Business: Chapter 1 Flashcards
Definition of Partnership
A form of business in which two or more people agree to jointly own a business (long term)
How many companies can perform in partnership together on one business?
2 to 20
Definition of Private Limited Company
A business owned by shareholders that cannot sell shares to the public
Definition of Public Limited Company
A business owned by shareholders but can still sell shares to the public, shares are tradeable on stock exchange
To whom do private limited companies sell their shares to?
To friends and family
Which sector are private and public limited companies in?
Private sector
Why do businesses sell shares?
To expand their company
What are the factors of private limited companies?
- limited stability for shareholders
- shared capital
- incorporated business has legal identity
- owners are in control
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
Whhat kind of business is largest in the business industry?
Public limited company
Definition of Sole Trader
A business owned by one person
What are the benefits of being a sole trader?
- own boss
- easy to set up
- close to customer
- accounts not published
- work incentive
Definition of Joint Venture
When two or more businesses start a new project together, sharing capital risks and profit (short term)
What are the advantages of joint ventures?
- sharing of costs
- shared risks
- local knowledge
What are the disadvantages of joint ventures?
- profits must be shared
- different ideas/mindset
- disagreements
What is the ultimate goal of partnerships and joint ventures?
Working together to earn profit
What are the general stakeholder/business objectives?
- survival
- profit
- returns to shareholders
- growth
- increase market share
- service to community
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)
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
