1. Give a brief description of the THREE types of business ventures mentioned in the case.
A sole trader or sole proprietorship is a business entity which is owned and operated by one person
with there being no distinction between the owner and the business, he/she is in control of all
elements of the business and is responsible for the finances of the business such as debts and losses.
A partnership on the other hand is a type of business which is formed by two or more people who
share ownership as well as the responsibility for managing the company and also the income or
losses which the business generates. A limited liability company however is a hybrid business entity
which possesses characteristics of a corporation, partnership and/or sole trader and can have 1 or
more owners, the main attribute of the LLC is limited liability, this means that owners are legally
responsible for the business’ debt only to the extent of the amount of capital which they’ve
invested.
2. State TWO advantages and ONE disadvantage of TWO types of business ventures
identified in question 1.
Sole Trader
Two advantages of a sole trader business are that it allows for owners to have total control over
the aspects in the business without the involvement of elected board members and also that
establishing and operating the business is very simple.
A disadvantage of the sole trader business is that owner is personally liable for business losses
hence their personal assets are not protected against the claims of creditors.
Partnership
Two advantages of partnerships are that it allows to a wider range of expertise as each partner
brings their own diverse skillset to the business. It also provides access to greater capital as the
more partners there are, the more money there will be.
A disadvantage of the partnership entity is that there may be a conflict in agreeing on certain
decisions or situations as each owner might have different priorities in certain cases.
3. What is a franchise?
A franchise (franchisee) is a type of business that is granted a license by a franchisor which
allows it access to that firm’s proprietary business knowledge, processes and trademarks hence
allowing the franchisee to sell a product or service under the franchisor’s business name, while
also paying the franchisor a fee in return.
4. List three advantages and two disadvantages of a franchisee.
Advantages
-The risk of business failure is reduced as the franchise is based on a business which is already
proven and established.
-There is a lower start up cost as the business idea was already developed.
-Relationships have already been established with suppliers which removes the need for
searching for new ones.
Disadvantages
-A franchise has limited creativity as a result of it mostly being able to act on the directives of its
parent company.
-A franchise has to pay a cut of it’s profits (franchise fee) to the franchisor in return for being
able to sell or distribute under the parent company’s name.
5. Define State owned Enterprises.
A state-owned enterprise is a legal entity that is created by the government in order to take part
in commercial activities on its behalf. It can either be partially or wholly owned by the
government for the purpose of participating in specific activities.