Types of Organisations (Edexcel IGCSE Business): Flashcards
Exam code: 4BS1
1/620Still learning
Know0
Define sole trader.
Was this flashcard helpful?
Cards in this collection (62)
Define sole trader.
A sole trader is a business with a single owner who makes all decisions and keeps all the profit.
Define unlimited liability.
Unlimited liability means the owner is personally responsible for all business debts.
Give one advantage of being a sole trader.
It is easy and inexpensive to set up, the owner has complete control, and keeps all the profit.
Give one disadvantage of being a sole trader.
Unlimited liability, limited access to finance, and no business continuity.
True or False?
A sole trader is only ever one person and can never employ others.
False.
A sole trader has a single owner but may employ people to work in the business.
Sole traders are concentrated in the sector, offering services like tutoring or taxi driving.
Sole traders are concentrated in the tertiary sector, offering services like tutoring or taxi driving.
Define partnership.
A partnership is when two or more people join together to own a business.
Define a deed of partnership.
A deed of partnership states the formal rights of each partner, such as capital contributed and how profits are shared.
Give one advantage of a partnership.
Shared responsibilities, partners can specialise, and there is greater access to finance.
Give one disadvantage of a partnership.
Unlimited liability, potential for disputes, and profits often shared equally regardless of contribution.
Businesses such as lawyers, accountants and commonly operate as partnerships.
Businesses such as lawyers, accountants and doctors commonly operate as partnerships.
True or False?
In a partnership, one partner's business decisions are legally binding on all the owners.
True.
In a partnership, partners' decisions are legally binding on all owners.
Define private limited company (Ltd).
An Ltd is owned by shareholders whose liability is limited to their investment; shares are not sold to the public.
Define limited liability.
Limited liability means shareholders can only lose the amount they invested; personal assets are protected.
Give one advantage of a private limited company.
Limited liability, easier access to finance, and business continuity.
Give one disadvantage of a private limited company.
More expensive and time-consuming to set up, with annual financial reporting and auditing required.
A private limited company's name ends in 'Ltd' in the UK and in Spain.
A private limited company's name ends in 'Ltd' in the UK and S.A. in Spain.
Define public limited company (PLC).
A PLC is a large business that sells its shares publicly on the stock exchange.
Selling shares on the stock exchange for the first time is called , or going public.
Selling shares on the stock exchange for the first time is called flotation, or going public.
Give one advantage of a public limited company.
It can raise significant capital, spreads risk among many shareholders, and has high visibility.
Give one disadvantage of a public limited company.
Complex regulations, expensive set-up, and the risk of a hostile takeover.
True or False?
A private limited company sells its shares to the public on the stock exchange.
False.
Private limited companies do not sell shares to the public; only public limited companies (PLCs) do.
Define a public corporation.
A public corporation is a business owned and controlled by the government, usually funded through tax, providing public services.
Give one benefit of a public corporation (public ownership).
The government can control vital supplies, save jobs, and provide services that are not profitable for private firms.
Give one drawback of a public corporation.
Loss-makers are a cost to government, may be inefficient (no competition), and face political interference.
True or False?
A public limited company and a public corporation are the same thing.
False.
A PLC is privately owned with shares on the stock exchange; a public corporation is owned by the government.
A small business employs fewer than people.
A small business employs fewer than 50 people.
What is the difference between a micro and a small enterprise?
A micro enterprise employs fewer than 10; a small enterprise employs 10 to 49.
Why is measuring business size by number of employees becoming unreliable?
Businesses use fixed-term contracts, subcontractors and technology (e.g. chatbots), so they can have high output with few employees.
True or False?
Small businesses are the most common form of business in most countries.
True.
They are the most common form — e.g. over 99% of all UK businesses in 2022.
How many workers does a business usually need to be classed as large?
250 or more workers.
Why do large businesses find it easier to raise external finance than small ones?
They are seen as less risky and have significant assets to pay back borrowing.
What is meant by the separation of ownership and control in a large company?
Shareholders own the company but appoint directors to control and run it day-to-day.
In many countries, a small number of businesses generate the largest proportion of revenue.
In many countries, a small number of large businesses generate the largest proportion of revenue.
True or False?
A private limited company can only ever stay small.
False.
Some private limited companies grow very large without selling public shares — e.g. family-owned Hermès.
Give one source of finance available to large businesses.
Shares sold on stock exchanges (e.g. Birkenstock raised $1.5bn), bank loans, trade credit, or retained profit.
Which two small-business ownership types have unlimited liability?
Sole traders and partnerships; private limited companies have limited liability.
Define franchising.
Franchising is where a franchisee buys the rights to run a business model and use its branding from a franchisor, paying a lump sum plus royalties.
True or False?
A franchise is a form of business ownership.
False.
A franchise is not a form of ownership — it's an alternative to starting a brand-new business.
Give one advantage of owning a franchise.
A recognised brand name, training, and equipment and supplies provided by the franchisor.
Give one disadvantage of owning a franchise.
High start-up and royalty fees (often 5–10% of sales), and little say in how the business is run.
A franchisee pays ongoing royalties, often 5–10% of sales .
A franchisee pays ongoing royalties, often 5–10% of sales turnover.
Define a social enterprise.
A social enterprise is a business whose primary purpose is creating social or environmental impact, as well as generating profit.
What are the two main forms a social enterprise can take?
Cooperatives (owned/controlled by workers or customers) and charities.
Give one advantage of a social enterprise.
A good reputation attracting employees and customer loyalty, and financial support for deserving causes.
True or False?
A social enterprise's profits are shared with members or good causes rather than kept fully by owners.
True.
Surpluses for reinvestment are limited, as they are shared with members or good causes.
Define a multinational company (MNC).
An MNC is a business registered in one country but with operations or outlets in several different countries.
Give a real example of a multinational.
Starbucks is headquartered in the USA but has 32,000 stores in 80 countries.
Nike locates 50% of its manufacturing in China, Vietnam and Indonesia because of lower production .
Nike locates 50% of its manufacturing in China, Vietnam and Indonesia because of lower production costs.
Give an objective of a social enterprise other than social.
Environmental (protecting nature), ethical (treating stakeholders fairly), or financial (profit reinvested).
What ownership type suits a low-risk business needing little start-up capital?
A sole trader or partnership.
Why might a risky business needing lots of capital form a private limited company?
For limited liability protection, which protects the owner's personal assets.
A private limited company gives business , as shares can be transferred without dissolving the business.
A private limited company gives business continuity, as shares can be transferred without dissolving the business.
Why might a growing business form a partnership?
To attract more capital, bring in new skills, or add owners for greater stability.
True or False?
As a business grows, its owner may need to change its legal structure.
True.
An owner may change, e.g. from sole trader to partnership or private limited company, as it grows.
How can a private limited company raise large capital to grow?
Through a stock market flotation, becoming a public limited company (PLC).
What do original owners lose when their company floats on the stock market?
They lose some control, as ownership is diluted among new shareholders.
Define a venture capitalist.
A venture capitalist provides capital for a period in return for a share in the business, and may invest in risky enterprises.
Why might a business use venture capitalists instead of floating?
To keep the business privately owned while still raising finance for a risky venture.
A separate limited company set up by two firms for a specific objective, then dissolved, is a joint .
A separate limited company set up by two firms for a specific objective, then dissolved, is a joint venture.
True or False?
A business must become a public limited company to raise any external finance.
False.
It can also raise finance from venture capitalists or joint ventures while staying private.
Why might a business choose to remain a private limited company rather than float?
To retain control, especially if the funding needed is small-scale — as with family-owned firms.
Sign up to unlock flashcards
or