Business Types: Sole Trader and Partnerships
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Questions and Answers

What is the primary reason a company might choose to sell its business idea as a franchise?

  • To reduce competition in the market.
  • To avoid the costs and problems of opening more stores. (correct)
  • To promote local entrepreneurship.
  • To increase staffing requirements.

    • Which of the following is NOT a disadvantage of becoming a franchisee?

  • Ability to establish unique pricing strategies. (correct)
  • Limited freedom in business operations.
  • Requirement to pay royalties to the franchisor.
  • No outright ownership of the business.

    • Which element is considered a part of the costs when starting a franchise?

  • Cost of buying the franchise rights. (correct)
  • Investment in competitor research.
  • Expenses for online marketing campaigns.
  • Annual profit sharing with employees.

    • What key support does a franchisor typically provide to a franchisee?

    <p>Training and management advice.</p> Signup and view all the answers

    What distinguishes a social enterprise from a charity?

    <p>Social enterprises aim for social and environmental benefits while being self-sustaining.</p> Signup and view all the answers

    What is a defining feature of a sole trader business?

    <p>It is owned by a single individual.</p> Signup and view all the answers

    What is one disadvantage of operating as a sole trader?

    <p>Difficult to raise money for business needs.</p> Signup and view all the answers

    What is the typical number of partners in a partnership?

    <p>2 to 20 partners.</p> Signup and view all the answers

    What do partners in a partnership do with regard to the profits?

    <p>They share profits as specified in their partnership agreement.</p> Signup and view all the answers

    What type of liability do sole traders and partnerships typically face?

    <p>Unlimited liability.</p> Signup and view all the answers

    What advantage does a partnership have over a sole trader regarding financing?

    <p>Partners have multiple sources of finance available.</p> Signup and view all the answers

    What is a potential drawback of a partnership?

    <p>Possibility of disagreements among partners.</p> Signup and view all the answers

    What is a primary advantage of a private limited company regarding ownership?

    <p>Owners have full control over who can buy shares.</p> Signup and view all the answers

    Which statement accurately describes limited liability?

    <p>Owners are only liable for their original investment.</p> Signup and view all the answers

    What is one disadvantage of private limited companies?

    <p>They must publicly disclose their company accounts.</p> Signup and view all the answers

    In which scenario would limited liability be considered critical?

    <p>A scaffolding company that faces high accident risks.</p> Signup and view all the answers

    What is a benefit of franchising for entrepreneurs?

    <p>Reduced business risk by leveraging a well-known brand.</p> Signup and view all the answers

    Which of the following statements is false regarding private limited companies?

    <p>They are inherently simple to set up.</p> Signup and view all the answers

    What type of business structure allows friends and family to become part-owners?

    <p>Private limited company.</p> Signup and view all the answers

    Which of the following is NOT an advantage of being a private limited company?

    <p>Ability to freely sell shares to the public.</p> Signup and view all the answers

    What is a major requirement for private limited companies in terms of their financial records?

    <p>Financial accounts must be made available to the public.</p> Signup and view all the answers

    What is one possible disadvantage of inviting new partners into a business?

    <p>Loss of complete control over the business.</p> Signup and view all the answers

    Study Notes

    Sole Trader

    • Owned by one person, but can employ staff
    • Also known as a sole proprietor
    • Employees can be employed, but the owner retains control
    • Typically small businesses
    • Unlimited liability (owner's personal assets at risk)
    • Examples include small shops, plumbers, accountants working from home, online traders
    • Easy to set up (no complicated forms)
    • Quick decision-making
    • Less capital needed
    • All profits remain with the owner
    • Personal attention to customers
    • Independent business owner

    Partnerships

    • 2-20 partners share risks, costs, and responsibilities
    • Partners share profits and gains (unless otherwise specified in partnership agreement)
    • Partners are individually responsible for taxes on their share of profits.
    • Finance can come from partners' assets, cash, or loans.
    • Partners manage the business, although delegation to employees is possible
    • "Sleeping" partners can provide capital but aren't involved in day-to-day operations
    • Groups of experts, such as dentists, can start a practice as a partnership
    • Research LLPs (Limited Liability Partnerships - additional information).

    Private Limited Company (Ltd)

    • Can expand by selling more shares
    • Flexible share ownership (friends, family, or others)
    • Shares are not publicly traded
    • Limited liability (protects owners' personal assets)
    • Owners have full control over who buys shares.
    • Critical in businesses where liability is important (e.g., a scaffolding company).
    • More complex and costly to set up compared to a sole trader or partnership
    • Regular accounting and reporting needed.
    • Can raise more capital via selling more shares.

    Franchising

    • Entrepreneur purchases an existing business model
    • Reduced risk as the model is well-established and trusted by customers.
    • Franchisors provide support, advice, and training to franchisees.
    • The franchisor decides the franchisee's investment and income.
    • Franchisees do not have complete freedom to run the business (rules exist)
    • Franchisees may not own the business outright.
    • Costs include franchise fees, royalties, and other expenses (e.g. premises and staff)

    Social Enterprises

    • Businesses that aim for social and/or environmental goals rather than just profit generation.
    • Not reliant solely on donations like charities.
    • Examples like Divine Chocolate (emphasizing ethical production practices in their case study)

    Lifestyle Businesses

    • Businesses that prioritize a good quality of life for the owner rather than maximizing profits.
    • Owners enjoy doing what they do
    • Aim to create a certain level of income

    Online Businesses

    • Easy setup, e.g., using platforms such as eBay or Wix
    • Conduct business 24/7
    • Reach international customers
    • Payments via platforms like PayPal
    • Website required

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    Description

    Explore the key features of sole traders and partnerships in this engaging quiz. Understand the differences in ownership, liability, and management styles between these two common business structures. Perfect for students studying business fundamentals.

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