Business Structure Flashcards
Private limited company
A business that is owned by the shareholders of the business and the company that cannot sell shares to the public.
Public limited company
A business whose shares can be sold or bought by the public.
Initial public offering
An offer to the public to buy shares in a public limited company.
Economic sectors
Primary, Secondary,Tertiary and Quaternary
(Quaternary provides info services, web design, ICT,RND etc.)
Benefits of Industrialisation
-Total output increases
-Increased exports
-More jobs
-More tax to govt
-Value added to country’s output of raw materials
Limitations of industrialisation
-Huge movement of people to cities may cause housing/social. problems.
-Increase in imports
-Increase in multinationals which may have negative impact on the country.
-Consumers may spend extra income on services rather than goods.
-Rising imports may take the market away from domestic firms.
Deindustrialisation
The decline in the secondary sector of a country.
Consequences fo Deindustrialisation
-Loss of jobs in the secondary and primary sectors
-Movement fo people to cities
-Job opportunities in tertiary sector
-Increased training programmes to find jobs in tertiary sector.
Private sector
Businesses owned and operated by private entities
Benefits and Limitations of Private limited company
Benefits
-Limited liability
-Separate legal personality
-Company can sell shares to family, friends or employees to raise capital
-There is continuity even after the death of a shareholder
Limitations
-There legal formalities that need to be fulfilled to establish the business
-Shares cannot be sold to the general public
-Difficult for shareholders to sell shares
-There is less secrecy over financial affairs
Benefits and Limitations of Public limited company
Benefits
-Limited liability
-Separate legal identity
-There is continuity
-Easier for shareholders to buy or sell shares
Limitations
-Legal formalities need to be full filled
-There risk of takeover due to the availability of shares
-Share prices fluctuate for reasons beyond the control fo the business
-High cost for paying advice from business consultants
Public sector
Business that are accountable and owned by state or local govt.
Mixed economy
Economic resources are owned by both private and public
Free market economy
Economic resources are owned by private sector with very little state intervention
Command economy
Economic resources are owned and operated by the state govt
Public corporations
Business enterprises owned and operated by state.
Benefits and limitations of Public corporations
Benefits
-They are managed with social objectives
-Loss making services may be kept if social benefit is high
-Finance mainly comes from the govt
Limitations
-Govt subsides may cause inefficiency
-Inefficiency due to lack of strict profit targets
-Govt may interfere in business decisions for political reasons
Sole trader
A business which is owned by just one person and has full control of the business and profits
Benefits and Limitations of sole trader
Benefits
-Easy to set up
-Owner is not answerable to anyone
-Keeps all the profits
-Owner can choose hours and days of work
Limitations
-Unlimited liability
-Often intense competition from bigger firms
-Difficult to raise capital
-Lack of continuity
Partnership
A business formed by two or more people who share responsibilities, profits, losses and investment.
A document recommended for partnerships
Deed of Partnership
Benefits and Limitations of Partnership
Benefits
-Shared losses
-They share decision making
-Partners may specialise in different areas of mangement
-More capital is injectedinto the business
Limitations
-Unlimited liability
-Profits shared
-There is no continuity
-Conflict may occur in important decisions
Legal Formalities in setting up a company
Memorandum of Associatio-
this states the name of the company, the head office and though which it can be contacted, the maximum share capital and the declared aims of the business.
Articles of Association- this states the internal working and the control of the business, the names of the directors and procedure to be followed at meetings.
Cooperatives
A jointly owned business operated by members for mutual benefit to produce or distribute goods or services.
Benefits and Limitation of Cooperatives
Benefits
-Buying in bulk
-Working together to solve problems and take decisions
-Good motivation because all benefit from shared profits
Limitations
-Poor management skills
-Shortages in capital because shares cannot be sold to non members
-Slow decision making
Franchise, Franchiser and Franchisee
Franchise- the legal right to use the name, logo and trading systems of existing successful businesses.
Franchiser- A person or business that sells the right to open stores using the brand name and identity.
Franchisee- A person or business who buys the right to operate a franchise.
Benefits and Limitations of Franchise
Benefits
-Fewer chances of failure
-Advice and training is provided by franchiser
-Franchiser pays for national advertising
-Supplies are obtained form quality-checked suppliers
Limitations
-A share of profits should be paid to franchiser
-Initial license fee could be expensive
-Local promotions may have to paid by franchisee
-Franchisee cannot pick the suppliers
Joint ventures
Two or more business that agree to work together on an operation or project.
Benefits and Limitations of Joint ventures
Benefits
-The costs and risks are shared
-Each business has different strengths and experiences
-They might have major markets in different countries which they could exploit with new products
Limitations
-Styles of management and culture may be different leading to conflict
-Errors and mistakes might lead one company to blame the other
-The business failure of one partner could put the project at risk
Social enterprises
A business with social objectives that re invests most of its profits into benefiting society.
Benefits and Limitations to changing the form of business ownership
Benefits
-Access to more finance
-Gaining a legal identity
-Protecting owners capital
Limitations
-Legal costs and formalities
-Loss of control or ownership
-Shared profits
