Ch 2 Business structure Flashcards
What are the 3 economic sectors and define then?
- Primary sector: are extractive industries that gather raw materials
- Secondary sector: industries that manufacture raw materials extracted from primary sector into tangible products
- Tertiary sector: provide intangible services
Definition of a public sector
- Comprises organisations accountable to and controlled by central or local government
- Produces public goods which are non rivalry and non excludability
Definition of a private sector
- Comprises businesses owned and controlled by individuals or groups of individuals
- Produces private goods which have rivalry and excludability
Definition of merit goods
- Goods and services that the government feels that people will underconsume and ought to be subsidied/provided for free
- They are on a basis of concept of need rather than willingness to pay
- E.g. education, vaccination
Definition of demerit goods
- Goods/services whose consumption is considered unhealthy and socially undesirable due to the negative effects on consumers and negavive externalities
- E.g. cigarettes, alcohol, junk food
Definition of unlimited and limited liability
- Unlimited liability: means the sole trader is personally responsible for all the debts of the business. The debts are not limited and might endanger personal possessions
- Limited liability: a legal protection which limits the debts owed by an individual owner of a company to the sum of money they have invested.
Definition of a sole trader
A business owned, controlled and financed by one person
Advantages of sole trader
- Easy to set up
- Owner has complete control
- Owner keeps all profit
- Able to establish personal relationships with staff and customers
- Less capital required
- Business can be based on interests/skills
Disadvantages of sole trader
- Unlimited liability
- Narrow range of skills (no specialisation)
- Ill health and holidays can affect the running of the business
- Hard to raise finance
- Competition against bigger firms
- Has to be responsible for all aspects of management
Define partnership
a business formed by 2 to 20 people to run the business together, shared capital investment and responsibilities
Advantages of partnership
- Additional capital available
- Risks and responsibilities are shared
- Larger range of skills (specialisation)
- Shared decision making
Disadvantages of partnership
- Unlimited liability
- Profits are shared
- Sleeping partners
- Disagreements
Difference between ownership and control
- Owners are shareholders who invests capital into a limited company, does not manage it or control it
- Directors are people who control the business and take directions from owners
- Once a year, an AGM (Annual General Meeting) is held to discuss the business’ objectives
What are the legal formalities when setting up a company?
- Memorandum of Association: states the name of the company, the address of the headquarter, the maximum share capital for which the company seeks authorisation and the declared aims of the business
- Articles of Association: covers the internal workings and control of the business - e.g. names of directors and the procedures to be followed at meetings
Definition of a private limited company
a small business owned by shareholders. Shares can only be bought directly from the company with permission. Usually quite a small number of shareholders (may be run by a family).
