Introduction to Business

Question 1

What is the most important legal aspect of being a sole trader?

Answer 1

The business and its owner are inseparable- the business doesn’t exist in its own right= unincorporated

Question 2

What are two advantages of being a sole trader?

Answer 2

1. They can make quick decisions without consulting anyone
2. Finance is kept private

Question 3

Define sole trader

Answer 3

A person who owns and operates a business alone, responsible for all aspects and liabilities of the business

Question 4

Define unlimited liability

Answer 4

A legal obligation where the owner is personally responsible for the debts of the business

Question 5

Define partnership

Answer 5

A business owned by two or more people who share responsibility and profits

Question 6

Define deed of partnership

Answer 6

A legal document outlining the rights and responsibilities of each partner in a partnership

Question 7

Explain one advantage of forming a partnership.

Answer 7

Partnerships are easy to establish and can raise more capital than sole traders, allowing for business expansion and shared responsibilities.

Question 8

Define a ‘Limited Liability Partnership (LLP)

Answer 8

A business structure where partners have limited liability, meaning their personal assets are protected if the business incurs debts.

Question 9

Analyse one disadvantage of a partnership.

Answer 9

Decision-making can be slower because all partners must agree, and disagreements may lead to conflict or inefficiency, reducing business performance.

Question 10

What is a limited company?

Answer 10

A business structure where the company has a separate legal identity from its owners (shareholders), and liability is limited to the amount invested.

Question 11

Define ‘limited liability’

Answer 11

Limited liability means shareholders are only financially responsible for the debts of the company up to the value of their investment.

Question 12

Evaluate one reason why a business might choose to become a private limited company (Ltd) rather than remain a partnership.

Answer 12

A private limited company offers limited liability, protecting personal assets, and can raise capital more easily by selling shares to known individuals. However, it also requires more legal formalities and financial disclosure.

Question 13

What are two differences between a private limited company (Ltd) and a public limited company (PLC)?

Answer 13

1. A PLC can sell shares to the public on the stock exchange, while an Ltd cannot.
2. A PLC must have a minimum share capital of £50,000; an Ltd does not.