Chapter 2: Understanding different business forms

Question 1

Sole trader

Answer 1

Business that is owned and managed by 1 person, but it may employ other people

Question 2

Unlimited liability

Answer 2

When an individual or group is personally responsible for all the actions of the business

Sole traders could lose their personal assets if the business has financial problems

Question 3

Company

Answer 3

Business organisation that has its own legal identity and that has limited liability

Question 4

Incorporation

Answer 4

Process of establishing a business as a separate legal identity that allows it to benefit from limited liability

Question 5

Shareholders

Answer 5

An investor in and one of the owners of a company

Question 6

Limited liability

Answer 6

In the event of financial difficulties, personal belongings of shareholders are safe

Question 7

Dividends

Answer 7

Part of company’s profit that are paid to shareholders in proportion to the number of shares they own

Question 8

Takeover

Answer 8

Occurs when one company acquires control of another by buying more than 50% of its share capital

Question 9

Privatisation

Answer 9

Process of where the state sells businesses that were previously owned and managed to private individuals and businesses