business structure

Question 1

Public sector

Answer 1

comprises organizations accountable to and controlled by central or local government (the state)

Question 2

Private sector

Answer 2

comprises businesses owned and controlled by individuals or groups of individual

Question 3

Mixed economy

Answer 3

economic resources are owned and controlled by both private and public sectors.

Question 4

Free-market economy:

Answer 4

. economic resources are owned largely by the private sector with very little state intervention.

Question 5

Sole trader

Answer 5

a business in which one person provides the permanent finance and, in return, has full control of the business and is able to keep all of the profits

Question 6

benefits of a sole trader

Answer 6

• easy to set up – no legal formalities
• owner has complete control – not answerable to
anybody else owner keeps all profits
• able to choose times and patterns of working
• able to establish close personal relationships with
staff (if any are employed) and customers
• business can be based on the interests or skills of the owner – rather than working as an employee for a larger firm

Question 7

Partnership

Answer 7

a business formed by two or more people to carry on a business together, with shared capital investment and, usually, shared responsibilities

Question 8

benefits of a partnership

Answer 8

■ partners may specialize in different areas of business management
■ shared decision-making
■ additional capital injected by each partner
■ business losses shared between the partners
■ greater privacy and fewer legal formalities than corporate organizations (companies

Question 9

challenges of being a sole trader

Answer 9

■ often faces intense competition from bigger firms, for example in food retailing
■ owner is unable to specialize in areas of the business that are most interesting– is responsible for all aspects of management
■ difficult to raise additional capital
■ long hours often necessary to make business pay
■ lack of continuity– as the business does not have separate legal status, when the owner dies the business ends too
■ unlimited liability – all of owner’s assets are potentially at risk

Question 10

challenges of a partnership

Answer 10

1.unlimited liability for all partners (with some exceptions)
■ profits are shared
■ no continuity and the partnership will have to be reformed in the event of the death of one of the partners
■ all partners bound by the decisions of any one of them
■ not possible to raise capital from selling shares

Question 11

Private limited company

Answer 11

a small to medium-sized business that is owned by shareholders who are often members of the same family; this company cannot sell shares to the general public.

Question 12

benefits of a private limited company

Answer 12

■ shareholders have limited liability
■ separate legal personality
■ continuity in the event of the death of a shareholder ■ original owner is still often able to retain control
■ able to raise capital from sale of shares to family, friends and employees
■ greater status than an unincorporated business

Question 13

challenges of a private limited company

Answer 13

legal formalities involved in establishing the business
■ capital cannot be raised by sale of shares to the general public
■ quite difficult for shareholders to sell shares
■ end-of-year accounts must be sent to Companies House– available for public inspection there (less secrecy over financial affairs than sole trader or partnership)

Question 14

shareholder

Answer 14

a person or institution owning shares in a limited company.

Question 15

Public limited company

Answer 15

a limited company, often a large business, with the legal right to sell shares to the general public – share prices are quoted on the national stock exchange.

Question 16

benefits of a public limited company (plc)

Answer 16

■ limited liability
■ separate legal identity
■ continuity
■ ease of buying and selling of shares for shareholders– this encourages investment in plcs
■ access to substantial capital sources due to the ability to issue a prospectus to the public and to offer shares for sale (called a flotation)

Question 17

challenges of a (plc)

Answer 17

■ legal formalities in formation
■ cost of business consultants and financial advisers when creating such a company
■ share prices subject to fluctuation – sometimes for reasons beyond business control, for example state of the economy
■ legal requirements concerning disclosure of information to shareholders and the public, for example annual publication of detailed report and accounts
■ risk of takeover due to the availability of the shares on the stock exchange
■ directors influenced by short-term objectives of major investors

Question 18

Memorandum of Association

Answer 18

this states the name of the company, the address of the head office through which it can be contacted, the maximum share capital for which the company seeks authorization and the declared aims of the business.

Question 19

Articles of Association

Answer 19

this document covers the internal workings and control of the business – for example, the names of directors and the procedures to be followed at meetings will be detailed.

Question 20

cooperative

Answer 20

a private business organization that is owned, controlled and run jointly by its members who use its products, supplies or services and share returns equally

Question 21

Franchise:

Answer 21

a business that uses the name, logo and trading systems of an existing successful business.

Question 22

benefits of a franchise

Answer 22

■ fewer chances of new business failing as an established brand and product are being used
■ advice and training offered by the franchiser
■ national advertising paid for by franchiser
■ supplies obtained from established and quality-checked suppliers
■ franchiser agrees not to open another branch in the localarea

Question 23

challenges of a franchise

Answer 23

■ share of profits or revenue has to be paid to franchiser each year
■ initial franchise license fee can be expensive
■ local promotions may still have to be paid for by franchisee
■ no choice of supplies or suppliers to be used
■ strict rules over pricing and layout of the outlet reduce owner’s control over their own business

Question 24

Joint venture:

Answer 24

two or more businesses agree to work closely together on a particular project and create a separate business division to do so.

Question 25

challenges of a joint venture

Answer 25

■ Styles of management and culture might be so different that the two teams do not blend well together.
■ Errors and mistakes might lead to one blaming the other for mistakes.
■ The business failure of one of the partners would put the whole project at risk.

Question 26

Public corporation

Answer 26

a business enterprise owned and controlled by the state – also known as nationalized industry.

Question 27

nationalization and privatization

Answer 27

nationalization: when the gvt takes over the control of a private sector business
privatization: when gvt sells one of its organizations to the private sector

Question 28

benefits of a public corporation

Answer 28

■ managed with social objectives rather than solely with profit objectives
■ loss-making services might still be kept operating if the social benefit is great enough
■ finance raised mainly from the government

Question 29

challenges of a public corporation

Answer 29

■ tendency towards inefficiency due to lack of strict profit targets
■ subsidies from government can also encourage inefficiencies
■ government may interfere in business decisions for political reasons, for example by opening a new branch in a certain area to gain popularity