Unit 1.2 Types of Business entities

Question 1

Privately held companies
(limited or Ltd)

Answer 1

-A privately held company’s shares are owned by friends and/or family.
-These shares cannot be traded publicly on the stock exchange.
-Shareholders can only sell their shares if they have prior permission from other shareholders.
-Typically, privately held companies are also family businesses.

Question 2

Publicly held companies

Answer 2

-A publicly held company can sell shares on the stock exchange.
-Shares are held by the general public.
-No prior permission by other shareholders is required for a shareholder to sell their shares.

Question 3

Profit-based organizations

Answer 3

-These are revenue generating businesses with profit objectives at the core of their operations.
-Their goals are to:
-Make a profit.
-Reward the owners with profits from the business.
-Return some of the profits back into the business for capital growth.

Question 4

Sole traders

Answer 4

-These businesses are owned by individuals who own and run a personal business.
-This is the most common type of business ownership as it is relatively easy to set up.
-Start-up capital is usually obtained from personal savings and borrowing.
-Sole traders have unlimited liability.

Question 5

limited liability

Answer 5

form of legal protection for shareholders and owners that prevents individuals from being held personally responsible for their company’s debts or financial losses.

Question 6

Unlimited liability

Answer 6

business owners who are legally liable for any debt their business might accrue.

Question 7

Advantages for Sole traders

Answer 7

-Few legal formalities
-Profit taking
-Being your own boss
-Personalised service
-Privacy
-Quicker decision-making

Question 8

Disadvantages for Sole traders

Answer 8

-Unlimited liability
-Limited sources of finance
-High risks
-Workload and stress
-Limited economies of scale
-Lack of continuity

Question 9

Partnerships

Answer 9

-Partnerships are owned by two or more persons (known as partners).
At least one partner must have unlimited liability.
-Start-up finance is raised mostly by personal funds which are pooled together by the partners.
-A legal document known as a deed of partnership is drawn up to formalise agreements such as how profits and losses are to be shared between partners.

Question 10

Advantages for Partnerships

Answer 10

-Financial strength
-Specialisation and division of labour
-Financial privacy
-Cost-effective

Question 11

Disadvantages for Partnerships

Answer 11

-Unlimited liability
-A lack of continuity
-Prolonged decision-making
-Lack of harmony due to disputes/disagreements

Question 12

Limited liability companies

Answer 12

-These are businesses owned by their shareholders.
-Shareholders have invested money to provide capital for a company.
-Companies are incorporated businesses.
-In the eyes of the law, the companies are treated as a legal entities separate from its owners.
-This means they have limited liability.
-There are two types of companies – private held and publicly held companies.

Question 13

Advantages for Limited liability companies

Answer 13

-Raising finance
-Limited liability
-Continuity
-Economies of scale
-Productivity
-Tax benefits

Question 14

Disadvantages for Limited liability companies

Answer 14

-Communication problems
-Added complexities
-Compliance costs
-Disclosure of information
-Bureaucracy
-Loss of control

Question 15

for-profit social enterprises examples

Answer 15

Private sector companies
Public sector companies
Cooperatives

Question 16

For-profit social enterprises

Answer 16

-These are revenue generating enterprises with social objectives at the core of their operations.
-Their aims are to:
-Make a surplus (i.e. earn revenue greater than costs incurred).
-Use the surplus for the benefit of society.

Question 17

Private sector for-profit social enterprises

Answer 17

-These enterprises operate in a similar way to traditional for-profit businesses.
-They aim to make a surplus instead of relying on donations to achieve social aims.
-These firms produce goods and/or services and compete with similar businesses.
-They often use the triple bottom line as an accounting framework for ethical business practises.

Question 18

Public sector for-profit social enterprises

Answer 18

-These enterprises are state-owned to operate in a commercial way.
-They help to raise government revenues to provide essential services to society that may be inefficient and undesirable if left solely to the private sector.

Question 19

Cooperatives

Answer 19

-Owners of cooperatives are called members.
-Members own and run cooperatives (i.e. they are also employees of the organization).
-Their aim is to create value for members by operating in a socially responsible way.
-All employees have a vote to contribute to decision-making.
-Any profits earned are shared between their members.

Question 20

Advantages for coorperatives

Answer 20

-Incentives to work
-Decision-making power
-Social benefits
-Public support

Question 21

Disdvantages for coorperatives

Answer 21

-Disincentive effects
-Limited sources of finance
-Slower decision-making
-Limited promotional opportunities

Question 22

type of non-profit social enterprises

Answer 22

Non-governmental organizations (NGOs)

Question 23

Non-governmental organizations (NGOS)

Answer 23

-An NGO operates in the private sector.
-They provide goods and/or services normally expected from the public sector.
-However, these goods/services may be underprovided by governments.

Question 24

unincorporated

Answer 24

owner is the same lgeal entity as the business itself. there is no legal disteiction between the owner and the business

Question 25

silent / sleeping partners

Answer 25

do not activley take part in the running of the partnership but have a financial stake. eligabe for any profits. investors

Question 26

deed of partnership includes

Answer 26

• amount of finance contributed by each partner
• roles resposibilities and obligations of each partner
• how profit or losses are to be shared between each partner
  -conditions for introducting new partners
• clauses for the withdrawl of a partner
  -proceedures for ending a partnership

Question 27

Annual General meeting

Answer 27

all companies must hold an AGM to allow owners to have a say/vote in the running of a business

Question 28

three main processes of AGM

Answer 28

-shareholders vote on resolutions (promises or declirations) and the reelection of the board of directors
-shareholders ask questions to the CEO o r chairsperson about various aspects of the company
-shareholders approve the previous years financial accounts after directors present the annual report containing information about its financial performance

Question 29

memorandum of association

Answer 29

breif document outlining fundimental details of the company. such as its name the purpose and registered business address

Question 30

articles of association

Answer 30

stipulating the internal regulations and proceedures of the company such as the rights and roles and the power of the BOD and shareholders. administerative issues is also covered

Question 31

certificate of incorporation

Answer 31

license recognises business as a seperate legal entity from the owner/s allowing business to start trading as a limited liability company

Question 32

floatation

Answer 32

when publically held company first sells all or parts of its business to external investors (initial public offering)

Question 33

worker cooperative

Answer 33

set up owned and organised by their employee members

Question 34

producer cooperatives

Answer 34

cooperatives that join and support eachother to process and/or market their products

Question 35

operational NGOs

Answer 35

established from a given objectove or purpouse

Question 36

advocay NGOs

Answer 36

take a more agressive approach to defend or promote a cause