3.1.2

Question 1

What is a sole trader

Answer 1

An individual owning the business on his/her own

Question 2

What does a sole trader own

Answer 2

Owns all the business assets personally and responsible for all debts

Question 3

Advantages of being a sole trader?

Answer 3

• Quick and easy to set up
• Simple to run
• Minimal paperwork
• Easy to close and shutdown

Question 4

Draw backs of being a sole trader

Answer 4

• Unlimited liability (can lose all belongings)
• Harder to raise finance ( often have limited funds)
• The business is the owner (business suffers if owner becomes ill / loses interest)

Question 5

What is a private limited company

Answer 5

A company where shares are not available to the general public to buy or sell on the stock exchange. The company is owned by shareholders and they enjoy limited liability. (They only lose what they invested)

Question 6

Advantages of private limited companies

Answer 6

• Limited liability protecting personnel and wealth
• Easier to raise finance through sales of shares and easier to raise debt
• stable form of structure business continues to exist even when shareholders change

Question 7

Disadvantages of private limited companies

Answer 7

• greater admin costs
• Directors legal duty’s
• Public disclosure of information

Question 8

What is the private sector

Answer 8

Businesses are owned and operated by private individuals and companies

Question 9

Private sectors are generally run _____________

Answer 9

Private sectors are generally run for profit to earn a return for a business owners (shareholders)

Question 10

What is meant by the public sector

Answer 10

Run by the government on behalf of the public. Exist to provide goods and services to the public using public funds

Question 11

Limited liability

Answer 11

Shareholders can only lose the value of investment of which they had invested

Question 12

Unlimited liability

Answer 12

Owners can lose all of their wealth and belongings no matter how much they own

Question 13

Share capital?

Answer 13

Share capital is the money invested in a company by shareholders

Question 14

Share capital is a _____ source of finance

Answer 14

Share capital is a long term source of finance

Question 15

What does market capitalisation represent

Answer 15

Represents the total market value of the issued share capital of the company

Question 16

What is dividends

Answer 16

The Money payed out to shareholders

Question 17

Role of shareholders and why they invest

Answer 17

Provide finance for a company and their desire is to achieve a profitable return on their investment.
Examples of why they invest may be:
-Short term profit
-Long term profit

Question 18

Influences on share prices

Answer 18

• Demand and supply ( when demand exceeds supply share prices rise)
• Interest rates ( Low interest rates means demand for borrowing Money is higher therefore share prices rise and vice versa )
• Management ( If management consists of experience professionals with good track record share prices likely to be higher)

Question 19

Why do companies care about share price changes

Answer 19

• Indicates its ability to grow and earn profit
• If shareholders are happy and company does well they are likely to still gain investment
• Good stock prices increases likelyhood of a company receiving more favourable press