1.2 business forms Flashcards
what are the 2 categories of business forms?
- public sector
2. private sector
what is a public sector?
businesses that are owned and sometimes funded by the government
what are the 3 types of public sectors?
- Public corporations: enterprises (Channel 4, BBC, Bank of England)
- Public services: offers service to the nation (NHS, Schools,
Fire service) - Municipal services: basic services expected to be provided by local council (Bin collection, library, leisure centre)
what is privatisation?
when the government sells businesses that they have owned and managed to private individuals and businesses
e.g. royal mail, railways, social housing
why would the government privatise?
- raises finance for them
- privately run businesses are more efficient
what is a sole trader?
- businesses that are owned and managed by 1 person- may employ others
- unlimited liability (responsibility)
- no distinction between the business + the individual –> So if the business was declared bankrupt personal belongings can be taken to pay off any debts.
characteristics of a sole trader:
- Easy + cheap to set up
- Unlimited liability
- Sources of finance are limited
- Long hours
- Be their own boss
- Make all decisions
- Keep all the profits
- No continuity
- No specialist skills
- Stressful
- Financial information kept private
what is a partnership?
Business owned by minimum 2 people
characteristics of a partnership:
- Easy and cheap to start
- Unlimited liability
- No continuity
- Profits are shared
- Specialist skills
- Additional sources of finance
- Must respect partner’s decisions
- Financial info kept private
- Shared workload
- Sleeping partner
- Partners may not agree
Unlimited liability is not ideal. How do we get rid of it?
- Become a company
- Through the incorporation process (registers as a limited company)
- 3 important documents: (memorandum of association, articles of association, registering with companies house)
what is a company?
an organisation that has its own legal identity and limited liability
what is an incorporation?
process of establishing a business as a separate legal entity and limited liability
what is a shareholder?
an investor + an owner
what are dividends?
share of profit that is distributed to shareholders
companies are split into 2 types:
- Private limited company (Ltd)
2. Public limited company (PLC)
what is a private limited company (Ltd)?
A business owned by shareholders with limited liability but whose shares cannot be bought by or sold to the general public.
what is a public limited company (PLC)?
An incorporated business organisation that allows the general public to buy + sell shares in the company via a stock exchange.
what is market capitalisation? (and formula)
- Measures the size of PLC
- Total value of issued shares
MARKET CAPITALISATION = share price x number of shares
what is a not for profit organization? (aka social enterprises)
a business that aims to do something other than to make profit such as providing a public service or helping people.
side note:
mutual business: run for the benefit of their members (cooperatives or building societies)
characteristics of not for profit organisations:
- help others
- reputation
- encourage others into the profession
- give people opportunities that may not get otherwise
why buy shares?
- primarily financial reasons
- investment
- dividends from profits
- Annual general meeting with shareholders, voicing opinion and getting a vote (Not always the case!)
what are risks of buying shares?
- external factors reducing share price
- profits falling
- less dividends
- might not be able to sell shares for = to what you paid for
what factors could influence share price?
- company’s performance
- economy
- competitors
- trends
- natural disasters
features of rising shares:
- reflect well on management
- happier shareholders
- easier to raise capital
features of falling shares:
- reflects poor management
- difficult to raise capital
- vulnerable to takeover
