Options for Start-Up and Small Businesses

Question 1

What is limited liability?

Answer 1

When the business owner(s) are only responsible for business
debts up to the value of their financial investment in the business.

Question 2

What type of business has limited liability?

Answer 2

private limited companies

Question 3

What is unlimited liability?

Answer 3

When the owner(s) are personally responsible for all debts of the business.

Question 4

What is a sole trader?

Answer 4

A business that is owned by one person.

Question 5

Does a sole trader have limited or unlimited liability?

Answer 5

unlimited liability

Question 6

Give 3 advantages of sole trading.

Answer 6

1. It is quick and easy to set up.
2. The owner will have a lot of control.
3. It has low set-up costs.

Question 7

Give 3 disadvantages of sole trading.

Answer 7

1. It has the risk of unlimited liability.
2. It can involve long work hours and stressful conditions.
3. The owner has a high level of responsibility.

Question 8

What is a partnership?

Answer 8

A business that has 2 or more owners.

Question 9

Give 3 advantages of partnerships.

Answer 9

1. They are usually quick and easy to set up.
2. There is shared decision-making by the owners.
3. There is shared responsibility for debt by the owners.

Question 10

Give 4 disadvantages of partnerships.

Answer 10

1. They can involve long work hours.
2. Conflict amongst owners can occur.
3. There is the risk of
   unlimited liability.
4. One partner may let the others down by not upholding their responsibilities in the business.

Question 11

What is a private limited company?

Answer 11

A business that has limited liability and the owners are shareholders.

Question 12

Give 4 advantages of private limited companies?

Answer 12

1. The owners have limited liability.
2. Individuals have the opportunity to be their own boss.
3. New shareholders need to be invited, protecting the business from outside influence.
4. Shares in the business can be sold to raise money.

Question 13

Give 4 disadvantages of private limited companies.

Answer 13

1. More paperwork.
2. In some instances, other people are able to view the business’s financial information.
3. They can be very time consuming to set up.
4. The business may require outside professional help to manage its finances.

Question 14

What is a franchise?

Answer 14

A business that gives the right to another person or business to sell goods or services using its name.

Question 15

What is a franchisee?

Answer 15

A business that agrees to sell branded products under the licence of a franchisor.

Question 16

What is a franchisor?

Answer 16

A business that gives franchisees the right to sell its branded products in return for a fixed sum of money or royalty payment.

Question 17

Give 4 advantages of franchises.

Answer 17

1. The franchisee gets access to free training and marketing.
2. The franchisee is part of an established business.
3. It can be easier to make money.
4. It is lower risk for a new entrepreneur than setting up a new business.

Question 18

Give 3 disadvantages of franchises.

Answer 18

1. The franchisee has to pay a percentage of its profits to the franchisor.
2. It can be expensive to set up.
3. The franchisee cannot make individual business decisions without consulting the franchisor.