Business: Chapter 1 Flashcards by Shynn Yi Kwek

Definition of Partnership

A form of business in which two or more people agree to jointly own a business (long term)

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How many companies can perform in partnership together on one business?

2 to 20

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Definition of Private Limited Company

A business owned by shareholders that cannot sell shares to the public

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Definition of Public Limited Company

A business owned by shareholders but can still sell shares to the public, shares are tradeable on stock exchange

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To whom do private limited companies sell their shares to?

To friends and family

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Which sector are private and public limited companies in?

Private sector

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Why do businesses sell shares?

To expand their company

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What are the factors of private limited companies?

limited stability for shareholders
shared capital
incorporated business has legal identity
owners are in control

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What are the factors of public limited companies?

limited liability for shareholders
shares sold to public = large sum of capital
tradeable shares
incorporated business has legal identity

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Whhat kind of business is largest in the business industry?

Public limited company

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Definition of Sole Trader

A business owned by one person

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What are the benefits of being a sole trader?

own boss
easy to set up
close to customer
accounts not published
work incentive

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Definition of Joint Venture

When two or more businesses start a new project together, sharing capital risks and profit (short term)

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What are the advantages of joint ventures?

sharing of costs
shared risks
local knowledge

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What are the disadvantages of joint ventures?

profits must be shared
different ideas/mindset
disagreements

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What is the ultimate goal of partnerships and joint ventures?

Working together to earn profit

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What are the general stakeholder/business objectives?

survival
profit
returns to shareholders
growth
increase market share
service to community

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What are different objectives of stakeholders that can cause conflicts?

directors (growth)
workers (jobs)
consumers (lower price and better quality)
local community (eco-friendly/jobs)

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Definition of Entrepreneur

A person who organises, operates and takes the risk for a new business venture

What are the characteristics of an entrepreneur? (at least 5)

risk-taking
creative
communicative
optimistic
self-confident
innovative
independent

What are the advantages of being an entrepreneur?

flexibility (time + money)
own innovation
may become successful
make use of own interest

What are the disadvantages of being an entrepreneur?

put in own capital
risky + lose income
lack of knowledge + experience
invest own income

What is the formula to calculate added value?

(selling price) - (price of materials/components) = added value

Definition of Added Value

Difference between selling price of a product and the cost of materials bought

How do business increase added value?

By increasing the market price or reducing the component cost

What are the risks of increasing added value?

- consumers might not be willing to pay more - reducing component cost might reduce the quality of the product

Definition of Factors of Production

The resources needed to produce goods or services. There are four factors of production and they are in limited supply.

What are the four factors of production?

Land, Labour, Capital, Enterprise

Definition of Specialisation

Occurs when people and business concentrate on what they are best at

Definitiion of Scarcity

The lack of sufficient products to fulfill the total wants of the production

Definition of Economic Problem

There exists unlimited wants but limited resources to produce goods and services to satisfy these wants. This creates scarcity.

Definition of Needs

A good or service that is essential for living

Definition of Wants

A good or service that people would like to have, but is not essential for living.

Definition of Opportunity Cost

The next best alternative given up by choosing another item.

Definition of Division of Labour

When the production process is split up into different tasks and each worker performs one of the tasks in which they have expertise.

What are the advantages of business growth?

- increase market share - increase profit - lower average cost - higher status

What are the disadvantages of business growth?

- cost of growth - management problems - poor communication

Definition of Mixed Economy

Economy that has businesses in both private and public sector

Who owns a private sector business?

Entrepreneur/CEO

Who owns a public sector business?

Government

What are two types of business growth?

External growth and Internal growth

What are the three types of integration in external growth?

- horizontal (w/ competitor) - vertical (w/ supplier) - conglomerate (w/ business in different industry)

What is internal growth?

Business expanding its existing operations

Why do business stay small?

- owner's objective - market size - type of industry *includes problems linked to business growth

Why do businesses fail?

- poor financial management - over expansion - failure to plan for change - poor operations management