Understanding Business

Question 1

types of business

Answer 1

• sole trader
• partnership
• limited company (ltd)
• franchising

Question 2

what is a sole trader?

Answer 2

A sole trader describes any business that is owned and controlled by one person

Question 3

sole trader advantages

Answer 3

• easy to set up
• small capital investment means reduced start up costs
• freedom to make decisions

Question 4

sole trader disadvantages

Answer 4

• responsibility
• long hours
• unlimited liability

Question 5

What is unlimited liability?

Answer 5

the owner is personally liable for the firm’s debts and may have to pay for losses made by the business out of their own pocket

Question 6

what is a partnership?

Answer 6

Partnerships are businesses owned by two or more people (up to 20)

Question 7

advantages of a partnership

Answer 7

There is someone to consult on business decisions

Question 8

disadvantages of a partnership

Answer 8

-shared responsibility
-arguments over decisions or about the effort one partner is putting into the firm
unlimited liability

Question 9

what is a limited company?

Answer 9

can sue or own assets in their own right

Question 10

what does shareholder mean?

Answer 10

the people who own the limited company, this is divided up into equal parts called shares

Question 11

two types of limited companies

Answer 11

private limited company

public limited company

Question 12

do limited companies have unlimited liability?

Answer 12

-their owners are not personally liable for the firm’s debts. The shareholders have limited liability,

Question 13

board of directors

Answer 13

• make the decisions on behalf of the company
• the owners of a limited company are not involved in running the business, unless they have been elected to the Board of Directors

Question 14

what is franchising?

Answer 14

• An entrepreneur can decide to set up a new independent business and try to win customers
• Buy into an existing business and acquire the right to use an existing business idea

Question 15

who is a franchise bought by?

Answer 15

A franchise is bought by a franchisee

Question 16

what is a franchisee?

Answer 16

someone who buys a franchise

Question 17

what are the factors of production?

Answer 17

enterprise, land, capital and labour

Question 18

what is land?

Answer 18

land is the natural resources needed to provide a good or a service such as fields, fish or coal

Question 19

what is labour?

Answer 19

the workforce used to provide a good or a service such as builders, teachers or plumbers

Question 20

what is capital?

Answer 20

the man made resources used to produce a product or provide a service such as machinery and tools

Question 21

what is enterprise?

Answer 21

The idea the owner had to create the business. How the land, labour and capital is used to make a good or provide a service

Question 22

what is wealth creation?

Answer 22

At each stage of the production process, value is added to the product

Question 23

sectors of the economy

Answer 23

Private
Public
Third

Question 24

what are the sectors of industry?

Answer 24

primary
secondary
tertiary

Question 25

what is the private sector?

Answer 25

Private sector organisations are owned by individuals. These businesses are driven by profit. The profit from private sector organisations benefits the owners, shareholders and investors. They are financed by private money from shareholders and by bank loans

Question 26

what is the public sector?

Answer 26

Public sector organisations are owned by the government. They provide goods and services for the benefit of the community. They are run by the government. They operate with money raised from taxes

Question 27

what is the third sector?

Answer 27

Third sector organisations are owned and run voluntarily by trustees. These organisations are not run by the need to make profit but by the need to help the community. They operate with money from donations and gifts. Any profits are reinvested in the organisation. Third sector organisations can be run as a social enterprise