3.1.2

Question 1

What is a private sector business?

Answer 1

A business that is owned/run by individuals, usually in order to make a profit. This is funded by the individuals running the business.

Question 2

What is a public sector business?

Answer 2

A business that is owned/run by the government, usually in order to provide services. This is funded by the tax system.

Question 3

What is an unincorporated business?

Answer 3

A business that has no distinction between itself and the owners. The owners have unlimited liability.

Question 4

What is an incorporated business?

Answer 4

A business that has a separate legal identity to the owners. The owners have limited liability.

Question 5

What is unlimited liability?

Answer 5

The owners are responsible for business debts

Question 6

What is limited liability?

Answer 6

The owners are not responsible for business debts

Question 7

What is a social enterprise?

Answer 7

A proper business that makes its money in a socially responsible way (eg. charities)

Question 8

What is a not for profit organisation?

Answer 8

A business created to benefit society and achieve objectives other than financial rewards

Question 9

What are the advantages for a not-for-profit organisation?

Answer 9

• Customers more likely to buy from here (cheaper/due to social conscious)
• Limited liability
• Tax exemption

Question 10

What are the disadvantages for a not-for-profit organisation?

Answer 10

• Costly to set up
• Risk of lack of funding
• Shared control

Question 11

What are a not-for-profit organisation’s missions and objectives?

Answer 11

• Establishing business ethos, underpinning decision making
• Non financial objectives, such as protecting the environment

Question 12

What is a sole trader?

Answer 12

An individual who owns/operates a business

Question 13

What are the advantages for a sole trader?

Answer 13

• Easy to set up
• Full control of business
• They get to keep all profits

Question 14

What are the disadvantages for a sole trader?

Answer 14

• Unlimited liability
• Must provide all finance
• Must face all failure alone (can be demotivating)

Question 15

What are a sole trader’s missions and objectives?

Answer 15

• Unlikely to have a mission, owner provides a sense of direction instead
• Personal goals, such as sufficient income

Question 16

What is a private limited business (ltd)?

Answer 16

A business owned privately, shares are not sold on the stock market

Question 17

What are the advantages for an LTD?

Answer 17

• Limited liability
• Can maintain close control of business
• Continuity

Question 18

What are the disadvantages for an LTD?

Answer 18

• Potential shareholder conflict
• Shares cannot be listed on the stock market, stopping potential extra finance
• More legal requirements, which are time consuming

Question 19

What are an LTD’s missions and objectives?

Answer 19

• Maintaining family run business/reputation
• Financial objectives, such as satisfactory profit and financial stability

Question 20

What is a public limited company (plc)?

Answer 20

A business owned publicly, shares are sold on the stock market

Question 21

What are the advantages for a PLC?

Answer 21

• Limited liability
• Extra sources of finance (shareholders, bank loans etc)
• Easier to become well known, therefore easier to attract customers/shareholders

Question 22

What are the disadvantages for a PLC?

Answer 22

• Minimum capital needed to start up (£50,000)
• Risk of hostile takeover
• Must publish accounts, can be of advantage to competitors

Question 23

What are a PLC’s missions and objectives?

Answer 23

• Protect company’s image, consistent decision making
• Low costs, good business image, high market share

Question 24

What 5 things must be considered when choosing ownership type?

Answer 24

• Formality
• Cost/expense
• Size
• Risk
• Objectives

Question 25

What is flotation?

Answer 25

When shares become available on the stock exchange. It is the process of an ltd offering shares on the market to become a plc.

Question 26

What are the advantages of flotation?

Answer 26

- Easier to raise external finance - Stable ownership structure - Higher prestige - Shareholders retain limited liability - Growth is more likely

Question 27

What are the disadvantages of flotation?

Answer 27

- Expensive - Anyone can buy shares (chance of takeover) - Increased legal requirements - Short-sighted shareholders (motivated by dividends instead of investments) - Potential conflict between shareholders

Question 28

What is a dividend?

Answer 28

The payment a company makes to shareholders if it makes a profit

Question 29

What is capital growth?

Answer 29

An increase in the value of an asset/investment over time.

Question 30

How does the stock exchange work?

Answer 30

- Market for buyers/sellers to exchange shares globally - Share indexes measure the value of the stock exchange and measures how well a business area is doing - Share prices fluctuate daily

Question 31

What is market capitalisation?

Answer 31

How much a company is worth based on current share price

Question 32

What is the formula for market capitalisation?

Answer 32

Number of shares issued x current share price

Question 33

What could make shareholders want to sell their shares? (List 4)

Answer 33

- Market uncertainty - Negative media attention - Competition concerns - Business is starting to fail - Share price is high - Avoid risks - Poor reputation - Decline in demand

Question 34

What might make the shares of a company more attractive to potential investors? (List 4)

Answer 34

- Share price is low - Business is performing well/growing - Good ROI rate - Low competition - High profits - Increase in demand - Positive reputation - New products

Question 35

What are the impacts of a rising share price?

Answer 35

- Reflects well on company and management - Easier to raise capital through further sales of shares - May receive a bonus

Question 36

What are the impacts of a falling share price?

Answer 36

- Reflects badly on company and management - Vulnerable to a takeover - May affect recruitment and ability to raise finance