Types of business entity: Practice Questions

Which feature is a characteristic of a Public Limited Company (plc)?

A business frequently uses its bank overdraft facility to pay its suppliers. Which statement correctly identifies a risk and a feature of this method of funding?

In a large public limited company (plc), who is primarily responsible for the day-to-day management and decision-making of the business?

In a partnership, why might the partners include a clause in their agreement to charge interest on drawings?

Which statement correctly describes a sole trader business entity?

State the primary difference between a secured loan and an unsecured loan in terms of the business assets used as collateral.

A partnership with a high level of trade payables decides to use a bank overdraft to pay its suppliers immediately to take advantage of a settlement discount. Describe how this decision affects the components of the business's working capital and state one disadvantage of relying on an overdraft compared to a long-term bank loan.

Identify the primary source of internal finance available to a sole trader for expanding their business operations.

Identify and explain two distinct differences between a sole trader and a private limited company in terms of their legal structure and owner's liability. State one advantage for an entrepreneur choosing to operate as a sole trader.

A successful private limited company is planning to expand its operations and requires \( \$200000 \) in additional funding. The directors are evaluating ordinary shares and bank loans (secured).

(a) Define the term secured loan.
(b) Describe one advantage and one disadvantage to the company of issuing ordinary shares rather than taking a bank loan.
(c) Explain the role of dividends in a limited company.