1.2 business forms

Question 1

what are the 2 categories of business forms?

Answer 1

1. public sector

2. private sector

Question 2

what is a public sector?

Answer 2

businesses that are owned and sometimes funded by the government

Question 3

what are the 3 types of public sectors?

Answer 3

1. Public corporations: enterprises (Channel 4, BBC, Bank of England)
2. Public services: offers service to the nation (NHS, Schools,
   Fire service)
3. Municipal services: basic services expected to be provided by local council (Bin collection, library, leisure centre)

Question 4

what is privatisation?

Answer 4

when the government sells businesses that they have owned and managed to private individuals and businesses
e.g. royal mail, railways, social housing

Question 5

why would the government privatise?

Answer 5

• raises finance for them

- privately run businesses are more efficient

Question 6

what is a sole trader?

Answer 6

• businesses that are owned and managed by 1 person- may employ others
• unlimited liability (responsibility)
• no distinction between the business + the individual –> So if the business was declared bankrupt personal belongings can be taken to pay off any debts.

Question 7

characteristics of a sole trader:

Answer 7

• Easy + cheap to set up
• Unlimited liability
• Sources of finance are limited
• Long hours
• Be their own boss
• Make all decisions
• Keep all the profits
• No continuity
• No specialist skills
• Stressful
• Financial information kept private

Question 8

what is a partnership?

Answer 8

Business owned by minimum 2 people

Question 9

characteristics of a partnership:

Answer 9

• Easy and cheap to start
• Unlimited liability
• No continuity
• Profits are shared
• Specialist skills
• Additional sources of finance
• Must respect partner’s decisions
• Financial info kept private
• Shared workload
• Sleeping partner
• Partners may not agree

Question 10

Unlimited liability is not ideal. How do we get rid of it?

Answer 10

• Become a company
• Through the incorporation process (registers as a limited company)
• 3 important documents: (memorandum of association, articles of association, registering with companies house)

Question 11

what is a company?

Answer 11

an organisation that has its own legal identity and limited liability

Question 12

what is an incorporation?

Answer 12

process of establishing a business as a separate legal entity and limited liability

Question 13

what is a shareholder?

Answer 13

an investor + an owner

Question 14

what are dividends?

Answer 14

share of profit that is distributed to shareholders

Question 15

companies are split into 2 types:

Answer 15

1. Private limited company (Ltd)

2. Public limited company (PLC)

Question 16

what is a private limited company (Ltd)?

Answer 16

A business owned by shareholders with limited liability but whose shares cannot be bought by or sold to the general public.

Question 17

what is a public limited company (PLC)?

Answer 17

An incorporated business organisation that allows the general public to buy + sell shares in the company via a stock exchange.

Question 18

what is market capitalisation? (and formula)

Answer 18

• Measures the size of PLC
• Total value of issued shares

MARKET CAPITALISATION = share price x number of shares

Question 19

what is a not for profit organization? (aka social enterprises)

Answer 19

a business that aims to do something other than to make profit such as providing a public service or helping people.

side note:
mutual business: run for the benefit of their members (cooperatives or building societies)

Question 20

characteristics of not for profit organisations:

Answer 20

• help others
• reputation
• encourage others into the profession
• give people opportunities that may not get otherwise

Question 21

why buy shares?

Answer 21

• primarily financial reasons
• investment
• dividends from profits
• Annual general meeting with shareholders, voicing opinion and getting a vote (Not always the case!)

Question 22

what are risks of buying shares?

Answer 22

• external factors reducing share price
• profits falling
• less dividends
• might not be able to sell shares for = to what you paid for

Question 23

what factors could influence share price?

Answer 23

• company’s performance
• economy
• competitors
• trends
• natural disasters

Question 24

features of rising shares:

Answer 24

• reflect well on management
• happier shareholders
• easier to raise capital

Question 25

features of falling shares:

Answer 25

- reflects poor management - difficult to raise capital - vulnerable to takeover