BUSINESS STRUCTURE 2

What is the difference between private-sector and public-sector organization?

• Private-sectors organizations are owned and controlled by individuals, while public-sector organization are owned and controlled by the government.

• They have different aim: private-sector organizations usually work towards profit, and public-sector organization would want to provide essential service to the community and meet break-even point at the least.

• All is correct.

State 3 differences between a sole trader and a private limited company.

• Sole trader has unlimited liability while a private limited company has limited liability.

• A private limited company can continue in the event of the death of a shareholder whereas the sole trader will have to close down the business.

• For sole trader, the owner keeps all the profit, but the profit has to be shared amongst shareholders for a private limited company.

• All is correct.

Who owns and who controls a public limited company? Explain why this distinction might lead to conflict.

• Shareholders are the owners of a public limited company, but they appoint a board of directors who control and make decisions of the business.

• This distinction might lead to conflict because owners and directors might have different objectives.

• For example, the owners want to use profit to take over another business whereas the directors want to use that profit to invest back into the firm.

• All is correct.

State 2 benefits and 2 risks for a business of engaging in a joint venture.

• The benefits of engaging in a joint venture are that costs and risks are shared between the 2 businesses, and the 2 businesses have different strengths so they can support each other.

• The risks of joint venture are it might end due to the difference of culture or management style, and if one business fails it could affect both.

• All is correct.

Why might the directors of a public limited company decide to convert the business back into a private limited company by buying a majority of the shares?

• This is because they want to overcome the divorce between ownership and control.

• The shareholders who hold majority of the company's shares want to gain control of the business instead of letting the board of directors decide.

• All is true.

Explain how legal identity and continuity help business and companies to operate effectively.

• 'Legal identity' is a company legally recognised as having an identity separate from that of it's owners.

• Legal identity/personality help businesses operate efficiently because they protect the company from collapsing due to a lack of an owner/director.

• All is correct.

How does limited liability make it easier for companies to raise finance?

• Limited liability makes it easier for companies to raise finances because people can buy shares of the business and become shareholders.

• Limited liability can't raise finance.

Using examples of a sole trader and a public limited company, explain how the relationship between ownership and control differs in these two types of organisations.

• Sole trader business - single owner has complete control.

• Public limited company - the shareholders own the company, but the board of directors controls the company.

• Sole traders have unlimited liability while limited companies have the benefit of limited liability.

• All is correct.

Using examples of partnership and a public limited company, explain how the legal structure of a business affects in ability to raise finance.

• Partnership - additional capital is injected by each partner, but it is not possible to raise capital from selling shares.

• Public limited company - offer shares to the public to buy in order to raise capital.

• All is correct.

Why might an entrepreneur decide not to take out a franchise agreement, but to establish and independent business?

• The share of the profit has to be paid to the franchiser each year.

• The franchisee gets no choice of supplies or suppliers, and there are strict rules over pricing and layout.

• All is correct.