Types of Business Organisation

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Questions and Answers

What is a key feature of a partnership regarding legal status?

It operates as a corporation.

It is an unincorporated business. (correct)

It offers limited liability to partners.

It has a separate legal entity.

What advantage does a partnership have over a sole proprietorship?

Partners can invest more capital into the business. (correct)

Partners have unlimited liability.

Partners are solely responsible for debts.

Partners can disagree more easily.

Which of the following is a disadvantage of partnerships?

Partners can suffer from the inefficiency of others. (correct)

Lack of a formal management structure.

Additional capital from multiple partners.

Shared ideas improve decisions.

How is liability characterized in a partnership?

Partners have unlimited liability for business debts. Signup and view all the answers

What is often a motivation for partners in a business partnership?

To equally share profits and responsibilities. Signup and view all the answers

What is a characteristic of a sole trader?

No separate legal entity Signup and view all the answers

Which of the following is an advantage of being a sole trader?

Ability to keep all profits Signup and view all the answers

What does unlimited liability mean for a sole trader?

Personal assets are at risk if the business fails. Signup and view all the answers

What is a disadvantage of operating as a sole trader?

Limited sources of finance Signup and view all the answers

Which of the following is true about continuity for a sole trader?

The business ceases to exist upon the death of the owner. Signup and view all the answers

Which factor can limit the growth of a sole trader's business?

Personal savings and small loans Signup and view all the answers

What gives sole traders the freedom to make decisions without consulting others?

Ownership structure Signup and view all the answers

How does the presence of a sole trader affect customer relationships?

Personal satisfaction in knowing customers is enhanced. Signup and view all the answers

What is one of the primary advantages of a private limited company compared to a partnership?

Access to larger sums of capital through private share sales Signup and view all the answers

Which of the following statements is true regarding the limitations of private limited companies?

Their accounts are less secret than sole traders or partnerships Signup and view all the answers

What is a disadvantage of being a franchisee?

License fees must be paid to the franchisor Signup and view all the answers

What does limited liability mean for shareholders of a private limited company?

Shareholders' personal possessions are protected from business debts Signup and view all the answers

Which of the following is an advantage for franchisors?

Rapid expansion of outlets Signup and view all the answers

What is a disadvantage of operating as a private limited company?

Increased need for documentation and regulatory compliance Signup and view all the answers

What major support does a franchisor provide to franchisees?

Provides training for staff and management Signup and view all the answers

Which factor gives private limited companies an edge in maintaining control over the business?

Keeping ownership shares limited to a small group Signup and view all the answers

Why are banks generally willing to lend to franchisees?

Franchises have a proven business model which reduces risk Signup and view all the answers

Which of the following is NOT a characteristic of private limited companies?

Requires annual publication of financial statements Signup and view all the answers

Which point describes the financial obligations of a private limited company?

They are fully responsible for their debts as a separate entity Signup and view all the answers

What is a common disadvantage of a joint venture?

Disagreements over major decisions Signup and view all the answers

In a joint venture, local knowledge benefits the partners primarily when:

Entering a new market or country Signup and view all the answers

What impacts the ability of a private limited company to expand rapidly?

Restrictions on transferring shares without approval Signup and view all the answers

What risk is associated with poor management in a franchise?

Damage to the overall brand reputation Signup and view all the answers

What does sharing costs in a joint venture help accomplish?

Facilitates expensive projects like new aircraft development Signup and view all the answers

What is a key advantage of public limited companies in terms of financial risk for shareholders?

Shareholders have limited liability for the company's debts. Signup and view all the answers

Which disadvantage of public limited companies relates to the sharing of financial information?

The company must disclose all financial transactions publicly. Signup and view all the answers

What is one potential disadvantage related to ownership when a company goes public?

Original owners risk losing control over the company. Signup and view all the answers

Which advantage of public limited companies can help increase their creditworthiness?

Larger potential capital from public share sales. Signup and view all the answers

How do public limited companies differ from private limited companies regarding share transactions?

Public limited companies allow for unrestricted buying and selling of shares. Signup and view all the answers

Which term describes the distribution of profits by a corporation to its shareholders?

Dividend Signup and view all the answers

What is a primary benefit of franchises compared to starting a new business?

Reduced risk of business failure due to established branding. Signup and view all the answers

What could be considered a significant cost associated with public limited companies when selling shares?

The commissions charged by merchant banks for selling shares. Signup and view all the answers

Study Notes

Types of Business Organizations

Sole Trader: Owned and operated by a single individual.
Partnership: Involves two or more individuals joining to run a business.
Limited Companies:
- Private Limited Company (Ltd): Shares are not publicly traded.
- Public Limited Company (PLC): Shares sold to the public on the stock exchange.
Additional Forms:
- Joint Venture: Businesses collaborate for a specific project.
- Franchise: A business model where an individual operates a business using an established brand's name and systems.

Sole Trader Features

No continuity after the owner’s death.
Not a separate legal entity; the owner is fully liable.
Complete control and decision-making power.
Unlimited liability; personal assets at risk for business debts.
Simple setup process with minimal regulations.

Advantages of Sole Trader

Few legal hurdles for startup.
Total control over business decisions and operations.
Flexibility in work schedule and pricing.
Direct contact with customers allows for personalized service.
Retains all profits after taxes.
Maintains business secrecy, only disclosing to tax authorities.

Disadvantages of Sole Trader

No alternative perspective for business decisions; isolation.
Full personal liability for debts and obligations.
Limited financial resources; primarily reliant on personal savings.
Difficulty in expanding due to restricted capital.
Business ceases to exist upon the owner's death.

Partnership Features

Involves sharing ideas and responsibilities among partners.
Continuity maintained if a partner leaves.
No separate legal identity; partners share liability.

Advantages of Partnership

Increased capital through multiple investors.
Shared responsibilities in various business functions.
Motivation to work due to profit-sharing and collective success.
Diverse ideas contribute to better decision-making.

Disadvantages of Partnership

Unlimited liability applies to all partners; personal assets at risk.
Potential for disagreements affecting decision-making.
Inefficiency or dishonesty from one partner can impact the entire business.

Private Limited Companies (Ltd)

Shares are owned privately, not available for public sale.
Limited liability protects shareholders’ personal assets.
Incorporated status separates the business from its owners.
Control remains with original owners unless too many shares are sold.

Advantages of Private Limited Companies

Greater capital potential from private share sales.
Protection from personal liability for company debts.
Business operates as a distinct legal entity.

Disadvantages of Private Limited Companies

Significant paperwork and compliance required.
Shares cannot be sold without agreement among existing shareholders.
Financial disclosures are less private than sole traders or partnerships.

Public Limited Companies (PLC)

Shares can be sold to the public, listed on stock exchanges.
Enhanced capital access versus other organization types.

Advantages of Public Limited Companies

Increased capital from the sale of shares to the public.
Limited liability for shareholders.
No restrictions on share transferability.
Enhanced reputation often leads to better financial opportunities.

Disadvantages of Public Limited Companies

Complex legal requirements for formation.
High costs associated with public share offerings.
Financial accountability limits privacy for operations.
Risk of losing control over the business with widespread share ownership.

Franchise Overview

Franchisor grants franchisee rights to operate under their brand.
Established brand presence reduces failure risk for franchisees.

Advantages of Franchising

Lower risk due to operating an already known product.
National advertising funded by the franchisor.
Centralized quality supplies and training from franchisor.

Disadvantages of Franchising for Franchisees

Limited independence in decision-making.
Mandatory fees imposed by the franchisor.

Advantages and Disadvantages for Franchisors

Ensured rapid business expansion through individual franchisee investment.
Poor management choices by one franchisee can damage the overall brand.

Joint Ventures

Collaboration between two or more businesses to undertake a specific venture, sharing costs and expertise.

Advantages of Joint Ventures

Shared financial burden for costly projects.
Access to local market knowledge and expertise.
Division of risk involved in new ventures.

Disadvantages of Joint Ventures

Profits must be shared among partners.
Potential conflicts in decision-making and management styles.

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Description

This quiz covers various forms of business organisation, including sole traders, partnerships, and limited companies. You'll explore the defining features of each type and understand their implications. Prepare to test your knowledge on how different business structures operate!