as agreed

Question 11

Give two advantages and disadvantages of a joint venture

Answer 11

Advantages:

1. Less capital required than if the business operates on their own, therefore less risk
2. Reduces competition
3. Enabled firms to gain access to restricted markets
4. Access to the skills of each party

Disadvantages:

1. Disputes over running of business
2. If it breaks down, special skills of a business may be used against one partner by its former joint venture partner
3. Possible lack of financial support

Question 12

Define strategic alliance

Answer 12

A strategic alliance is an informal or weak contractual agreement between parties or a minority cross-shareholding arrangement