3.1.2 - Business ownership

• What is a sole trader?

  A sole trader is an individual who owns and operates a business alone.
• What is a partnership in business?

  A partnership involves two or more people joining together to run a business for profit.
• What are the advantages of being a sole trader?

  • Full control over the business
  • Quick and easy to set up
  • Simple tax structure
• What are the disadvantages of being a sole trader?

  • Unlimited liability
  • Difficulty in raising finance
  • Heavy workload
• What is unlimited liability?

  Unlimited liability means owners are personally responsible for all business debts.
• What is limited liability?

  Limited liability protects shareholders from being responsible for company debts beyond their investment.
• What is a private limited company (LTD)?

  A private limited company is a business that can raise funds from private investors but cannot sell shares publicly.
• What are the advantages of a private limited company (LTD)?

  • Limited liability for shareholders
  • Easier to raise finance
  • Continuity of existence
• What are the disadvantages of a private limited company (LTD)?

  • More administrative costs
  • Stricter legal duties for directors
  • Limited ability to raise capital compared to public companies
• What is a public limited company (PLC)?

  A public limited company is a business whose shares can be sold to the public on the stock exchange.
• What are the advantages of a public limited company (PLC)?

  • Ability to raise large amounts of finance
  • Limited liability for shareholders
  • Continuity of existence
• What are the disadvantages of a public limited company (PLC)?

  • Shareholders must agree on profit distribution
  • Vulnerable to market fluctuations
  • Greater public disclosure requirements
• What is the formula for sales revenue?

  Sales revenue = selling price per unit x quantity sold.
• What does sales revenue represent for a company?

  Sales revenue represents the income generated from selling goods and services.
• If a company sells 10,000 units at a price of $5 each, what is the sales revenue?

  Sales revenue = $5 x 10,000 = $50,000.
• What is the difference between sales and total revenue?

  Sales refer to income from selling goods, while total revenue includes all income sources.
• What is an example of a business that might operate as a sole trader?

  A plumber can operate as a sole trader.
• Why might a business choose to become a limited company?

  A business might choose to become a limited company to protect its owners from personal liability.
• How does the structure of a private limited company differ from a public limited company?

  A private limited company cannot sell shares to the public, while a public limited company can.
• If a company has $20 million in sales but $42 million in total revenue, what does this indicate?

  This indicates that the company has additional income sources beyond just sales.
• Sole traders are responsible for all aspects of running their business including making decisions about what to sell, how much to charge, where to buy supplies from etc
• A sole trader is an individual who owns, manages and controls their own business.
• The main advantage of being a sole trader is that they have complete control over their own business
• Partnerships involve two or more people working together to run a business
• The main disadvantage of being a sole trader is that they are personally liable for any debts or losses made by the business
• What is a micro enterpise?

  An enterpise that employs less than 10 people
• What is separate legal entity?

  When you and anyone else involved in your company are separate from your business for legal purposes, for example if someone took legal action against your business - your personal finances are separate and safe from the legal suit
• What is a shareholder?


  A person, company or institution that owns shares in a company's stock
• What are shares?


  A piece of ownership in a company - each piece represents a certain percentage of the company
• What are assets?


  Valuable items you own
• Example of assets

  • Car
  • House
  • Phone
  • Designer Items
• A share issue is occurs

  when a company sells additional shares in the business
• what is the articles of association

  Document that restricts who's shares are sold to, so that the original owners can keep control of the business if they want
• What is flotation?


  occurs when a LTD becomes a PLC and has its shares listed on the stock exchange
• Examples of PLCs


  • Tesco
  • apple
  • barclays
• What is the stock exchange?


  A market for buying and selling shares of PLCs
• What are dividends?

  Payments that are distributed (shared) to shareholders when the company does well
• What does incorporated mean?


  When a business is registered as a limited company (to have its seperate legal entity)
• what is deed of partnerships?

  a legal document between partners that set rules e.g how profits will be shared
• What liability do sole traders and partnerships have?

  unlimited liability