Forms Of Business Organization Quiz

1. The best definition of a sole trader form of business organization is:

The business only employs one person

The business is owned by one person

The firm has a single customer

There is a single firm in the industry.

A sole trader form of business organization refers to a business that is owned and operated by a single individual. This means that the individual has complete control over the business and is solely responsible for its profits, losses, and decision-making. Unlike other forms of business organizations, such as partnerships or corporations, there is no separate legal entity for the business. The owner assumes all liabilities and enjoys all the profits.

Explanation

A sole trader form of business organization refers to a business that is owned and operated by a single individual. This means that the individual has complete control over the business and is solely responsible for its profits, losses, and decision-making. Unlike other forms of business organizations, such as partnerships or corporations, there is no separate legal entity for the business. The owner assumes all liabilities and enjoys all the profits.

2. One of the disadvantages of a sole trader business is that:

Capital is limited to the owner’s savings and bank loans

Decisions take too long to make

As they are government-owned there is no profit motive

The owners may disagree.

The correct answer is that capital is limited to the owner's savings and bank loans. This means that a sole trader business relies solely on the personal savings of the owner and any loans they can secure from banks. Unlike corporations or partnerships, sole traders do not have the option to raise capital through selling shares or bringing in additional partners. This limitation can restrict the growth and expansion potential of the business, as the owner's personal savings and borrowing capacity may be limited.

Explanation

The correct answer is that capital is limited to the owner's savings and bank loans. This means that a sole trader business relies solely on the personal savings of the owner and any loans they can secure from banks. Unlike corporations or partnerships, sole traders do not have the option to raise capital through selling shares or bringing in additional partners. This limitation can restrict the growth and expansion potential of the business, as the owner's personal savings and borrowing capacity may be limited.

3. One of the claimed advantages of a sole trader business is that:

Owners have limited liability

Shares can be sold to raise capital

Decisions and responsibilities can be shared

The owner has independence

The correct answer is that the owner has independence. This means that as a sole trader, the owner has complete control over all aspects of the business. They have the freedom to make decisions and set the direction of the business without having to consult or answer to anyone else. This independence allows the owner to pursue their own vision and goals for the business without interference or conflicting opinions from others.

Explanation

The correct answer is that the owner has independence. This means that as a sole trader, the owner has complete control over all aspects of the business. They have the freedom to make decisions and set the direction of the business without having to consult or answer to anyone else. This independence allows the owner to pursue their own vision and goals for the business without interference or conflicting opinions from others.

4. The main reason why the owners of many private limited companies convert into public limited companies is that:

They do not want to remain in the private sector

They want to gain the benefits of limited liability

They want to keep the annual accounts secret

They want to raise additional capital to expand the business.

Private limited companies may choose to convert into public limited companies in order to raise additional capital to expand their business. By becoming a public limited company, they can offer shares to the public and raise funds through the sale of these shares. This can provide the company with a significant injection of capital, which can be used to invest in new projects, expand operations, or enter new markets. This move allows the company to access a larger pool of potential investors and tap into the financial resources of the public.

Explanation

Private limited companies may choose to convert into public limited companies in order to raise additional capital to expand their business. By becoming a public limited company, they can offer shares to the public and raise funds through the sale of these shares. This can provide the company with a significant injection of capital, which can be used to invest in new projects, expand operations, or enter new markets. This move allows the company to access a larger pool of potential investors and tap into the financial resources of the public.

5. One of the advantages of a partnership form of business organization is that:

All partners always have limited liability

Shares can be sold on the Stock Exchange

The business survives the death of the partners

The business has access to more capital than a sole trader.

In a partnership form of business organization, multiple partners contribute to the capital of the business, which allows for a larger pool of funds compared to a sole trader. This increased access to capital provides the partnership with more financial resources to invest in the business, expand operations, or take advantage of new opportunities. Unlike a sole trader, who relies solely on their own funds, a partnership can tap into the financial resources of multiple partners, increasing its capacity for growth and development.

Explanation

In a partnership form of business organization, multiple partners contribute to the capital of the business, which allows for a larger pool of funds compared to a sole trader. This increased access to capital provides the partnership with more financial resources to invest in the business, expand operations, or take advantage of new opportunities. Unlike a sole trader, who relies solely on their own funds, a partnership can tap into the financial resources of multiple partners, increasing its capacity for growth and development.

6. One of the advantages to a business of selling a franchise is that:

The business can expand more quickly

The franchisor owns all of the shops

The businesses buying the franchises are certain to be successful

The products sold in each shop will be different.

Selling a franchise allows a business to expand more quickly because it allows them to leverage the resources and capital of the franchisees. By selling franchises, the business can open new locations without having to invest their own capital or take on additional debt. Franchisees are responsible for the costs of opening and operating the franchise, while the business benefits from the increased presence and revenue from these new locations. This allows the business to grow and expand its brand and market reach at a faster pace compared to opening new company-owned stores.

Explanation

Selling a franchise allows a business to expand more quickly because it allows them to leverage the resources and capital of the franchisees. By selling franchises, the business can open new locations without having to invest their own capital or take on additional debt. Franchisees are responsible for the costs of opening and operating the franchise, while the business benefits from the increased presence and revenue from these new locations. This allows the business to grow and expand its brand and market reach at a faster pace compared to opening new company-owned stores.

7. Which of the following statements about co-operative business organizations is true?

All co-operatives are only concerned with retailing.

Profits are shared equally amongst members.

They are owned by shareholders.

Workers have no say in decision-making.

Co-operative business organizations are characterized by the principle of profit-sharing among their members. This means that the profits generated by the organization are distributed equally among the members, rather than being retained by a select few or shareholders. This equitable distribution of profits is one of the key features of co-operatives, promoting a sense of fairness and collective benefit among members.

Explanation

Co-operative business organizations are characterized by the principle of profit-sharing among their members. This means that the profits generated by the organization are distributed equally among the members, rather than being retained by a select few or shareholders. This equitable distribution of profits is one of the key features of co-operatives, promoting a sense of fairness and collective benefit among members.

8. Which of the following statements about most public limited companies is true?

They are owned and controlled by the workers.

They are owned by the directors but controlled by the shareholders.

They are owned by shareholders but controlled by directors.

They are owned and controlled by the government.

Public limited companies are owned by shareholders, meaning that individuals or entities hold shares in the company. However, the day-to-day operations and decision-making are typically controlled by the directors, who are appointed to manage the company on behalf of the shareholders. This separation of ownership and control is a characteristic of public limited companies, where shareholders have the right to elect directors but do not directly control the company's operations.

Explanation

Public limited companies are owned by shareholders, meaning that individuals or entities hold shares in the company. However, the day-to-day operations and decision-making are typically controlled by the directors, who are appointed to manage the company on behalf of the shareholders. This separation of ownership and control is a characteristic of public limited companies, where shareholders have the right to elect directors but do not directly control the company's operations.

9. Which of the following statements best applies to a public limited company (PLC)?

It is owned by the government and is in the public sector.

It is owned by shareholders who can sell their shares on the Stock Exchange.

It is quick and easy to set up with few legal formalities.

Its accounts can be kept private, and it receives little coverage in the business

A public limited company (PLC) is a type of company that is owned by shareholders who can freely buy and sell their shares on the Stock Exchange. This means that the ownership of the company can change hands easily and the company can raise capital by issuing more shares to the public. This is one of the key characteristics of a PLC and distinguishes it from other types of companies.

Explanation

A public limited company (PLC) is a type of company that is owned by shareholders who can freely buy and sell their shares on the Stock Exchange. This means that the ownership of the company can change hands easily and the company can raise capital by issuing more shares to the public. This is one of the key characteristics of a PLC and distinguishes it from other types of companies.

10. One of the main drawbacks of many public limited companies is that:

There can be a loss of control by the original owners as additional shares are sold

Firms in the public sector are often less efficient

If the company were to fail, the shareholders could lose all of their assets

Workers have to be asked for their opinions before major decisions are taken.

As additional shares are sold in public limited companies, the original owners may experience a loss of control. This is because when new shares are issued, new shareholders come into the picture and have a say in the company's decision-making process. The original owners may find their influence diluted as more shareholders join the company. This loss of control can be seen as a drawback for the original owners who may have started the company with a specific vision and direction in mind.

Explanation

As additional shares are sold in public limited companies, the original owners may experience a loss of control. This is because when new shares are issued, new shareholders come into the picture and have a say in the company's decision-making process. The original owners may find their influence diluted as more shareholders join the company. This loss of control can be seen as a drawback for the original owners who may have started the company with a specific vision and direction in mind.

11. Which of the following is NOT a feature of a private limited company?

Shares can be issued to raise capital.

Shares can be bought and sold on the Stock Exchange.

All owners of the business have limited liability.

The business continues after the death of shareholders.

A private limited company is a type of business structure where the number of shareholders is limited and shares cannot be freely traded on the stock exchange. This is in contrast to a public limited company where shares can be bought and sold on the stock exchange. Therefore, the statement "Shares can be bought and sold on the Stock Exchange" is not a feature of a private limited company.

Explanation

A private limited company is a type of business structure where the number of shareholders is limited and shares cannot be freely traded on the stock exchange. This is in contrast to a public limited company where shares can be bought and sold on the stock exchange. Therefore, the statement "Shares can be bought and sold on the Stock Exchange" is not a feature of a private limited company.

12. All of the following are claimed advantages of joint ventures except:

The costs of a new project can be split between the companies involved

Manufacturing costs will be divided between the firms in the venture

Joint ventures between firms in different countries can create new market opportunities

Management of the joint venture will never lead to disagreements

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Explanation

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13. The best definition of nationalization is:

Expanding a business to all parts of the country

When the government buys all of the assets of a private sector business

When a private limited company applies to become a public limited company

Opening a new division of the business in another country to become a multinational.

Nationalization refers to the process in which the government acquires all the assets of a private sector business. This typically involves the transfer of ownership and control from private individuals or entities to the government. It is a significant step towards state ownership and control of industries and is often done to achieve various objectives such as economic stability, social welfare, or strategic interests.

Explanation

Nationalization refers to the process in which the government acquires all the assets of a private sector business. This typically involves the transfer of ownership and control from private individuals or entities to the government. It is a significant step towards state ownership and control of industries and is often done to achieve various objectives such as economic stability, social welfare, or strategic interests.

14. All of the following are claimed advantages of public corporations except:

In cases where monopolies are likely to occur, public corporations will be best for consumers

In declining industries, public corporations, with government subsidies, would attempt to avoid job losses

By aiming to maximize profits, public corporations will always make money for the government

A public corporation television service could make non-profitable programs.

Public corporations may not always make money for the government by aiming to maximize profits. While maximizing profits is a common goal for public corporations, it does not guarantee that they will always generate revenue for the government. Factors such as market conditions, competition, and operational costs can impact the profitability of public corporations. Therefore, it cannot be claimed as an advantage of public corporations.

Explanation

Public corporations may not always make money for the government by aiming to maximize profits. While maximizing profits is a common goal for public corporations, it does not guarantee that they will always generate revenue for the government. Factors such as market conditions, competition, and operational costs can impact the profitability of public corporations. Therefore, it cannot be claimed as an advantage of public corporations.

15. One of the reasons for a business buying a franchise is because:

It is always much cheaper than setting up a new business venture

There is complete control over important decisions

The business can use its own name in advertisements

The risks of failure are lower as it is buying a well-known business idea.

A business may choose to buy a franchise because it offers complete control over important decisions. When buying a franchise, the business owner has the freedom to make important decisions regarding operations, marketing strategies, pricing, and staff management. Unlike other business models where decisions may be restricted or influenced by stakeholders or partners, buying a franchise allows the business owner to have full autonomy in making crucial choices for the success of the business. This control can provide a sense of security and ownership, allowing the business to align its strategies and operations with its own vision and goals.

Explanation

A business may choose to buy a franchise because it offers complete control over important decisions. When buying a franchise, the business owner has the freedom to make important decisions regarding operations, marketing strategies, pricing, and staff management. Unlike other business models where decisions may be restricted or influenced by stakeholders or partners, buying a franchise allows the business owner to have full autonomy in making crucial choices for the success of the business. This control can provide a sense of security and ownership, allowing the business to align its strategies and operations with its own vision and goals.