1.4.1b Sole trader, partnership and private limited company Quiz: Pearson Edexcel Business, Unit 4

The 20 questions

1. Which type of business ownership has a single owner who keeps all profits and bears all losses?

   • Public limited company
   • Sole trader
   • Private limited company
   • Partnership

2. What is a partnership?

   • A business owned by between two and twenty people who share profits and responsibilities
   • A business owned by the government and run for the benefit of the whole local community
   • A company whose shares are bought and sold on a stock exchange by members of the public
   • A business owned by one person who employs at least ten members of staff in its workforce

3. A private limited company is best described as:

   • A company that has limited liability and whose shares cannot be offered to the general public
   • A company whose shares can be sold to the public freely on a stock exchange in London
   • A business that is run by its employees with no owners at all, and no shareholders either
   • A business owned by a single person who has unlimited liability for all of its debts

4. Which of these is an advantage of being a sole trader?

   • The owner has limited liability and is protected from business debts
   • The business can easily raise large sums by selling shares to the public
   • The owner keeps all the profits and has complete control over decisions
   • The business has to publish its accounts publicly every year

5. Which of these is a disadvantage of a partnership?

   • Partners can disagree about decisions, and each may be liable for the firm's debts
   • Partners can raise finance more easily than a limited company can from banks and investors
   • Partners share the workload and skills, which can bring fresh ideas and a wider range of expertise
   • Partners do not have to register their business with any authority, which saves time and money

6. A business has three partners who each put in £20,000. What is the total capital invested?

   • £40,000
   • £60,000
   • £20,000
   • £80,000

7. Which business type is most likely to suit a small local business that wants limited liability and cannot sell shares to the public?

   • Sole trader
   • Private limited company
   • Public limited company
   • Partnership

8. What does 'Ltd' at the end of a company's name indicate?

   • The company is a public limited company that sells shares on a stock exchange
   • The company is a charity that reinvests all of its profits into good causes
   • The company is a sole trader who has been trading for over ten years
   • The company is a private limited company with limited liability

9. A sole trader wants to expand and needs more money. Which is the most significant limitation she faces?

   • She cannot hire any staff at all under sole trader status
   • She is required to pay her profits to the government each month
   • She must register as a public limited company before she can borrow money
   • Raising large amounts of finance can be difficult for a single owner

10. Which of these is an advantage of a private limited company over a partnership?

    • Shareholders have limited liability, so their personal assets are protected
    • Owners can avoid all legal paperwork and company registration requirements
    • Owners can always make decisions without consulting anyone else
    • Owners do not need to pay corporation tax on the company's profits

11. Which of these is a feature of a private limited company?

    • It must have at least 50 shareholders before it can be formed
    • It is a separate legal entity from its shareholders
    • Its shares are traded on a public stock exchange
    • It has unlimited liability for all of its directors and staff

12. A partnership cannot pay a £30,000 supplier bill after a bad year. What is a key risk for the partners?

    • They are required to give up their share of profits to the court
    • Each partner may be personally liable for the unpaid debts of the partnership
    • They lose all rights to trade with their suppliers in future
    • They must pay the supplier from the partnership bank account before any other costs

13. A business owner wants to keep full control while avoiding personal liability for company debts. Which type should she choose?

    • Private limited company, because it protects the owner's personal assets
    • Partnership, because it spreads the risk of debts across the partners in the firm
    • Public limited company, because it is run by the government for the benefit of shareholders
    • Sole trader, because it gives full control of the business and no personal liability at all

14. Which of these best describes a shareholder in a private limited company?

    • A supplier who has agreed to extend trade credit to the company for a fixed period
    • A customer who buys goods from the company regularly on credit terms agreed in advance
    • A person who has unlimited liability for the company's debts and runs it day to day
    • A person who owns a share of the company and has limited liability for its debts

15. Which of these is a disadvantage of setting up as a sole trader?

    • The owner needs no accounting records or tax returns at all
    • The owner has unlimited liability for the debts of the business
    • The owner has complete control over every business decision
    • The owner can easily sell shares to raise extra money quickly

16. Which business type has the least formal legal and administrative requirements to set up?

    • Private limited company
    • Franchise company
    • Sole trader
    • Public limited company

17. Three friends set up a business together and share profits and decisions. Which business type is this?

    • Partnership
    • Charity
    • Private limited company
    • Sole trader

18. Which of these is most likely to make a private limited company harder to set up than a sole trader business?

    • It requires the owner to keep all profits in a personal bank account, separate from the business
    • It cannot trade with customers until it has at least 1,000 shareholders on its register
    • It must be formally registered with Companies House and file annual accounts
    • It must give up all control of its decisions to a board of directors who are not owners

19. A sole trader's profit is £40,000 and she pays £8,000 personal tax on it. What is the figure she keeps after tax on this profit?

    • £40,000
    • £32,000
    • £8,000
    • £48,000

20. Which feature is shared by sole traders and partnerships?

    • Both are separate legal entities from their owners
    • Both have limited liability for their owners
    • Both must file accounts publicly at Companies House
    • Both have unlimited liability for their owners

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