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Business studies > 1.2 Business Structure > Flashcards

1.2 Business Structure Flashcards

1
Q

Private Sector

A

Comprises businesses owned and controlled by individuals or groups of individuals

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2
Q

Public sector

A

Comprises organisations accountable to and controlled by central or local government ( the state )

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3
Q

Mixed Economy

A

Economic resources are owned and controlled by both private and public (UK)

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4
Q

Free-market economy

A

Economic resources owned largely by the private sector with very little state intervention (US)

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5
Q

Command economy

A

Economic resources owned. planned and controlled by the state (pretty much VN)

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6
Q

Sole trader

A

A business in which one person provides the permanent finance and, has full control of the business –> Able to keep all profits

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7
Q

Advantages of sole trader

A
  • Few legal formalities are required to operate the business.
  • Total control over the business.
  • The owner gets 100% of profits.
  • Motivation because he gets all the profits.
  • Able to choose times and patterns of working
  • Personal contact with customers
  • Business based on skills and interests of owner
  • Does not have to share information with anyone but the tax office –> SECRECY
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8
Q

Disadvantages of sole trader

A
  • Nobody to discuss problems with.
  • Unlimited liability ( all assets at risks )
  • Limited finance/capital, business will remain small.
  • The owner normally spends long hours working.
  • Some parts of the business can be inefficient because of lack of specialists.
  • Does not benefit from economies of scale.
  • No continuity, no legal identity.
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9
Q

Partnership

A

A business formed by two or more people to carry on a business together, with shared capital investment and, usually, shared responsibilities

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10
Q

Disad of partnership

A
  • Unlimited liability.
  • No continuity, no legal identity.
  • Partners can disagree on decisions, slowing down decision making.
  • If one partner is inefficient or dishonest, everybody loses.
  • Limited capital, there is a limit of 20 people for any partnership.
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11
Q

Ad of partnership

A
  • More capital than a sole trader.
  • Responsibilities are split.
  • Any losses are shared between partners.
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12
Q

Limited Liability

A

The only liability - or potential loss - a shareholder has if the company fails is the amount invested in the company, not the total wealth of the owner

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13
Q

Legal personality

A

Limited companies are recognised in law as having a legal identity separate from that of them their owners.
e.g: A company can be sued through courts, not the owners.

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14
Q

Continuity

A

In a limited companies, the ownership continues through the inheritance of the shares –> no break in ownership –> companies don’t die like sole traders or partnership.

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15
Q

Private Limited Company

A
  • A small to medium- sized business that is owned by shareholders who are often members of the same family.
  • Don’t sell shares to the general public.
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16
Q

Shareholder

A

A person or institution owning shares in a limited company

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17
Q

Share

A

A certificate confirming part ownership of a company and entitling the shareholder owner to dividends and certain shareholder rights.

18
Q

Advantages of Ltds

A
  • The sale of shares make raising finance a lot easier.
  • Shareholders have limited liability, therefore it is safer for people to invest but creditors must be cautious because if the business fails they will not get their money back.
  • Original owners still control bc of limiting share distribution
  • Greater status than unincorporated business
  • Separate legal personality
19
Q

Disadvantages of Ltds

A
  • Owners need to deal with many legal formalities when setting the company
  • Shares cannot be freely sold without the consent of all shareholders.
  • Public information must be provided to the Registrar of Companies.
  • Capital is still limited as the company cannot sell shares to the public.
20
Q

Public Limited company

A

A limited company, often a large business, with the legal right to sell shares to the general public - share prices are quoted on the national stock exchange

21
Q

Ads of Public Limited Company

A
  • Limited liability.
  • Continuity.
  • Potential to raise limitless capital.
  • No restrictions on transfer of shares.
  • High status will attract investors and customers.
22
Q

Disads of Public Limited Company

A
  • Many legal formalities required to form the business.
  • Many rules and regulations to protect shareholders, including the publishing of annual accounts.
  • Difficult to control since it is so large.
  • Owners lose control, when the original owners hold less than 51% of shares.
23
Q

Memorandum of Association

A

This states the name of the company, the address of the head office through which it can be contacted, the maximum share capital for which the company seeks authorisation and the declared aims of the business.

24
Q

Articles of Association

A

This document covers the internal workings and control of the business - eg: The names of directors and the procedures to be followed at meetings will be detailed

25
Q

Franchise

A

A business that uses the name, logo and trading systems of an existing successful business

26
Q

Ads of Franchise for franchisor

A
  • The franchisee has to pay to use the brand name.
  • Expansion is much faster because the franchisor does not have to finance all new outlets.
  • The franchisee manages outlets
  • All products sold must be bought from the franchisor.
27
Q

Disads of Franchise for franchisor

A

A-The failure of one franchise could lead to a bad reputation of the whole business.
-The franchisee keeps some of the profits.

28
Q

Ads of Franchise for franchisee

A
  • Reduced chance of failure due to the well know brand image.
  • The franchisor pays for advertising.
  • Quality supplies are assured from the franchisor.
  • Many business decisions will be made by the franchisor (prices, store layout, products).
  • Advice and training for staff and management is provided by the franchisor.
  • Banks are more willing to lend to franchisees because of lower risks.
29
Q

Disads of Franchise for franchisee

A
  • Less independence
  • May be unable to make decisions that would suit the local area.
  • Licence fee must be paid annually and a percentage of the turnover must be paid.
30
Q

Joint venture

A

Two or more businesses agree to work closely together on a particular project and create a separate business division to do so

31
Q

Ads for Joint venture

A
  • Shared costs are good for tackling expensive projects. (e.g aircraft)
  • Pooled knowledge. (e.g foreign and local business)
  • Risks are shared
32
Q

Disads for Joint venture

A
  • Profits have to be shared.
  • Disagreements might occur as style of management and culture might be different
  • Errors and mistakes -> blame
  • Business fails if one of the partners puts the project at risk
  • The two partners might run the joint venture differently.
33
Q

Public corporation

A

A business enterprise owned and controlled by the state - also known as nationalised industry

34
Q

Ads of public corporation

A
  • Managed with social objectives rather than solely with profit objectives
  • Loss- making services might still be kept operating if the social benefit is good enough
  • Finance raised mainly from the government
35
Q

Disads of public corporation

A
  • Tendency towards inefficiency bc of lack of strict profit targets
  • Subsidies from gov -> Encourage inefficiencies
  • Gov may interfere in business decisions for political reasons
36
Q

Cooperatives

A
  • A number of individuals or businesses work together, share workload, responsibilities to achieve a common purpose.
  • They are normally formed so individuals and small businesses can benefit from being part of a larger group, meaning they have more power to buy or bargain.
37
Q

Ads of cooperatives

A
  • Buying in bulk
  • Working together to solve problems and take decisions
  • Good motivations of all members to work hard as they will benefit from shared profits
38
Q

Disads of cooperatives

A
  • Poor management skills
  • Capital shortages bc of no sale of shares to the public
  • Slow decision making bc needed to consult all members
39
Q

Public goods

A

All public goods have two important characteristics: Non-excludability(open to the public) and Non-diminishability( non-rivalry.
e.g: street light, military defence

40
Q

Merit goods

A

Generate substantial positive externalities
Can be given privately, unlike public goods
e.g: Health, education

41
Q

Demerit goods

A

Socially undesirable but usually overly-consumed goods
Negative externalities
e.g: Drugs, alcohol, cigarettes

Business studies (23 decks)

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