Business Ownership (AQA GCSE Business): Flashcards
Exam code: 8132
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Define legal structure in the context of business ownership.
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Define legal structure in the context of business ownership.
A legal structure is the formal way a business is organised and registered, such as a sole trader or partnership, determining aspects like ownership, liability, and taxation.
What factors might an entrepreneur consider when choosing a legal structure for their business?
An entrepreneur might consider factors such as the level of personal risk, the advice received, and their preferred level of privacy when choosing a legal structure.
Define sole trader.
A sole trader is a business owned by a single person who has complete control, keeps all profits, but also has unlimited liability.
Operating as a is the simplest way to start trading immediately.
Operating as a sole trader is the simplest way to start trading immediately.
True or False?
Sole traders are personally responsible for all the debts of their business.
True.
Sole traders have unlimited liability, meaning they must pay all business debts themselves.
List two advantages and two disadvantages of setting up as a sole trader.
Advantages: complete control over the business and all profits belong to the owner. Disadvantages: unlimited liability and limited access to finance.
Sole traders are commonly found in the sector, offering services such as home improvements, tutoring, or taxi driving.
Sole traders are commonly found in the tertiary sector, offering services such as home improvements, tutoring, or taxi driving.
Define partnership.
A partnership is a business owned by two or more people who share decision-making, profits, and unlimited liability.
What is a deed of partnership and why is it important?
A deed of partnership is a legal agreement between partners that sets out each partner’s rights, responsibilities, and the procedures for sharing profits, losses, and decision-making. It helps prevent disputes.
In a partnership, all partners have liability, meaning their personal assets are at risk if the business gets into financial difficulty.
In a partnership, all partners have unlimited liability, meaning their personal assets are at risk if the business gets into financial difficulty.
True or False?
A sole trader cannot employ other people to work in the business.
False.
A sole trader is the only owner, but they may employ people to work in the business.
Why does a sole trader often lack business continuity?
There is no business continuity because the business often dies with the owner.
Why can a partnership often raise finance more easily than a sole trader?
Each partner can invest capital, and lenders consider partnerships less risky than sole traders.
Partners' decisions are legally _____ on all owners of a partnership.
Partners' decisions are legally binding on all owners of a partnership.
True or False?
In a partnership, each partner always receives profits in proportion to the work they put in.
False.
Partnership profits are often shared equally, regardless of each partner's contribution, which can cause disputes.
How can having more than one owner help a partnership use its skills well?
More skills and knowledge mean partners can specialise in their own area of expertise.
Define private limited company.
A private limited company is a business owned by one or more shareholders whose responsibility for debts is limited to the amount they paid for their shares.
Private limited companies must register with _____________ and submit details of their financial performance and changes in ownership each year.
Private limited companies must register with Companies House and submit details of their financial performance and changes in ownership each year.
True or False?
Private limited companies are always large businesses.
False.
Most private limited companies are owned and controlled by just one person, who uses this structure to protect their personal assets.
Why might some large businesses choose to remain private limited companies?
Family shareholders can retain control and avoid the scrutiny of selling shares on the stock exchange. They may also have little need to raise large sums of capital.
How does a private limited company provide business continuity?
The business does not die with its original owner, because ownership can be transferred by selling shares.
What are two disadvantages of setting up as a private limited company?
It is more expensive and time-consuming to set up, as legal advice is often needed. It also requires annual financial reporting and auditing.
Define public limited company.
A public limited company is a large business that sells its shares publicly on the stock exchange.
Define flotation.
Flotation is selling a company's shares on the stock exchange for the first time, which allows large amounts of share capital to be raised.
True or False?
Shares in a public limited company can be bought and sold easily.
True.
Shares in a public limited company are traded on a public stock exchange, so they can be bought and sold easily.
The managers of a PLC may prioritise ________ financial performance over long-term planning to maximise profits for shareholders.
The managers of a PLC may prioritise short-term financial performance over long-term planning to maximise profits for shareholders.
Why are public limited companies at risk of a hostile takeover?
Their shares are available to the public, so rival businesses can buy enough shares to take control.
What legal and financial regulations must a PLC comply with?
A PLC must complete regular financial reports, keep accurate accounting records and hold annual general meetings.
What is the purpose of a charity?
A charity exists to support those in need, promote a particular cause and advance the well-being of society.
Charities rely mainly on _______ from individuals, businesses and governments.
Charities rely mainly on donations from individuals, businesses and governments.
True or False?
A charity can carry out any activities it chooses.
False.
A charity has a specific purpose defined by law and must follow strict regulations governing its activities.
Why can budgeting be difficult for a charity?
Budgeting is difficult because a charity's funding can be irregular.
Define social enterprise.
A social enterprise is a business whose primary purpose is creating social or environmental impacts, in addition to generating profits.
Define cooperative.
A cooperative is a social enterprise owned and controlled by its workers or customers (members), who share profits, contribute to key decisions and elect directors.
Why is decision-making often slow in a social enterprise?
Decision-making is often slow because many stakeholders need to be consulted.
How are public sector organisations owned and funded?
Public sector organisations are owned and controlled by the government and are usually funded through taxation.
True or False?
Some public sector organisations charge a fee for selected services.
True.
Public sector organisations are funded by central and local government, but some charge fees for selected services, such as medical prescriptions.
Why do governments keep some organisations in the public sector?
They may be strategically important, provide essential services such as water or electricity, or provide merit goods such as education and health that private businesses may not provide in sufficient quantities.
When the government takes a struggling private business into public ownership to ensure its survival, the business has been __________.
When the government takes a struggling private business into public ownership to ensure its survival, the business has been nationalised.
Why might public sector organisations become inefficient?
Due to a lack of competition, they may have no incentive to improve, which can affect consumer choice.
What types of factor should an entrepreneur consider when choosing a legal structure for a start-up?
They should consider the type of ownership and the level of personal risk, their desire for control and privacy, financial considerations and their objectives for growth.
True or False?
Sole traders and partnerships must publish their financial accounts.
False.
Sole traders and partnerships do not have to report their financial outcomes outside the business, which gives the owners more privacy.
How can the amount of start-up finance needed affect the choice of legal structure?
If the owner does not have enough capital, they may need a partner who contributes capital or may need to borrow from other sources.
Lenders usually see a private limited company as less ___ than a partnership, so it may find borrowing easier.
Lenders usually see a private limited company as less risky than a partnership, so it may find borrowing easier.
Why might an owner who is unwilling to take personal financial risks choose a private limited company?
A private limited company gives the owner limited liability, so their personal assets are protected if the business fails.
Why might an established business change its legal ownership?
It may want to raise finance, increase its business profile or attract new owners who can contribute time and ideas and share responsibilities.
Before becoming a PLC, an owner must consider their willingness to ____ control of the business.
Before becoming a PLC, an owner must consider their willingness to dilute control of the business.
Why might a growing private limited company take out a loan rather than become a PLC?
Borrowing lets the existing owners keep control, for example as a family business. However, only a flotation can raise a very substantial amount of finance.
True or False?
A public limited company can be changed back into a private limited company.
True.
Owners may withdraw a business from the stock exchange to take back control and pursue a strategy without pressure to prioritise short-term profits.
What financial reward can existing owners gain when a business becomes a PLC?
Existing owners can take a large financial reward from the sale of shares when the business floats.
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