1.2 Types of business entities

Which statement does not apply to sole traders?

• It is the most common form of ownership

• There can be more than one employer

• A business that is owned by one person

• There may be more than one employee

A sole trader is a person who

• Forms a business with another single person

• Sets up the safest form of business organisation

• Is not legally liable for any debts of the business

• Has exclusive responsibility for the running of the business

In comparison to other forms of business, sole proprietors face the problem of

• Continuity

• Administration and set-up procedures

• Specialisation

• Privacy of account

Disadvantages of sole traders do not include

• Constraint of lack of time and specialisation

• A reliance on the efforts and liability of just one person

• The demands of having to be multiskilled

• Autonomy in decision-making

Advantages of sole traders do not include

• A high degree of confidentiality in administration and financial reporting

• Flexibility and freedom in decision-making

• Profits not having to be shared with others

• The various sources of finance available

Which of the following is not a reason why people may choose to set up their own business?

• There are higher risks than working for someone else

• There is a lack of employment opportunities

• To enjoy autonomy in decision-making

• To extend personal interests and hobbies

Which of the following is not a necessary condition for an ordinary partnership?

• Signing the partnership deed

• Have at least 2 partners

• Have at least one partner with unlimited liability

• Shares cannot be issued by the business

Which of the following is least likely to be a disadvantage of a partnership?

• Managing conflict and disagreements

• Having to share profits

• Dealing with different sources of finance

• Less control of business activities

The legal document that sets out the constitution of a limited liability company is known as the

• Memorandum of Association

• Articles of Association

• Deed of Incorporation

• Certificate of Incorporation

Which document is issued to a limited liability company before it can start trading?

• Articles of Association

• Certificate of Incorporation

• Deed of Partnership

• Memorandum of Association