U1.3 Forms Of Business Ownership

Question 1

What is a business?

Answer 1

An organisation of one or more people, which operates to produce goods or services that can be sold on to others.

Question 2

What is the main objective for most businesses?

Answer 2

Profit!!

Maximise the owners investment

Question 3

What is the definition of a sole trader?

Answer 3

A business that’s owned and controlled by one person.

Question 4

Approximately what percentage of UK businesses are sole traders?

Answer 4

60%

Question 5

What is the average number of staff in sole traders in the UK?

Answer 5

0

Question 6

What do sole traders legally have to do within their first three months of trading?

Answer 6

Register with HMRC

Question 7

What types of sole traders require special licenses?

Answer 7

Bars, restaurants, nursing homes and pet kennels.

Question 8

When does a sole trader need a vat registration?

Answer 8

When they expect their yearly turn over to be more than 85k

Question 9

What are some advantages of being a sole trader?

Answer 9

• Low start up costs
• Very few legal formalities
• All profits are retained by Owner
• Better Control; decisions are quicker
• Financial privacy
• There is less government regulation
• They can offer a more personal service

Question 10

What are some disadvantages of being a sole trader?

Answer 10

• Unlimited Liability
• Difficulty raising capital to start up
• Long hours and lack of continuity
• Lack of expertise without third parties
• Lack of competitiveness

Question 11

What is a partnership?

Answer 11

When two to twenty people combine to form a business.

Question 12

How many partnerships are there estimated to be in the UK and what percentage have 0 staff

Answer 12

Estimated 540,000 with >60% have no staff.

Question 13

What is the most common form of partnership?

Answer 13

General partnership

Question 14

What are partners not involved in the day to day running of a business called

Answer 14

Sleeping partners

Question 15

In a general partnership what type of liability do partners have

Answer 15

Unlimited liability

Question 16

Why would a limited partnership be formed

Answer 16

When one or more partners want to invest without taking part in the day to day running of the business.

Question 17

What makes it a limited partnership

Answer 17

Partners that don’t take part in day to day running have limited liability so can only loose the money that they have invested

Question 18

What must there be one or more of in a limited partnership

Answer 18

A parter with unlimited liability

Question 19

What’s the difference between a limited partner and a sleeping partner

Answer 19

A sleeping partner chooses to not be involved in the business

Question 20

What is a limited liability partnership (LLP)

Answer 20

A partnership where by all partners have limited liability

Question 21

What are some examples of LLP’s

Answer 21

PWC and KPMG

Question 22

What are some advantages of a partnership

Answer 22

• Low start up costs
• Shared workloads
• Financial privacy
• More effective decision making

Question 23

What are some disadvantages of a partnership

Answer 23

• Loss of autonomy
• Unlimited liability (not all the time)
• Lack of continuity
• Lack of capital

Question 24

What is an Ltd

Answer 24

An Ltd is a company where shares can be sold to family and friends.
It is also a separate legal entity so all shareholders have limited liability.

Question 25

What is a Ltd required to have in their name

Answer 25

Either the suffix Ltd. Or Limited Eg. Goose and gander Ltd.

Question 26

In an Ltd interview hat are part owners of the company called

Answer 26

Shareholders

Question 27

Who can buy the shares of a Ltd

Answer 27

Family and friends of the original shareholder

Question 28

What are the advantages of being a Ltd

Answer 28

- It’s easier to raise capital - Limited Liability - Continuity, business is not affected if a shareholder leaves/dies/retires - By having more shareholders you gain more experience across different fields - More control than a PLC - No risk of a hostile takeover

Question 29

What are the disadvantages of being a Ltd

Answer 29

- Lack of privacy, accounts must be published - Set up costs are high and used to be time consuming - Tax increases if tax planning isn’t put in place - Limit on capital as shares aren’t sold on the stock exchange

Question 30

What is a PLC

Answer 30

A PLC is an incorporated business and it is a separate legal entity from its owners.

Question 31

In a PLC what liability do shareholders have

Answer 31

Limited liability

Question 32

What must PLC’s have in their name

Answer 32

PLC or plc

Question 33

Who can a PLC sell their shares to

Answer 33

The General Public hence the name Public Limited Company. These shares can be bought on the Stock Exchange.

Question 34

Where do UK registered PLC’s trade their shares

Answer 34

the London Stock Exchange

Question 35

What are the advantages of a PLC

Answer 35

- To raise capital shares can be sold to the public when needed - Shareholders have limited liability - continuity, the day to day trading of the business is not affected if a shareholder leaves/retires/dies - As there is more shareholders there will be an abundance of experience across all fields

Question 36

What are the disadvantages of a PLC

Answer 36

- Set up is costly and time consuming - Less privacy, PLC’s must publish their accounts - Owners are divorced from managers - There is a constant threat of take over

Question 37

How much capital must a Ltd have to become a PLC

Answer 37

£50,000

Question 38

What is a franchise

Answer 38

A franchise is an agreement between two parties, which one party gives the rights to market a product or service using the trademark of another business. In return the franchisee normally agrees to pay the franchisor certain fees and loyalties.

Question 39

What are the two types of franchise agreement

Answer 39

- Business Format Franchising - Product and Trade-name Franchising

Question 40

What is Business Format Franchising

Answer 40

It is the most common type of franchising where the Franchisor provides support and assistance to the franchisee along with the trademark. Eg. McDonald’s, Subway, KFC…

Question 41

What is Product and Trade-name Franchising

Answer 41

What’s the franchisor provides trademarks, logos and national advertising campaigns among other things but not a complete business model. Eg. Charles Hurst VW