Business in the real world and influences

1. A sole trader has:

1. Limited liability
2. Unlimited liability
3. Shareholders
4. A board of directors

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B: Unlimited liability. The owner is personally responsible for business debts.

2. What is limited liability?

1. Owners are responsible for all debts
2. Owners can only lose the amount they invested
3. Businesses pay no tax
4. A limit on sales

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B: Owners can only lose the amount they invested. Company debts are separate from personal assets.

3. Which is a stakeholder in a business?

1. Only the owner
2. Employees, customers, suppliers and the local community
3. Only shareholders
4. Only the government

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B: Employees, customers, suppliers and the local community. Different stakeholders often have conflicting objectives.

4. What is a franchise?

1. A business with no owner
2. Buying the right to trade using an established brand's name and business model
3. A charity
4. A partnership only

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B: Buying the right to trade using an established brand's name and business model. The franchisee pays fees but gains brand recognition.

5. Which is a typical aim for a new business in its first year?

1. Profit maximisation immediately
2. Survival and building customer base
3. Global expansion
4. Paying large dividends

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B: Survival and building customer base. Cash flow and survival dominate early decisions.

6. Why might an entrepreneur choose to form a private limited company rather than remain a sole trader?

1. To have unlimited liability
2. To gain limited liability and find it easier to raise finance
3. To avoid paying any tax
4. To have no shareholders at all

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B: To gain limited liability and find it easier to raise finance. Limited liability protects personal assets if the business fails.

7. Which stakeholder is primarily interested in a business paying on time for goods supplied?

1. Customers
2. Suppliers
3. Local community
4. Government

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B: Suppliers. Suppliers rely on being paid to remain in business themselves.

8. Which statement about a partnership is correct?

1. Partners normally have unlimited liability for the business's debts
2. Partners can only lose the money they originally invested
3. A partnership must have at least 50 owners
4. Partnership shares are traded freely on the stock exchange

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A: Partners normally have unlimited liability for the business's debts. Partners in an ordinary partnership have unlimited liability, so their personal assets can be used to pay business debts. Shares are not traded on the stock exchange, and there is no 50-owner minimum.

9. Which is a feature of a private limited company (Ltd)?

1. Its shares are traded openly on the stock exchange
2. Its shares cannot be offered for sale to the general public
3. Its owners have unlimited liability for debts
4. It can never have more than one shareholder

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B: Its shares cannot be offered for sale to the general public. Private limited companies can only sell shares privately, by agreement. The shareholders have limited liability, and a Ltd can have one or many shareholders.

10. What is a key advantage of becoming a public limited company (plc)?

1. The owner keeps complete control of decisions
2. It can raise large sums by selling shares to the public
3. It faces fewer legal reporting rules than a sole trader
4. It avoids any risk of being taken over

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B: It can raise large sums by selling shares to the public. A plc can sell shares to the general public, raising large amounts of finance for growth. The cost is less owner control, more regulation and a risk of takeover.