Chapter 2 Business Ectors And Types Of Business

Question 1

What is the chain of production

Answer 1

This is the stages that a product passes through until it reaches the final consumer

Question 2

What are the 3 sectors in business activity

Answer 2

1. Primary sector
2. Secondary sector
3. Tertiary sector

Question 3

Distinguish between primary, secondary and tertiary organizations

Answer 3

-In the primary sector businesses are concerned with extractive industries such as farming, fishing and mining
- in the secondary sector businesses are concerned with manufacturing such as turning raw materials in to semi finished and finished products.
- in the tertiary sector businesses are concerned with the output of services e.g. retailing and banking

Question 4

Define deindustrialisation

Answer 4

The decline in the size of the secondary sector of the economy

Question 5

Distinguish between private public and third sector organizations

Answer 5

-In the private sector businesses are owned and run by individuals usually for profit (known as private enterprise)
- in the public sector businesses are owned and run by local public or local government such as the NHS to provide a service rather than a profit (known as public enterprise)
- in the third sector it is one that is neither in the public or private sector such as charities, community groups

Question 6

What is a sole trader

Answer 6

-This is the simplest form of business organization
- the sole trader owns the business and makes all of the decisions affecting it.
- it doesn’t mean there on their own they can employ a number of people (there in control)

Question 7

Advantages of a sole trader

Answer 7

• there are few legal requirements when setting up as a sole trader so therefore it can be done quickly
• they don’t have to consult with anyone when making decisions so it is quick and easy
• they get to keep all of the profit
• apart from having to provide information for income tax purposes the financial state of the business can be kept private
• as a sole trader can’t issue shares they are not subject to a takeover

Question 8

Disadvantages of a sole trader

Answer 8

• they are fully responsible for all of the debts so if the business runs into financial difficulty the sole trader may be forced to sell his/her personal possessions (unlimited liability)
• sole traders can easily get overworked
• small businesses want to grow it can be difficult to raise capital for expansion as small businesses are seen as risky limiting opportunity to grow
• larger firms may not wish to deal with them as they feel that they don’t have the ability to deliver
• if he or she dies the business comes to a end there is no continuity

Question 9

What is a partnership

Answer 9

-Whenever 2+ people run a business together they are considered partners
- minimum of 2 and maximum 20 partners
- the deed of partnership should be set up which is a legal document which governs the running of a business, if this isn’t set up the business will be governed by the partnership act of 890 which states the responsibility for running the business and the distribution of profits and losses are to be shared equally

Question 10

Advantages of partnerships

Answer 10

• it is easy to establish
• work is shared and different partners with different skills can be employed
• partners can specialist in what they do best
• losses are shared

Question 11

Disadvantages of a partnership

Answer 11

• they have unlimited liability
• decision making is slower and there is possibility for disagreement
• losses are shared but so are profits

Question 12

What is a limited liability partnership

Answer 12

-It became legal in 2001’
- it combines features of partnerships with some of those of limited companies
- it is a separate legal entity so the owners have limited liability

Question 13

What are the 2 types of company

Answer 13

Private and public limited
- private are often but not necessarily family businesses and can be operated nationally whereas public will also involve international markets as well making them multinational

Question 14

What is multinational

Answer 14

This is where a company operates nationally as well as in international markets as well

Question 15

Differences between public and private limited companies

Answer 15

• a public limited company is a PLC whereas a private limited company’s name must end with ltd or limited
• plc can sell shares on the stock market whereas a private limited company cannot. So public can be bought by anyone but in a private limited company shares must be sold through private negotiations and cannot be advertised for sale to the public
• there is a possibility of plc being taken over as there shares are available for anyone to buy so if an investor gains 51% of shares it can be legally taken over
• the amount of share capital ( a plc is required to have a minimum of 50,000 whereas private has no minimum

Question 16

Advantages of companies

Question 17

Advantages of companies

Answer 17

• it has access to large amounts of capital through the ability of being able to issue shares so there is a greater opportunity for growth
• it has limitted liability meaning its even more likely for people to invest into the company
• it has continuity even when the original owners die

Question 18

Disadvantages of companies

Answer 18

• it can be expensive to set up
  -company accounts aren’t private
• there is danger of a takeover
• difficult to keep the businesses main financial details hidden

Question 19

What is meant by limitted liability and unlimited liability

Answer 19

Unlimited liability is where there fully responsible for all of the debts within a business e.g. sole traders and partnerships. If they can’t meet these they may have to give up their personal possessions.

Limitted liability is a legal structure that protects an owners personal assets from being used to satisfy businesses debts and liabilities e.g.companies

Question 20

Distinguish between local, national and international global markets

Answer 20

-Local markets are markets which operate within a specific area such as a town or city
- national markets are markets that operate within a country
- international markets are markets that span multiple countries

Question 21

Distinguish between a national and multinational business

Answer 21

A national business operates within the borders of a single country focusing on the local market and adhering to local regulations and cultural norms whereas a multinational business operates in multiple countries often with a significant presence in various markets.

Question 22

Evaluate the factors affecting the choice of legal structure of a business

Answer 22

1. Liability- different structures have different liabilities for example partnerships and sole traders have unlimited liability which makes them responsible for all of the debts of a business however a company has limitted liability where it is backed up and protected.
2. Control- the desired level of control affects the choice e.g. sole propioters have full control whereas partnerships and cooperations involve shared decision making.
3. Business size and growth plans- startups may begin as a sole proprietor but may choose to incorporate as they grow to facilitate expansion and attract investors

Question 23

Evaluate the impact and importance of legal structure for the shareholders of a business

Answer 23

1. owners/shareholders
   -liability- limitted liability structures protect owners personal assets and reducing them from financial risks whereas some are in unlimited.
   - control and decision making- the structure influences how much control someone has e.g. sole proprietors have full control whereas in a company there is shred decision making.
2. Employees
   - job security- cooperations may offer more stability and benefits such as health insurance and retirement plans compared to sole proprietorships/ partnerships
   - career growth- larger structured businesses provide clearer career paths and more development opportunities impacting employee satisfaction
3. Customers
   - trust and reputation- customers may perceive cooperations as more stable and reliable due to their regulatory compliance and established reputation, influencing purchasing decisions.
4. Community
   -economic impact- the legal structure can determine a businesses ability to grow and contribute to local economies through job creation and tax revenue
   - corporate responsibility- cooperations have a more formalized approach to corporate social responsibility affecting their engagement with local communities and stakeholders

Question 24

Evaluate the impact on and the importance to the economy of entrepreneurship and enterprise

Answer 24

1. Job creation
   Impact- entrepreneurs establish new businesses which are significant to sources of employment
   Importance- it reduces unemployment rates and increases disposable income overall enhancing overall economic stability
2. Innovation and competition
   Impact- entrepreneurs drive innovation by introducing new products, services and technologies. This fosters improvement in quality and efficiency
   Importance- it leads to enhanced productivity spurring economic growth and elevating the countries global competitiveness
3. Economic growth
   Impact- new businesses contribute to gdp growth through there production and consumption activities as as enterprises expand they stimulate demand for goods and services
   Importance- sustainable economic growth is essential for improving living standards and funding public services

Question 25

Evaluate the impact and importance of entrepreneurial activity for the stakeholders of a business

Answer 25

1. Owners
   Impact- entrepreneurs have the opportunity to relapse their vision and create wealth through their business, they face risks.
   Importance- entrepreneurial success fosters personal and professional growth, enhancing skills and experience leading to future business opportunities
2. Employees
   Impact- entrepreneurial ventures create new jobs and career opportunities offering employees a chance to work in dynamic environments where they can contribute to growth and innovation
   Importance- a thriving entrepreneurial ecosystem can enhance job security and satisfaction promoting employee loyalty
3. Customers
   Impact- entrepreneurial activity leads to the development of innovative products and services providing customers with diverse options and improved quality
   Importance- increased competition drives better pricing and service ultimately benefiting consumers and enhancing overall experience