2. Business Structure Flashcards
1
Q
Economic sectors
4 types of sectors
A
- Primary Sector - Firms engaged in farming, fishing, oil extraction and all other industries that extract natural resources so that they can be used and processed.
- Secondary sector - Firms that manufacture and process products from natural resources, including computers, brewing, baking, clothes-making and construction.
- Tertiary Sector - Firms providing services to consumers and other businesses, such as retailing, transport, insurance, banking, hotels and tourism.
- Quaternary Sector - Business providing information services, such as computing, web design, ICT, management consultancy and R&D
2
Q
Consequences of industrialisation
* Benefits
A
- Total national output (gross domestic product) increases and this raises average standards of living.
- Increasing output of goods can result in lower imports and higher exports of such products.
- Expanding manufacturing businesses will result in more jobs being created.
- Expanding and profitable firms will pay more tax to the government.
- Value is added to the country’s output of raw materials, rather than just exporting these as basic, unprocessed products
3
Q
Consequences of industrialisation
* Problems
A
- The chance of work in manufacturing can encourage a huge movement of people from the countryside to towns, which leads to housing and social problems.
- Imports of raw materials and components are often needed, which can increase the country’s import costs.
- Much of the growth of manufacturing industry is due to the expansion of multinational companies. These can have a negative impact on the economy too.
4
Q
Consequences of deindustrialisation
A
- job losses in agriculture, mining and manufacturing industries
- movement of people towards towns and cities
- job opportunities in service industries – tertiary and quaternary sectors
- increased need for retraining programmes to allow workers to find employment in service industries.
5
Q
Why there are public sector enterprises?
A
- In most mixed-economy countries, important goods and services are provided by government-owned or state-run organisations as it is argued that they are too significant to be left to private businesses.
- To provide products is the existence of public goods. These are goods and services that cannot be charged for, so it is impossible for a private-sector business to make a profit from producing them. Taxes have to be used to raise revenue to pay for a street-lighting system as the lights can only be provided by the public sector.
6
Q
Advantages of Public Corporations
A
- They are managed with social objectives rather than solely with profit objectives.
- Loss-making services might still be kept operating if the social benefit is great enough.
- Finance is raised mainly from the government.
7
Q
Disadvantages of Public Corporations
A
- There can be a tendency towards inefficiency due to lack of strict profit targets.
-
Subsidies from government can also
encourage inefficiencies. -
Government may interfere in business
decisions for political reasons, for example by
opening a new branch in a certain area to gain
popularity
8
Q
Sole Trader
* Advantages
A
- Easy to set up – no legal formalities
- Owner has complete control – not answerable to anybody else
- Owner keeps all profits
- Owner can choose times and patterns of working
- Owner can establish close relationships with staff (if any are employed) and customers
- Business can be based on the interests or skills of the owner – rather than working as an employee for a larger firm
9
Q
Sole Trader
* Disadvantages
A
- Unlimited liability – all of the owner’s assets are potentially at risk
- Often intense competition from bigger firms, for example in food retailing
- owner is unable to specialise in areas of the business that are most interesting – is responsible for all aspects of management
- difficult to raise additional capital
- long hours are often necessary to make the
business pay - lack of continuity – as the business does not
have a separate legal status, when the owner
dies, the business also ends.
10
Q
Partnership
* Advantages
A
- Partners may specialise in different areas of business management.
- They share decision-making.
- Additional capital is injected by each partner.
- Business losses are shared between the
partners. - There is greater privacy and fewer legal
formalities than in corporate organisations
(companies)
11
Q
Partnership
* Disadvantages
A
- All partners have unlimited liability (with some exceptions).
- Profits are shared.
- There is no continuity and the partnership will have to be reformed in the event of the death of one of the partners.
- All partners are bound by the decisions of any
one of them. - It is not possible to raise capital from selling
shares. - A sole trader, taking on partners, will lose
decision-making independence
12
Q
Private Limited Companies (Ltd)
* Advantages
A
- Shareholders have limited liability.
- The company has a separate legal personality.
- There is continuity in the event of the death of
a shareholder. - The original owner is still often able to retain
control. - The company is able to raise capital from the
sale of shares to family, friends and
employees. - The company has greater status than an
unincorporated business.
13
Q
Private Limited Company
* Disadvantages
A
- There are legal formalities involved in establishing the business.
- Capital cannot be raised by the sale of shares to the general public.
- It is quite difficult for shareholders to sell shares.
- End-of-year accounts must be sent to the government office responsible for companies, and are available for public inspection (so there is less secrecy over financial affairs than for a sole trader or partnership)
14
Q
Public Limited Company (Plc)
* Advantages
A
- Shareholders have limited liability.
- The company has a separate legal identity.
- There is continuity.
- It is easy for shareholders to buy and sell
shares, encouraging investment. - Substantial capital sources can be accessed
due to the ability to issue a prospectus to the
public and to offer shares for sale (called a
flotation)
15
Q
Public Limited Company (Plc)
* Disadvantages
A
- Formation entails legal formalities.
- There can be high costs of paying for advice
from business consultants when creating a plc. - Share prices are subject to fluctuation,
sometimes for reasons beyond a business’s
control (e.g. the state of the economy). - There are legal requirements concerning
disclosure of information to shareholders and
the public (e.g. annual publication of detailed
report and accounts). - There is a risk of takeover due to the
availability of the shares on the stock
exchange. - Directors may be influenced by the short-term
objectives of the major investors
16
Q
Legal formalities in setting up a company
A
- A Memorandum of Association must be completed. This document is of great interest to shareholders. Knowing the maximum share capital means that the relative importance of a single share can be determined. Being aware of the company’s aims means that shareholders can avoid businesses that may operate in markets and products – such as weapons – that they may not want to be associated with.
- Articles of association - document that covers the internal working and control of the business, the names of directors and the procedures to be followed at meetings.
17
Q
Cooperative
Characteristics
A
- All members can contribute to running the business and sharing the workload, responsibilities and decision-making. In larger cooperatives, some delegation to professional managers takes place.
- All members have one vote at important meetings.
- Profits are shared equally among members
18
Q
Cooperative
* Advantages
A
- buying in bulk
- working together to solve problems and take decisions
- good motivation for all members to work hard as they will benefit from shared profits.
- sells products collectively to obtain a better price
19
Q
Cooperative
* Disadvanatges
A
- poor management skills, unless professional managers are employed
- capital shortages because the sale of shares to non-members is not allowed
- slow decision-making if all members are to be consulted on important issues.
20
Q
Franshises
* Advantages
A
- There are fewer chances of a new business failing because it is using an established brand name and product.
- Advice and training are offered by the
franchiser - The franchiser pays for national advertising.
- Supplies are obtained from established and quality-checked suppliers.
- The franchiser agrees not to open another branch in the local area.
21
Q
Franchises
* Disadvantages
A
- A share of the profits or revenue has to be paid to the franchiser each year.
- The initial franchise licence fee can be expensive
- Local promotions may still have to be paid for by the franchisee.
- The franchisee cannot choose which supplies or suppliers to use.
- Strict rules over pricing and layout of the outlet reduce the franchisee’s control over their own business
22
Q
Joint Ventures
* Advantages
A
- The** costs and risks** of a new business venture are shared, which is a major consideration when the cost of developing new products is rising rapidly.
- Different companies might have different strengths and experiences, and therefore fit well together.
- They might have major markets in different countries and they could exploit these with the new product more effectively than if they both decided to ‘go it alone’
23
Q
Joint Venture
* Disadvantage
A
- Styles of management and culture might be so different that the two teams do not blend well together.
- Errors and mistakes might lead to one company blaming the other for mistakes.
- The business failure of one of the partners would put the whole project at risk
24
Q
Social Enterprise
* Characteristics
A
- They directly produce goods or provide services.
- They have social aims and use ethical ways of achieving hem.
- They need to make a profit to survive as they cannot rely on donations as charities do
