Chapter 2 / Business Forms

Question 1

What is the private sector?

Answer 1

Business’s owned by individuals

Question 2

What is the public sector?

Answer 2

Business’s owned by the government

Question 3

What is the difference between a Public sector company, and a public sector organization?

Answer 3

Governments don’t own many companies, governments own more organizations that provide a good or service

Question 4

What is the difference between unlimited liability and limited liability?

Answer 4

Unlimited liability the business owners are personally responsible for the debts and liability of the business. Limited liability shareholders can only lose the value of their investment.

Question 5

What is the difference between unincorporated and incorporated?

Answer 5

The owner is the business and has unlimited liability, shareholders have limited liability most incorporated are PLC’s

Question 6

What is a sole trader?

Answer 6

A sole trader is just an individual owning the business on his/her own. Has unlimited liability.

Question 7

What are the benefits of being a sole trader?

Answer 7

Quick and easy to set up, owner has complete control, easy to shut down.

Question 8

What are the drawbacks of being a sole trader?

Answer 8

Sole traders often have limited funds, Can pay a higher tax rate than a company

Question 9

What is a company?

Answer 9

A company is a legal entity, the owners of a company are called shareholders.

Question 10

What is a limited company?

Answer 10

limited companies are owned by their shareholders and run by directors. The shareholders appoint the directors.

Question 11

What is a private limited company (PLC)?

Answer 11

Private means the shares of the company are not traded on the stock exchange

Question 12

What is a public limited company?

Answer 12

Larger capital of shares invested, shares are traded publicly.
More shareholders.

Question 13

What are the benefits of being a limited company?

Answer 13

Protects the shareholders, easier to raise finance.

Question 14

What are the drawbacks of being a limited company?

Answer 14

Larger admin costs, and public disclosure of company information.

Question 15

Non profit organisations?

Answer 15

Trade in order to benefit the community and social aims.
Job creation, community services, fair trade

Question 16

Why would you change business ownership?

Answer 16

Want to grow larger, access to capital,protected with limited liability,status.

Question 17

What are dividends?

Answer 17

Payments to shareholders from earned profit ( per share ), no requirement to pay dividends.

Question 18

What is capital growth?

Answer 18

Appears due to an increase in the value of the business, and an increase in share price, the difference is realized when the share is sold. No guarantee.

Question 19

What is a share?

Answer 19

Individual part of the shared capital of the company, more shares means more influence on the company. You qualify for a dividend.

Question 20

What is the role of the shareholder?

Answer 20

Worth one vote at the Annual meeting.

Question 21

How does a share price vary?

Answer 21

Determined by supply and demand, if demand increases, share price increases.

Question 22

How does the share price of a Private company vary?

Answer 22

Set when shareholders subscribe to their shares, no active market hard to judge current value.

Question 23

How does the share price of a Public company vary?

Answer 23

Highly transparent and displayed publicly, all shares are disclosed. Share prices tracked.

Question 24

What is market capitalization?

Answer 24

Market capitalization represents the total market value of the issued share capital of the company. ( share price per share x number of shares available )

Question 25

Factors within the company’s control that affect the share price

Answer 25

Financial performance / dividend policy / management reputation

Question 26

Factors outside the company’s control that affect the share price

Answer 26

State of the economy / alternative investments in the company’s sector.

Question 27

Share prices & profit warnings

Answer 27

The share price of a quoted public company is significantly influenced by market expectations, - -Unexpected warnings indicating that market expectations will not be met almost always result in a significant fall in share price

Question 28

What is share capital?

Answer 28

Known as equity finance
Returns: dividends and capital growth
Part of the ownership of a company
Long-term source of finance
Returns tend to be higher given the higher risk
Can be repaid

Question 29

What is debt?

Answer 29

Most commonly in the form of loans or overdrafts
Return: interest on the amount loaned and outstanding
Repaid over an agreed period
Can be short or long-term
No participation in the ownership of the company
Often secured against the assets of the company

Question 30

What are the two methods of issuing shares for a public limited company?

Answer 30

Flotation - Share issued on Stock Exchange for the first time/ Opportunity for existing shareholders to realize profits on their investment.
Rights/issue - Fresh issue of new shares to existing shareholders. Shareholders have the “right” to subscribe for the new shares, usually at a significant discount to the existing share price.

Question 31

What are the effects of a general change in share price?

Answer 31

When share prices are falling generally then people feel like their wealth is declining so they cut their spending which reduces sales which means the business will spend less and won’t grow / can lead to a recession.