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
