Exam code: 0450, 0986 & 0264, 0774
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Define sole trader.
A sole trader is a business with a single owner who may hire employees or operate alone.
What is one advantage of being a sole trader?
One advantage of being a sole trader is having complete control over the business and keeping all profits.
What is one disadvantage of being a sole trader?
A main disadvantage of being a sole trader is unlimited liability, meaning the owner is personally responsible for all business debts.
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Define sole trader.
A sole trader is a business with a single owner who may hire employees or operate alone.
What is one advantage of being a sole trader?
One advantage of being a sole trader is having complete control over the business and keeping all profits.
What is one disadvantage of being a sole trader?
A main disadvantage of being a sole trader is unlimited liability, meaning the owner is personally responsible for all business debts.
Define unlimited liability.
Unlimited liability means that the business owner is personally responsible for all of the business’s debts and losses. Their personal assets can be used to pay business debts.
True or False?
Unlimited liability only applies to the business’s assets, not the owner’s personal assets.
False.
Unlimited liability means the owner’s personal assets can also be used to pay business debts.
Why might unlimited liability make it difficult to attract investors to a business?
Unlimited liability increases the risk for the owner, which can make it harder to attract investors who may be concerned about personal responsibility for debts.
Define partnership.
A partnership is a formal arrangement by two or more entrepreneurs to manage, operate and share the profits of a business.
What are two advantages of forming a partnership?
Two advantages of a partnership are sharing responsibilities and decision-making, and having increased access to skills and capital.
What is one disadvantage of a partnership?
One disadvantage of a partnership is that partners have unlimited liability for business debts.
True or False?
A sole trader may have to sell their own home to pay creditors if their business fails.
True.
Because of unlimited liability, a sole trader’s personal assets, like their home, can be used to pay business debts if the business cannot cover them.
Define limited liability.
Limited liability means that owners (shareholders) of companies can only lose the original amount they invested if the business fails, and do not have to use their personal assets to pay additional debts.
Limited liability means owners are considered a legal entity from the business.
Limited liability means owners are considered a separate legal entity from the business.
True or False?
Shareholders with limited liability can be forced to sell their personal assets to pay company debts.
False.
With limited liability, shareholders can only lose their original investment and are not required to use personal assets to pay company debts.
Limited liability can investment because shareholders know their personal assets are protected.
Limited liability can encourage investment because shareholders know their personal assets are protected.
Define private limited company.
A private limited company is a business owned by private shareholders with limited liability and restricted share sales.
What is the main advantage of forming a private limited company for an entrepreneur?
The main advantage is that the entrepreneur benefits from limited liability, which provides more financial security.
What is a public limited company?
A public limited company is a company whose shares can be sold to the public on the stock exchange, and shareholders have limited liability.
A company becomes a public limited company through a process called .
A company becomes a public limited company through a process called stock market flotation.
True or False?
Public limited companies are required to publish annual reports and hold an AGM each year.
True.
Public limited companies must publish their annual reports and hold an Annual General Meeting (AGM) every year.
What is one main advantage of a private limited company over a sole trader for a growing business?
A private limited company offers limited liability, protecting owners' personal assets and making it easier to raise finance by selling shares.
True or False?
Growth-focused firms often require stronger organisational structures and improved risk management.
True.
As businesses grow, they need more complex organisational structures and better risk management to support expansion.
What are two factors an entrepreneur should consider when choosing a business ownership type?
Entrepreneurs should consider the level of risk they are willing to accept and their desire for control and privacy.
Describe one disadvantage for a business becoming a public limited company (PLC).
A key disadvantage is that owners lose some control, and new shareholders may pressure the business for strong short-term performance.
Which ownership type is generally best for a small business that wants simplicity and full control?
A sole trader structure is best for small businesses seeking simplicity and full control.
Why might a start-up choose to become a private limited company instead of a partnership?
A start-up may become a private limited company to access limited liability and raise finance by selling shares, which is not possible with a partnership.
True or False?
Money raised through selling shares in a company must always be repaid like a bank loan.
False.
Money raised by selling shares does not need to be repaid, unlike loans.
Define joint venture.
A joint venture is an agreement between two or more separate businesses to combine resources and expertise to achieve a defined business outcome. Risks and returns are shared by the parties involved.
What is a key advantage of forming a joint venture when entering a new market?
An important advantage is that local knowledge and resources can be accessed by partnering with a business already established in the target market, reducing risk and increasing the chances of success.
True or False?
Profits in a joint venture are kept entirely by each partner business.
False.
In a joint venture, profits and risks are shared between the partner businesses.
Define social enterprise.
A social enterprise is a business whose primary purpose is to create social or environmental impacts in addition to generating profits.
Who owns and controls a cooperative?
A cooperative is owned and controlled by its members, who are usually workers or customers that share profits and contribute to key decisions.
True or False?
Social enterprises always reinvest all profits back into the business.
False.
Profits in a social enterprise may be reinvested, shared with members, or donated to good causes.
Define franchise.
A franchise is a business arrangement where a franchisee buys the rights to operate under an established business model, using the franchisor's branding and systems in exchange for fees and royalties.
What is one main disadvantage for a franchisee when buying a well-known franchise?
The cost of purchasing a well-known franchise is likely to be high compared to starting a business from scratch.
True or False?
Franchisees are always free to make their own business decisions.
False.
Core business decisions are usually made by the franchisor, reducing the autonomy of the franchisee.