AQA AG Business- U1-AO1.2 - Legal structures of business

What is a key financial implication of operating as a sole trader?

• Limited liability

• Unlimited liability

• Ability to issue shares

• Tax benefits

Answer explanation

As a sole trader, you have unlimited liability, meaning you are personally responsible for all business debts. This can put your personal assets at risk if the business fails, unlike limited liability structures.

Which legal structure allows for the sharing of profits and losses among partners?

• Sole trader

• Private limited company

• Partnership

• Public limited company

Answer explanation

A partnership is a legal structure where two or more individuals share profits and losses. Unlike a sole trader or limited companies, partnerships allow for direct sharing of financial outcomes among partners.

What is a primary advantage of a limited liability partnership (LLP)?

• Partners have unlimited liability

• Partners have limited liability

• Easier to raise capital through shares

• No need for a partnership agreement

Answer explanation

The primary advantage of a limited liability partnership (LLP) is that partners have limited liability, meaning they are not personally responsible for the debts of the partnership, protecting their personal assets.

Which of the following is a characteristic of a private limited company?

• Shares can be sold to the public

• Limited number of shareholders

• Unlimited liability for owners

• No requirement for annual general meetings

Answer explanation

A private limited company is characterized by a limited number of shareholders, typically capped at 50. This distinguishes it from public companies, which can sell shares to the public and have no such limit.

What is a financial implication of being a public limited company?

• Shares cannot be traded on the stock exchange

• Easier access to capital markets

• Unlimited liability for shareholders

• No requirement for financial disclosure

Answer explanation

Being a public limited company allows for easier access to capital markets, as it can issue shares to the public, attracting more investors. This is a key financial advantage compared to private companies.

Which type of business structure is specifically designed to benefit the community?

• Sole trader

• Community interest company

• Public limited company

• Partnership

Answer explanation

A Community Interest Company (CIC) is specifically designed to benefit the community, ensuring that profits are used for social purposes rather than for private gain, making it the correct choice.

What is a key feature of a cooperative?

• Profit maximisation for shareholders

• Democratic decision-making process

• Unlimited liability for members

• Shares traded on the stock exchange

Answer explanation

A key feature of a cooperative is its democratic decision-making process, where members have equal voting rights, unlike traditional businesses focused on profit maximization for shareholders.

Which legal structure is most likely to have the simplest tax filing requirements?

• Sole trader

• Public limited company

• Private limited company

• Limited liability partnership

Answer explanation

A sole trader has the simplest tax filing requirements, as they report income on their personal tax return. In contrast, public and private limited companies, as well as limited liability partnerships, have more complex filing obligations.

What is a disadvantage of operating as a partnership?

• Limited liability

• Shared decision-making

• Potential for disputes among partners

• Ability to raise capital through shares

Answer explanation

A disadvantage of operating as a partnership is the potential for disputes among partners. Differences in opinions and management styles can lead to conflicts, affecting the partnership's effectiveness.

Which business structure requires a minimum of two directors?

• Sole trader

• Private limited company

• Public limited company

• Partnership

Answer explanation

A public limited company must have at least two directors as per legal requirements, ensuring proper governance. In contrast, a sole trader and partnership can operate with fewer individuals.