Business Ownership

Master business ownership types! Sole traders, partnerships, franchises & more.

A sole trader is owned by how many people? (1) One Two Three Four Five Six + Which of the following are advantages of being a sole trader? (5) You can share the profit They can offer a more personal service because they are small If you go on holiday you still earn money You are in complete control and can make all the decisions You pay corporation tax You have limited liability You have a deed of partnership agreement in case anything goes wrong It is easy and simple to set up You get to keep all of the profit You can adapt to changing circumstances more quickly Which of the following would you be likely to see agreed upon in a deed of partnership? (4) What should happen in the event that the partnership is dissolved The roles and responsibilities that each partner will have How the profits and losses will be shared What type of advertising the partnership should use to improve sales Which laws the partners will choose to follow The amount of capital invested by each partner How much tax the partnership will pay to the government Which of the following is the most accurate definition of a franchise? (1) When a small business trades under the name of a well-established brand A business owned by one person A business normally owned by between 2-20 people A business that has a separate legal identity to that of its owners Why would new business owners choose to operate franchise rather than set up their own business as a sole trader? (1) Franchises are more likely to be successful as the brand name is recognised and respected Franchises are cheap It is harder to borrow money from a bank as they view a franchisee as being higher risk than a sole trader The franchisee has the power to do what they want to do within the business Which of the following is a franchisee likely to get as part of their franchise? (5) The ability to decide which parts of the franchise holder's product range to stock and which to leave out A licence to trade under the brand name A workforce given to them by the franchise holder Training An exclusive geographical area Access to free money at the bank Marketing support A start-up package and ongoing supplies of materials, help and equipment Why would a franchise holder of a successful business allow other people to trade using their brand name? (2) They are guaranteed to have success It is a low-risk way for them to expand their business The brand gets more exposure and grows more quickly The franchisor knows that his brand image and reputation will be safe What is the name of the money that a franchisee pays to the franchisor each year called? (1) Trade credit Freebie Net profit Royalty What is the correct definition of a Limited Partnership? (1) A partnership where all the partners have unlimited liability A partnership where some of the partners have unlimited liability and some have limited liability A partnership where all the partners have limited liability A sole trader What is the correct definition of a Limited Liability Partnership? (1) A business where all the partners have unlimited liability A business where all the partners have limited liability A business where some of the partners have unlimited liability and some have limited liability A sole trader If you wanted to protect your personal possessions which of the following would you prefer to have? (1) Unlimited liability Limited liability Is a limited company an incorporated or unincorporated business? (1) Incorporated Unincorporated Who owns limited companies? (1) Managers Directors Shareholders Supervisors A limited company is, in the eyes of the law, separate from or the same as with the owner? (1) Separate from the owner Same as with the owner Limited companies have what type of liability? (1) Limited liability Unlimited liability Limited liability means: (1) Shareholders can lose more money than they have invested in the company, such as their personal assets in order to pay back the debts that are owed Shareholders cannot lose any more money than they have invested in the company, and cannot have their personal assets claimed in order to pay back debts that are owed All limited companies in the UK have to register with the Registrar of Companies at: (1) The Company House The Limited Company Residence Companies House The Incorporation Building A Memorandum of Association states: (1) How the business will be run and acts as an internal ‘rulebook’ Who the business is, where it is based and what it does The Articles of Association state: (1) How the business will be run and acts as an internal 'rulebook' Who the business is, where it is based and what it does A company that has LTD at the end of their business name is a: (1) Limited Liability Partnership Public Limited Company Private Limited Company A company that has PLC at the end of their business name is a: (1) Public Limited Company Limited Liability Partnership Private Limited Company Limited Partnership Which company shares can be traded on the Stock Exchange? (1) Limited Partnership Private Limited Company Limited Liability Partnership Public Limited Company Which company shares can only be owned by people that the owner knows, such as family, friends or employees? (1) PLC LTD LLP The amount of money contributed to a company by its owners is known as: (1) Lender's Capital Borrower's Capital Share Capital Dividend Capital Owners and shareholders of a private limited company benefit from: (2) Having unlimited liability Being able to raise finance more easily than smaller businesses More easily being able to maintain control of the business Being taken over more easily by another business It being more costly to set up Which of the following are the steps a business takes when 'going public'? (5) Registering with Companies House Hiring potential investors Designing and creating a prospectus Paying lawyers to ensure the prospectus is legally correct Ensuring that the business is as efficient as possible Maintaining low levels of staff absenteeism and turnover Employing a bank to process share applications Hiring an underwriter to ensure that any unsold shares are bought Ensuring that the business has at least £2 of share capital Ensuring that the business has at least £50,000 of share capital Why would a business change from being an Ltd to a PLC? (3) To get greater status in the eyes of stakeholders such as suppliers, customers and banks To improve the chances of avoiding employee demotivation To raise more money by selling shares on the stock exchange To minimise the opportunities for stakeholder conflict To get more grants from central government To use the money gained from going public to expand the business more rapidly What is the name of the meeting where shareholders are given the opportunity to put questions to the board of directors, and take votes on company decisions? (1) Annual Meeting of Shareholders Annual General Meeting Annualised Discussions of the Board of Directors The Directors Annual Presentation to Shareholders A joint venture is when: (1) A big multinational joins forces with a smaller business from a developing nation Exactly three companies get together to discuss the benefits of working collaboratively Two or more companies share the cost, responsibility and profits of a business venture. When lots of businesses create a business together and then lose money The advantages of being part of a joint venture are: (3) They allow companies to enjoy some of the advantages of mergers, such as higher turnover, without having to lose their identity There may be control struggles. Who would have the final say in a 50:50 joint venture? Each business can specialise in aspects of the venture to suit its expertise Competition may be eliminated. If companies cooperate in a joint venture they are less likely to compete with each other Disagreements may occur about the management of a joint venture Profit is split between the investors Business Ownership (Advantages) Sort each of the advantages into the correct group based on whether they apply to sole traders, partnerships, franchisees, franchisors, private limited companies or public limited companies. Each of the groups will have a number in brackets and this signifies the number of advantages you need to include in that particular group: Sole trader (6) All the profit is kept by the owner They are independent - the owner has complete control It is simple to set up with no legal requirements Flexibility - e.g. can adapt to change quickly Can offer a personal service because they are small May qualify for government help Partnership (3) Each person can specialise in their area of expertise The burden of running a business is shared More capital can be raised with more owners without the need to pay any dividends Franchisee (4) Less risk - a tried and tested idea is used Back-up support is given Set-up costs are predictable National marketing may be organised Franchisor (4) Fast method of growth Cheaper method of growth The risk is shared Franchisees are more motivated than employees Ltd (5) Family, friends and employee owners have limited liability Larger amounts of capital can be raised Control cannot be lost to outside shareholders The business will continue if a shareholder dies Has more status than unincorporated businesses PLC (6) All shareholders have limited liability Largest amount of share capital can be raised Has the best opportunity to exploit economies of scale due to its size May be able to dominate the market Shares can be bought and sold very easily May have a very high profile in the media Business Ownership (disadvantages) Sort each of the disadvantages into the correct group based on whether they apply to sole traders, partnerships, franchisees, franchisors, private limited companies or public limited companies. Each of the groups will have a number in brackets and this signifies the number of advantages you need to include in that particular group: Sole trader (6) Has unlimited liability, the person could lose all of their possessions May struggle to raise finance - too risky for investors Independence may be a burden Long hours and very hard work Usually too small to exploit economies of scale No continuity - the business dies with the owner Partnership (5) Has unlimited liability, the people involved in the business could lose all of their personal possessions Profit has to be shared, based on the percentage of the business that each person owns The owners may disagree and fall out Any owner's decision is legally binding on all the other owners Although they have more owners they still tend to be small Franchisee (4) Need to pay royalty fees each year that are based on the amount of revenue or profit earned Strict contracts have to be signed They have a lack of independence as strict operating rules apply Can be an expensive way to start a business Franchisor (4) They don't get all of the profit that there brand makes There reputation can be damaged if the people they sell the franchise to act in a bad way The people they sold branding rights to might get their merchandise from elsewhere Cost of providing support may be high Ltd (4) Costs more money and time to set up than unincorporated businesses Profits are shared between more owners (family, friends and employees) Takes time to transfer shares to a new owner (family, friend or employee) as all shareholders musty agree Although incorporated it cannot raise huge amounts of money PLC (6) Costs the most amount of money and time to set up Set up costs can be very expensive Outsiders can take control by buying shares More financial information has to be made public than any other type of ownership structure May be more remote from customers Managers may take control rather than owners