Business Structure Flashcards
Give the five main features of unincorporated businesses.
- Unlimited liability
- Tax on profits
- No continuity
- Private financial information
- Personal bankruptcy
What is unlimited liability?
- The owners are personally liable for any debt.
- Private possessions are at risk.
What is an incorporated business?
Business which is a separate legal entity.
What is a separate legal entity?
- Business is separate from its owners.
- It can take legal action against other companies and be the subject of legal action.
What is a co-operative?
Trading organisation in which independent producers trade together as though they are single large business.
Give an advantage of trading as a co-operative?
-Potential for better prices.
What is a sole trader?
- Business owned by one person.
- Un-incorporated.
What is a partnership?
- Business owned by more than one person.
- Un-incorporated.
What is bankruptcy?
Affects individuals and un-incorporated businesses when liabilities exceed assets.
What is insolvency?
Affects limited liability businesses when liabilities exceed assets.
What is a PLC?
- Public Limited Company
- Owned by shareholders.
- Shares can be sold without restriction.
What is an LTD?
- Private limited company.
- Owned by private shareholders.
What is an entrepreneur?
Person who sees a business opportunity and accepts the risks in running the business.
What is merging?
Businesses joining together to make a single larger business.
What is a takeover?
A business buys control of another.
What is horizontal integration?
A merger or takeover of a business in the same industry at the same stage of production.
Give an advantage of horizontal takeovers.
-Economies of scale can be achieved.
Give two disadvantages of a horizontal takeover.
- Reduced choice for consumers.
- Monopoly may be formed.
What is backward-vertical integration?
Merger or takeover of a supplier.
Give an advantage of backward-vertical integration.
-The business has control over supply of raw materials.
Give a disadvantage of backward-vertical integration.
-There may be a reduction in the variety of goods available.
What is forward-vertical integration?
Merger or takeover of a business providing a sales outlet for goods.
Give two advantages of forward-vertical integration.
- Control over sales outlets.
- Increased job security for workers.
Give a disadvantage of forward-vertical integration.
-Reduced choice of goods.
What is a conglomerate?
Merger or takeover of a business involved in different business activity.
Give two advantages of a conglomerate.
- Spreads risk
- Reduces dependency on one product.
Give two disadvantages of a conglomerate.
- No understanding of new business activity.
- May lead to diseconomies of scale.
What is diversification?
Process of spreading risks by reducing dependence on one product.
What is a footloose?
Business able to locate anywhere.
Give eight factors affecting location of business.
- Availability of grants.
- Availability of raw materials.
- Cost of location.
- Access and nearness to markets.
- Availability and cost of labour.
- Physical geography.
- Transport and infrastructure.
- Type of product.
What are uniform business rates?
Tax on business to cover cost of providing local services.
What are grants?
Payment of money from the government to a business for a specific purpose that doesn’t have to be paid back.
What is infrastructure?
Name given to basic services needed by businesses to operate effectively.
What is a greenfield site?
Industrial development in an area that hasn’t previously been built on.
What is a brownfield site?
Industrial development in an area previously derelict.
Give nine possible reasons why businesses fail.
- Poor management.
- No demand for product.
- Business located in the wrong place.
- Poor cash flow.
- Costs of running the business too high.
- Too much competition.
- Poor quality goods.
- Insufficient profit on goods.
- Unfavourable exchange rates.
Give three main ways in which businesses grow.
- Merging with another business.
- Internal expansion.
- Takeover.
What is start up capital?
Money needed to start a new business.
What are economies of scale?
As the output increases, the average cost decreases.
What is a silent partner?
Person who has invested capital but doesn’t take an active role in running the business.
What is the deed of partnership?
Legal agreement between partners of a business stating their responsibilities.
What three things does the deed of partnership include?
- How the business operates.
- How profits/losses are shared between the partners.
- How much capital each partner contributes.
What is an LLP?
- Limited liability partnership.
- Trades as a partnership but with limited liability.
Give six advantages of being sole trader.
- Wide suitability.
- Cheap and easy to set up.
- Start up with little capital.
- The owner has full control.
- Private financial info.
- Owner can keep all the profit.
Give seven disadvantages of being a sole trader.
- Unlimited liability.
- Difficult to grow.
- If the owner is ill, there is nobody to run the business.
- Long hours are often needed.
- No continuity.
- Sole traders are usually small so they can’t get economies of scale.
- Limited skills.
Give six advantages of a partnership.
- There is more than one owner giving a larger pool of capital.
- Each partner has different skills.
- Work can be shared between partners.
- Cheap and easy to set up.
- Private financial info.
- Easy to admit extra partners.
Give four disadvantages of partnerships.
- Profit has to be shared.
- There could be disagreements.
- Unlimited liability.
- Ability to raise capital restricted.
What is incorporation?
Process of being a limited liability company.
What is the registrar of companies?
Person responsible in the UK of maintaining records of LTDs and PLCs.
What is the certificate of incorporation?
Legal document issued allowing business to trade as a limited liability business.
What is a board of directors?
People elected by shareholders to represent their interests and make decisions on how the business is operated.
What is the AGM?
- Yearly meeting of shareholders.
- Directors elected.
- Confirm dividend to be paid.
Who is the chair of the board of directors.
Person responsible for managing board of directors.
Who is the managing director?
Person responsible for putting into action decisions made by the board of directors.
What is capital?
Money usually raised through the sale of shares to investors.
What is issued share capital?
Amount of share capital issued to investors.
What are minority shareholders?
Investors who own a small number of shares in the company.
What are institutional investors?
- Banks
- Investment companies.
Give four advantages of private limited companies.
- Shares can be issued to private investors.
- Separate legal entities.
- The business is unaffected by illness.
- Limited liability.
Give six disadvantages of private limited companies.
- Financial info is public.
- Have to submit info to the registrar of companies.
- LTDs cannot offer shares to the public
- It is difficult to raise capital by selling shares.
- Dividends have to be paid to shareholders.
- High set up cost.
What is a franchise?
Marketing arrangement that allows other businesses to trade in the same style as the existing business.
Give seven advantages of franchises.
- No competition from the other franchises of the same brand.
- Tried and tested idea.
- Logos and products are already established.
- Advertising paid for by the franchisor.
- Franchisor gives advice on running the business.
- Reduced risk of business failure.
- Easy to get finance.
Give five disadvantages of franchises.
- All supplies have to bought from the franchisor.
- Large amount of initial capital is needed.
- Annual royalty payment.
- Owner of the business doesn’t have control.
- Losses have to be paid by the franchisee.
What is a royalty?
Payment made to franchisor based on revenue of the franchise.
Give three advantages of operating in several countries.
- Manufacturing bases can be located near the market.
- Economies of large scale production.
- Production can be located in cheaper countries.
Give four disadvantages of operating in several countries.
- There could be communication problems.
- High cost of transporting goods.
- Different legal requirements of different countries.
- Fluctuating exchange rates.
What is the public sector?
Business owned and funded by the government.
What is a public corporation?
Organisation owned by the government.
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