Business activity

Question 1

What is the purpose of a private enterprise?

Answer 1

They are owned privately by individuals or groups of individuals (private sector) and often wish to make a profit for the owners

Question 2

What is the purpose of a social enterprise?

Answer 2

They are an organization in the private sector that do not aim to make a profit, but rather to improve human and enviornmental wellbeing.

Question 3

What is the purpose of a public enterprise?

Answer 3

Public sector organizations that aim to provide goods and services that the private sector or private sector enterprises fail to provide adequately.

Question 4

What is the importance of clear objectives? (list 4)

Answer 4

Objectives help to motivate people

Owners might not have the motivation to keep the business going

Objectives help to decide where to take a business and what steps are necessary to get there

Easier to assess the performance of a business

Question 5

Explain 5 financial business objectives

Answer 5

Survival; threatened when trading conditions become difficult or if a strong competitor enters the market

Profit; financial return, profit maximization, dividends

Sales; economies of scale, market share, public profile, more wealth, stakeholders will benefit

Increase market share; win customers, charge higher prices, higher profile

Financial security; profit satisficing, flexibility to allow a particular lifestyle, spend time with family, dont want extra responsibility

Question 6

Explain 4 non financial objectives

Answer 6

Social objectives; improve human and environmental well being (public services), social enterprises, social responsibility

Personal satisfaction; enjoy taking risks, hobbies into a business, more satisfied in their work environment

Challenge; motivated by challenges,

Independence and control; driven by the desire to be independent, freedom to make decisions

Question 7

Why might objectives change?

Answer 7

Markets are dynamic therefore businesses must change their objectives to deal with changes

Technology

Inconsistent performance

Legislation, businesses may choose to be more socially responsible.

Internal reasons (change in ownership)

Question 8

Advantages of operating as a sole trader

Answer 8

Owner keeps all the profit
Independent and has complete control
simple to set up with no legal requirements
Flexible
Can offer a personal service
May qualify for government help

Question 9

Disadvantages of a sole trader

Answer 9

Unlimited liability
Struggle to raise finance
independence may be a heavy responsibility
Long hours and very hard work
Too small to exploit economies of scale
No continuity

Question 10

Advantages of partnerships

Answer 10

Easy to set up and run (no legal formalities)
Partners can specialize in their area of expertise
job of running a business is shared
More capital can be raised
financial information is not published

Question 11

Disadvantages of partnerships

Answer 11

Unlimited liability
Profit has to be shared
Disagreements may occur
Any partners decision is legally binding
tend to be small

Question 12

Advantage of a franchise to a franchisee

Answer 12

Less risk
back up support is given
set up costs are predictable
national marketing may be organized

Question 13

Disadvantages of a franchise to a franchisee

Answer 13

Profit is shared with the franchisor
Strict contracts have to be signed
Lack of independence
Expensive way to start

Question 14

Advantages of a franchise to a franchisor

Answer 14

Fast and cheaper method of growth
Franchisees take some of the risk
Franchisees are more motivated as they are more responsible for the company’s success than employees

Question 15

Disadvantages of a franchise to a franchisor

Answer 15

Cost of support for franchisees may be high
Profit has to be shared with the franchisee
Franchisees may get merchandise elsewhere
Poor franchisees may damage the brand’s reputation

Question 16

What are the main features of limited companies

Answer 16

They are incorporated
Limited liability
Raise capital by selling shares
Shareholders elect a board of directors to run the company
Pay corporation taxes
Necessary to obtain a certificate of incorporation

Question 17

What is in the memorandum of association?

Answer 17

Sets out the constitution and gives details about the company, eg; name, name and address of the company’s registered office, objectives and nature of the business and its activities

Question 18

What is in the articles of association

Answer 18

Details the internal running of the company, eg; rights of shareholders, timing and frequency of company meetings

Question 19

What are some features of private limited companies

Answer 19

Ends in limited, shares are transferred privately (transfer of shares must be agreed upon by shareholders and cannot be advertised or traded on the stock market), often family businesses, directors are shareholders

Question 20

Advantages of private limited companies

Answer 20

Shareholders have limited liability
More capital can be raised
Control cannot be lost to outsiders
Business continuity
Has more status

Question 21

Disadvantages of private limited companies

Answer 21

Financial information is public
Costly and takes time to set up
Profits are shared among more members
Takes time to transfer shares
Cannot raise huge amounts of money like PLCS

Question 22

Why are flotations costly

Answer 22

Requires lawyers to verify a prospectus
Prospectus must be printed and circulated
Bank may be paid to process share applications
Insurance against the possibility that shares may not be sold (underwriter)
Advertising and administrative expenses
minimum of 50,000 pounds of share capital

Question 23

Advantages of PLCs

Answer 23

Large amounts of capital can be raised
Shareholders have limited liability
Economies of scale
Dominate the market
Shares can be bought and sold easily
Higher profile

Question 24

Disadvantages of PLCs

Answer 24

Costly to set up
Control can be lost to outsiders (shares)
Financial info must be made public
More remote from customers
More regulatory control
Managers may take control

Question 25

Features of a multinational company?

Answer 25

Huge assets and turnover (well resourced)
Highly qualified and experienced staff
Powerful advertising and marketing capability
Advanced and up-to-date technology
Highly influential
Economies of scale so efficient
Ownership and control is centred in the host country

Question 26

Features of a public corporation

Answer 26

Government owns them
Created by an act of parliament
Incorporated
Capital is provided through taxes mainly
Provide public services
Accountable to taxpayers

Question 27

Reasons for public ownership of businesses

Answer 27

Natural monopolies to avoid wasteful duplication
Better for industries that are vital to the nation’s security to be owned by the government (reliable supply and quantity can be guaranteed)
Saves jobs to prevent mass unemployment
Provide goods and services that the private sector fails to provide adequately
Serve unprofitable regions

Question 28

Disadvantages of public ownership

Answer 28

Makes losses which have to be met by taxpayers, subsidies can be used for other expenditure

Inefficiency due to the lack of competition, lack of incentives

Political interference, different views, policy changes

Difficult to control as they employ many workers across a wide geographical area

Question 29

How does privatisation occur?

Answer 29

Selling shares
Deregulation
Contractors are given a chance to bid for services previously supplied by the public sector
Sale of council owned properties to tenants

Question 30

Advantages of privatisation

Answer 30

Generate income for the government
Reduce inefficiency
So new firms could be encouraged to join the market
Reduce political interference

Question 31

What are some factors that affect the appropriateness of different forms of ownership

Answer 31

Change their legal status as they grow to raise more capital
Size, including the number of employees
Finance
Independence and control
Protect their own financial position
Type of business activity
How they plan to use profits
Different stakeholders