Unit 1 Topic 3

Question 1

What is a sole trader?

Answer 1

A sole trader or sole proprietor is the simplest form of business organisation owned by a single person.

Question 2

What is unlimited liability?

Answer 2

Unlimited liability means the owner of a business is personally liable for all business debts.

Question 3

What are the advantages of being a sole trader?

Answer 3

1. The owner keeps all the profit.
2. They are independent - owner has complete control.
3. It is simple to set up with no legal requirements.
4. Flexibility - can adapt to change quickly.
5. Can offer a personal service because they are small.
6. May qualify for government help.

Question 4

What are the disadvantages of being a sole trader?

Answer 4

1. Have unlimited liability.
2. May struggle to raise finance - considered too risky by lenders.
3. Independence may be too much of a responsibility.
4. Long hours and very hard work.
5. Usually too small to exploit economies of scale.
6. No continuity - the business dies with the owner.

Question 5

What is a partnership?

Answer 5

A partnership is a business owned by between 2 and 20 people.

Question 6

What is a deed of partnership?

Answer 6

A deed of partnership is a binding legal document that states the formal rights of partners.

Question 7

What are the key features of a partnership?

Answer 7

1. Owners share responsibility for running the business.
2. Profits are shared among the partners.
3. No legal formalities are required to form a partnership, but a deed of partnership may be produced.

Question 8

Why do you think Kisuli, Okumu and Owino drew up a deed of partnership?

Answer 8

To establish formal agreements and responsibilities among partners.

Question 9

How does this case study illustrate one of the main advantages of partnerships?

Answer 9

It shows how partnerships can combine resources and expertise.

Question 10

What is a franchise?

Answer 10

A structure in which a business (the franchisor) allows another operator (the franchisee) to trade under their name.

Question 11

What do franchisees pay to franchisors?

Answer 11

Fees for the right to operate under the franchisor’s brand.

Question 12

What does the franchisor offer the franchisee?

Answer 12

A licence to trade under the recognised brand name, a start-up package, training, materials, and marketing support.

Question 13

What are the fees that franchisees must pay?

Answer 13

A one-off start-up fee, an ongoing fee based on sales, and contributions to marketing costs.

Question 14

What are the advantages to the franchisee?

Answer 14

A tried and tested business model, support, and predictable costs.

Question 15

What are the disadvantages to the franchisee?

Answer 15

Profit is shared with the franchisor, strict contracts, and lack of independence.

Question 16

What are the advantages to the franchisor?

Answer 16

Fast and cheaper method of growth, franchisees take some risk, and potential profit is shared.

Question 17

What are the disadvantages to the franchisor?

Answer 17

Poor franchisees may damage the brand’s reputation, franchisees may source merchandise elsewhere, and high support costs.