Business activity Flashcards
What is the purpose of a private enterprise?
They are owned privately by individuals or groups of individuals (private sector) and often wish to make a profit for the owners
What is the purpose of a social enterprise?
They are an organization in the private sector that do not aim to make a profit, but rather to improve human and enviornmental wellbeing.
What is the purpose of a public enterprise?
Public sector organizations that aim to provide goods and services that the private sector or private sector enterprises fail to provide adequately.
What is the importance of clear objectives? (list 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
Explain 5 financial business objectives
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
Explain 4 non financial objectives
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
Why might objectives change?
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)
Advantages of operating as a sole trader
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
Disadvantages of a sole trader
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
Advantages of partnerships
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
Disadvantages of partnerships
Unlimited liability
Profit has to be shared
Disagreements may occur
Any partners decision is legally binding
tend to be small
Advantage of a franchise to a franchisee
Less risk
back up support is given
set up costs are predictable
national marketing may be organized
Disadvantages of a franchise to a franchisee
Profit is shared with the franchisor
Strict contracts have to be signed
Lack of independence
Expensive way to start
Advantages of a franchise to a franchisor
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
Disadvantages of a franchise to a franchisor
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
What are the main features of limited companies
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
What is in the memorandum of association?
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
What is in the articles of association
Details the internal running of the company, eg; rights of shareholders, timing and frequency of company meetings
What are some features of private limited companies
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
Advantages of private limited companies
Shareholders have limited liability
More capital can be raised
Control cannot be lost to outsiders
Business continuity
Has more status
Disadvantages of private limited companies
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
Why are flotations costly
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
Advantages of PLCs
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
Disadvantages of PLCs
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
Features of a multinational company?
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
Features of a public corporation
Government owns them
Created by an act of parliament
Incorporated
Capital is provided through taxes mainly
Provide public services
Accountable to taxpayers
Reasons for public ownership of businesses
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
Disadvantages of public ownership
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
How does privatisation occur?
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
Advantages of privatisation
Generate income for the government
Reduce inefficiency
So new firms could be encouraged to join the market
Reduce political interference
What are some factors that affect the appropriateness of different forms of ownership
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
