Business Structure (ME)

Question 1

What are some factors of a limited company?

Answer 1

• owners and business are legally separate (incorporation)
• they have a share certificate (can sell shares)
• they have limited liability
• they have to register (paperwork)

Question 2

What are some factors of a sole trader?

Answer 2

• they have one owner
• the owner is the business (unincorporated)
• they have unlimited liability
• easy to set up
• owner keeps all profit
• can make all decisions

Question 3

What are some factors of partnerships?

Answer 3

• owned by (normally) 2-20 people
• the owners are the business (unincorporated)
• easy to set up
• shared decisions
• shared profit
• unlimited liability

Question 4

What are the aims of private and public sector organisations?

Answer 4

private:
- survival (solvent)
- growth
- profit
public:
- providing welfare goods
- social aims e.g. educated population, low crime, healthy citizens

Question 5

What is the difference between private and public sector organisations?

Answer 5

private: owned by private individuals or groups of individuals (businesses)
public: funded through public funds i.e. the government

Question 6

What is the free rider problem?

Answer 6

when someone is able to consume a good without paying

Question 7

What is market failure?

Answer 7

when the private sector won’t provide a good so the public sector has to

Question 8

What is a merit good?

Answer 8

a good with a positive externality

Question 9

What is a positive externality?

Answer 9

something that benefits a third party (neither the consumer or producer) - society

Question 10

Define privatisation

Answer 10

firms which are government owned being sold to the private sector

Question 11

Define nationalisation

Answer 11

firms which are in the private sector being sold by the government

Question 12

What are some arguments for state ownership?

Answer 12

• firms can have social objectives e.g. giving equal access to merit goods
• not trying to make profit for shareholders
• can provide public goods

Question 13

What are some arguments against state ownership?

Answer 13

• no competition - no incentive to keep prices down
• less likely to proved choice for customers or respond to customer wants
• expensive if it needs subsidising or needs to be bought from private sector

Question 14

What are some similarities between businesses and charities?

Answer 14

• they both sell goods or services to consumers
• they both try to control and keep costs down
• they both have to register (paperwork)
• they both hire employees

Question 15

What are some differences between businesses and charities?

Answer 15

• businesses make a profit that they could invest or use to expand their business
• charities make a surplus, which goes towards the good cause they are raising money for

Question 16

What are the 3 types of not-for-profits?

Answer 16

• charities
• social enterprises
• co-operatives

Question 17

What are some characteristics of social enterprises?

Answer 17

• profit making business
• has a social objective, e.g. recruiting people who struggle to get jobs (e.g. homeless or has a criminal record)

Question 18

What are some characteristics of co-operatives?

Answer 18

• profit making business
• employees are shareholders
• employees receive a wage and a profit
• employees have limited liability