Unit 1.4 Types of Business Organisations

Question 1

Sole Trader

Answer 1

• Owned and run by ONE individual
• Can employ but is still sole proprietor

Question 2

Sole Trader Advantages

Answer 2

• Few legal formalities
• Owner has full control
• Owner gets all profit

Question 3

Sole Trader Disadvantages

Answer 3

• Unlimited Liability
• No Legal Identity
• Long hours of work

Question 4

Partnership

Answer 4

• A group consisting of 2 to 20 people who run and own the business together
• Requires a partnership agreement (document)

Question 5

Partnership Advantages

Answer 5

• More capital than a sole trader
• Losses are shared between partners
• Responsibilities can be shared

Question 6

Partnership Disadvantages

Answer 6

• Unlimited liability
• Disagreements can occur, less efficiency
• Profits are shared

Question 7

Private Limited Companies

Answer 7

• A business of 1 to 50 individuals each having limited liability.
• Private limited companies have separate legal identities to their owners.
• Can sell shares to friends or family

Question 8

Private Limited Company Advantages

Answer 8

• Shareholders have limited liability (safer investment)
• Original owners can still keep control
• Share of sales = raising finance easier

Question 9

Private Limited Company Disadvantages

Answer 9

• Many legal formalities
• Capital is still limited
• Company account is less secret

Question 10

Public Limited Company

Answer 10

• A business of 1 to 50 individuals each having limited liability.
• Able to sell shares to public

Question 11

Public Limited Company Advantages

Answer 11

• Limited Liability
• No restriction on transfer of sales
• Able to raise limitless capital

Question 12

Public Limited Company Disadvantages

Answer 12

• Many legal formalities
• Hard to control since it’s large
• Business must publish its annual accounts

Question 13

Joint Ventures

Answer 13

• 2 companies agree to start a mutually beneficial project together, sharing capital, risks and profits.

Question 14

Joint Venture Advantage

Answer 14

• Risks are shared
• Shared costs good for expensive projects

Question 15

Joint Venture Disadvantages

Answer 15

• Profits are shared
• Disagreements might occur
• Two Partners might run it differently

Question 16

Franchise

Answer 16

When a business acquires the right to use the brand name, logo and brand colours of an established company.

Question 17

Franchise Franchisor advantages

Answer 17

• Franchisee manages outlets
• Franchisee has to pay to use the brand name

Question 18

Franchise Franchisor disadvantages

Answer 18

• Franchisee keeps all the profits
• One failed franchisee can lead to bad reputations for the whole business

Question 19

Franchise Franchisee advantages

Answer 19

• Less chance of failure due to well known brand image
• All supplies can be obtained from the franchisor
• Training for staff and management is provided by the franchisor

Question 20

Franchise Franchisee disadvantages

Answer 20

• Less independence
• License fee must be paid annually and percentage of the profit must be paid

Question 21

Public Corporations

Answer 21

Businesses owned by the GOVERNMENT.

• to keep prices low
• to keep people employed
• to offer services to the public

Question 22

Public Corporations Advantages

Answer 22

• Reduces waste in an industry
• Rescues important companies when failing
• Provides essential services to the people

Question 23

Public Corporations Disadvantages

Answer 23

• No competition = No incentive to improve quality
• Inefficient —> wastage
• Lack of motivation because the profit is not an objective