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. (B)</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. (C)</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. (C)</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. (C)</p> Signup and view all the answers

What is the typical number of partners in a partnership?

<p>2 to 20 partners. (D)</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. (B)</p> Signup and view all the answers

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

<p>Unlimited liability. (C)</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. (B)</p> Signup and view all the answers

What is a potential drawback of a partnership?

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

Which statement accurately describes limited liability?

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

What is one disadvantage of private limited companies?

<p>They must publicly disclose their company accounts. (B)</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. (A)</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. (B)</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. (D)</p> Signup and view all the answers

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

<p>Private limited company. (B)</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. (D)</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. (C)</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. (D)</p> Signup and view all the answers

Flashcards

Sole Trader

A business structure where one person owns and operates the entire business. The owner is responsible for all decisions and debts.

Partnership

A business structure where two or more people share the responsibilities, profits, and losses of the business.

Limited Company (Ltd)

A type of business structure where the company is a separate legal entity from its owners. Owners are only liable for the amount they have invested in the company.

Public Limited Company (Plc)

A type of limited company that can offer its shares to the public and is listed on a stock exchange.

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Unlimited Liability

The owner of a sole trader business is personally liable for all business debts, even if it means using their personal assets.

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Economies of Scale

The ability for a business to reduce costs by purchasing goods and services in large quantities.

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Sleeping Partner

A partner who invests money in a business but does not actively participate in its day-to-day operations.

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Private Limited Company (Ltd)

A business where the owners have limited liability, meaning their personal assets are protected from the debts of the company.

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Franchising

The process of setting up a new business by purchasing the right to use an established brand, products, and operating system from an existing company.

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Franchisor

A business that offers the right to use its brand, products, and business model to other entrepreneurs who want to start their own businesses.

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Franchisee

An entrepreneur who buys the right to operate a franchise.

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Social Enterprise

A type of business that is created to benefit a community or social cause, and not solely to generate profit.

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Lifestyle Business

A business that is run as a lifestyle choice, often with a focus on work-life balance and flexibility.

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Online Business

A business that operates primarily online, using the internet to sell products or services.

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What is Franchising?

A business model in which a company allows individuals (franchisees) to operate businesses using the company's brand, products, and operating system.

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Who is the Franchisor?

The company that grants the right to operate a franchise.

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Who is the Franchisee?

The individual or group who purchases the right to operate a franchise.

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What is a Social Enterprise?

A business that operates for social or environmental good, often while generating revenue.

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What are Royalties?

A regular payment made by a franchisee to the franchisor, usually based on a percentage of sales.

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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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