Questions and Answers
What is the primary benefit for a franchisor when expanding their business through franchising?
The primary benefit is that the franchisor can expand their business without having to invest additional capital or take on further risks, as these are transferred to the franchisee.
How does the concept of 'one member, one vote' influence decision-making in a cooperative?
It ensures that all members have an equal say in the management of the business, regardless of their financial contribution.
What risk might a franchisor face when their franchisees do not maintain standards?
The franchisor risks damaging the overall brand image of the franchise, affecting all outlets.
What is a disadvantage for cooperatives in terms of finance?
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Why might members of a cooperative have a higher chance of accessing finance?
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What common bond is necessary for members of a cooperative, such as a credit union?
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In what way do cooperatives differ from traditional profit-driven businesses?
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What is the corporation tax rate on cooperative profits?
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What is one of the key features of a franchise agreement between a franchisor and a franchisee?
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How can cooperatives ensure that their members are protected financially if the business fails?
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Study Notes
Sole Trader
- A business owned and operated by a single individual.
- Setup involves completing Form TR1 and possibly registering a business name with the Companies Registration Office (CRO).
- Owners carry unlimited liability, risking personal assets if the business fails.
- Financing options include personal savings and loans for which a business plan is required.
- Financial results are confidential, with sole control maintained by the owner.
- Profits belong entirely to the owner, and business continuity ends upon the owner’s death.
- Taxation is applied at personal income tax rates of 20% or 40%.
- Advantages include ease of setup, full decision-making power, retention of profits, and privacy in finances.
- Disadvantages include financial and personal risk, limited access to capital, the burden of workload, and higher tax rates compared to limited companies.
Partnership
- Owned by 2 to 20 individuals, commonly in professional services like law and accounting.
- Formation requires signing Form LP1 and a deed of partnership outlining rights and profit distribution.
- Partners have unlimited liability, risking personal assets similarly to sole traders.
- Financing relies on partners' personal savings and loans supported by a business plan.
- Control is shared among partners, and profits are divided as agreed.
- Partnerships lack continuity of existence, dissolving upon the death of all partners.
- Confidential financial results are typical, with no separate legal identity.
- Taxation follows personal income tax rules, similar to sole traders.
Private Limited Company (CLS or DAC)
- Composed of shareholders with limited liability, protecting personal assets.
- Can raise capital by selling shares to up to 149 people, essential for funding operations.
- Formation involves more regulatory requirements compared to sole traders and partnerships.
- Has a separate legal identity, allowing it to sue and be sued independently.
- Shares are not traded publicly, giving original shareholders control if they hold majority shares.
- Continuity of existence allows it to survive beyond shareholders' involvement.
- Benefits from a corporation tax rate of 12.5% on profits.
- Advantages include capital-raising potential, limited liability, and legal independence.
- Disadvantages encompass higher startup and operational costs and regulatory complexities.
Public Limited Company
- Similar to private companies but can offer shares to the public with no upper limit on shareholders.
- Advantages include enhanced visibility, attractiveness for investment, and improving credit ratings.
- Continuity of existence ensures longevity beyond the departure of shareholders.
- Governed by “one share, one vote” principle, allowing shareholder control based on shareholdings.
- Corporation tax of 12.5% is applicable to profits.
Cooperative
- Members collectively own and run the cooperative with limited liability, protecting personal assets.
- Operates democratically; each member has an equal vote regardless of investment size.
- Often formed around common interests, providing services like savings and loans, e.g., credit unions.
- Typically not profit-driven, focusing instead on community or member benefits.
- Advantages include democratic control and better access to finance due to shared responsibility.
- Disadvantages include limits on capital raised from individual members.
Franchise
- A contractual agreement where a franchisor permits a franchisee to use its brand and business model.
- Ideal for franchisors seeking expansion without bearing additional financial risk.
- Franchisees benefit from established business models, including branding and product access.
- Potential risks include reputational damage if franchisee standards are not adhered to.
- Examples include widespread franchises, such as McDonald's outlets.
Multinational Company
- Operates in multiple countries, bringing diversity and complexity in management.
Indigenous Firms
- Locally owned businesses that cater primarily to domestic markets.
Semi-State Body
- Organizations owned or partially owned by the government, serving public interests.
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Description
Explore various types of business organisations including Sole Traders, Partnerships, and Public Limited Companies. This quiz helps you understand the structure, formation, and characteristics of different business entities. Perfect for those studying business fundamentals.
