3.1.2 Flashcards
What is the Private Sector?
A part of the economy that is owned by shareholders and by private individuals.
What is a sole trader?
When individuals establish and operate a business on their own.
What are 2 features of operating as a sole trader?
1) small business
2) must personally serve customers, deal with suppliers, keep accurate and up to date records.
What are 5 advantages of operating as a sole trader?
1) easy and cheap to set up
2) few legal formalities
3) able to respond quickly to problems
4) more business privacy
5) owner keeps most of the profit
What are 3 disadvantages of operating as a sole trader?
1) unlimited liability, homes may be use to pay of debts
2) less money to invest into the business, income tax must be payed with the profit
3) no income when the owner is ill or off work
What does Ltd stand for?
Private Limited Company
What is a Ltd?
Privately owned business entity
What are 3 features of operating as a Ltd?
1) Non-transferability for shares
2) doesn’t work in the stocks
3) separate legal identity
What are 3 advantages of operating as a Ltd?
1) Limited Liability
2) Access to more capital then unincorporated business
3) more private and flexible than a Plc
What are 2 disadvantages of operating as a Ltd?
1) shares are less attractive as they cannot share on the stock exchange
2) harder than a Plc, to raise money.
What does Plc stand for?
Public Limited Company
What is a Plc?
A company who products are traded on the stocks, and can be bought and sold by anyone.
What are 2 features of operating as a Plc?
1) selling shares to investors, raises capital
2) minimum of three directors.
What are 4 advantages of operating as a Plc?
1) limited liability
2) Business becomes well know, good and bad publicity
3) greater scope for new investments
4) more willing suppliers to offer credit
What are 3 disadvantages of operating as a Plc?
1) must publish a great deal o financial information about it Performance
2) they have greater scrutiny for their activities
3) founder may loose control if their share holding fall below 51%,risk of a hostile takeover
What is the definition of unlimited liability?
Being personally responsible for all the actions of their business. They could lose their personal assets if the business falls i to financial problems
What is the definition of a company?
A business organisation that has its own legal identity, has limited liability
What is the definition of incorporation?
The process of establishing a business as a separate legal identity.
What is the definition of a shareholder?
A investor in, and one of the owners of, a company
What is the definition of limited liability?
In the event of financial difficulties, the personal assets of shareholders are safe.
What is the definition of dividends?
A share of the profits that is distributed between the shareholders
What is the definition of market capitalisation?
The total value of the issued shares of a public limited company
What is the Public Sector?
Comprises the organisations that are owned by national or local government
What are the three major elements of the Public Sector?
Public corporations
Public services
Municipal services
What are Public Corporations?
Enterprises owned by the state, but sell to the public
E.g. Manchester Airport
What are Public Services?
Involves organisations that provide services to the whole nation
E.g. NHS
What are Municipal Services?
Services offered by local governments and councils
E.g. Library
What is a Not-For-Profit-Business?
A business they doesn’t make a profit, the build the business because they have a strong opinion on something like the environment, or because they want a hobby, or to replace employment
What is a Mutual Business?
Characterised because they are run for the benefit of their members
What is an example of a Mutual Business?
Co-operatives
What must cooperatives reflect? 4
Four ethical issues:
1) honesty
2) openness
3) social responsibility
4) caring for others
What are the three types of Co-operatives?
Consumer Co-operatives, customers are members
Worker Co-operatives, owned and operated by employees
Producer Co-operatives, group of businesses work together & benefits from things like increased bargaining power
What are opposed things about Co-operatives?
Not employing skilled professionals for the roles, rather then relying on elected members who may not be suited for the role
Who buys shares in a business?
Financial institutions
What are the reason for buying shares?
Primarily for financial reasons
What are the risks of buying shares?
The price of shares can easily fall
What are the risks of buying ordinary shares?
Most risky type because they will only be paid when the larger investors are paid
What is the role of shareholders?
Have influence in decision making. One vote if for one share. The more shares, the more votes and influence
What can influence share prices?
Company’s Performance
Business Trading Environment
What are Regulatory Accounts?
An account of information that a Plc has to provide to the public twice a year
How does the business doing/expected to be doing well effect the share prices
They would increase
How does the businesses environment effect share prices?
Good economic conditions can lead to investors wanting to invest more or at all. Increasing share price
What is the Rising share prices effect on a business? 3
1) Reflects well on the company’s managers - receive bonuses
2) Easier to raise capital when share prices are higher
3) Shareholders will be more willing to buy
