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Business Studies > Chapter 2- Business sectors and types of business > Flashcards

Chapter 2- Business sectors and types of business Flashcards

1
Q

Multinationals definition

A

When a company has operations in other countries as well as nationally in the UK

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2
Q

What is chain of production?

A

Stages that a product passes through until it reaches the final consumer

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3
Q

What happens when a product passes along the chain?

A
  • It has value added onto it
  • It becomes worth more because of the business activity at each stage of the chain
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4
Q

Business activity (3 sectors)

A
  • Primary sector
  • Secondary sector
  • Tertiary sector
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5
Q

Primary sector

A
  • Businesses in the primary sector are concerned with the extractive industries
    E.g. fishing, mining, forestry, oil/ gas extraction
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6
Q

Secondary sector

A
  • Businesses in the secondary sector are concerned with manufacturing (turning raw-materials into semi-finished and finished products)
  • Also includes the construction industry
    E.g. building houses, factories, office blocks, roads
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7
Q

Tertiary sector

A
  • Businesses in the tertiary sector are concerned with the output of services
    E.g. retailing, banking, transportation
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8
Q

What are the proportions of each sector in the output of the UK?

A
  • Primary (6%)
  • Secondary (14%)
  • Tertiary (80%)
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9
Q

What is a feature of an advanced economy?

A

A large tertiary sector

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10
Q

Deindustrialisation definition

A
  • The decline in the size of the secondary sector of the economy
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11
Q

What would occur if manufacturing is thriving?

A
  • There is likely to be a positive effect on the other 2 sectors
  • There will be a need for more raw material inputs and services to support the business
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12
Q

Why does the UK need a successful manufacturing sector?

A
  • To generate the export earnings
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13
Q

Private sector definition

A
  • Referred to as private enterprise
  • Businesses owned and run by private individuals
  • Usually for profit
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14
Q

Public sector definition

A
  • Referred to as public enterprise
  • Businesses and organisations owned and run by local or central government
  • Objective is to provide a service rather than make a profit
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15
Q

Examples of the public sector

A
  • BBC (British Broadcasting Corporation)
  • NHS (National Health Service)
  • NNL (National Nuclear Laboratory)
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16
Q

Examples of businesses in the private sector

A
  • Sole trader
  • Partnership
  • Private limited company
  • Public limited company
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17
Q

What are the effects the legal structure is particularly important for?

A
  • Ownership and control of the business
  • Responsibility for any debts
  • Sources of finance available
  • The objectives pursued
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18
Q

What is a sole trader?

A
  • It’s the simplest form of a business organisation
  • They own the business and make all the decisions affecting it
  • They are in overall control
  • Business and owner are inseparable so the business doesn’t exist in its own right (unincorporated)
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19
Q

Advantages of being a sole trader?

A
  • There are a few legal requirements when setting up as a sole trader- possible to start a business quickly with relatively little capital
  • They don’t have to consult with anyone- so making decisions is quick and easy
  • They keep all the profit (after tax)
  • They can’t be subject to a takeover as they can’t issue shares
  • Financial state of business can be kept private
20
Q

Disadvantages of being a sole trader?

A
  • Sole trader is fully responsible for all of it’s debts so if the business runs into financial difficulty they may be forced to sell their personal possessions- (unlimited liability)
  • They have to be ‘jack of all trades’ - if any of the functions are neglected, the business is going to suffer
  • Limited opportunities for growth- difficult to raise capital for expansion/ small businesses seen as risky
  • No continuity if sole trader dies
  • They can easily get overworked- especially in the first few years where customer base/ reputation is building up
21
Q

What is a partnership?

A
  • Whenever 2 or more people run a business together
  • It’s not a legal entity in it’s own right
  • The law requires a minimum of 2 and a maximum of 20 partners
22
Q

What is a deed of partnership?

A
  • This is a legal document that governs the running of this type of business
23
Q

What type of business should draw up a deed of partnership?

A

Partnership

24
Q

What does a deed of partnership set out and clarify?

A
  • How much money each partner is expected to contribute
  • How much income each partner can draw
  • Responsibilities/ duties of each partner
  • Arrangements to cover absence, sickness, holidays
  • How decisions are to be made within the partnership
  • Arrangements for finance
25
Q

What will happen if no deed of partnership exists?

A
  • The business will be governed by the Partnership Act of 1890
  • Which states that the responsibility for running the business and the distribution of profits and losses are to be shared equally among the partners
26
Q

Advantages of partnerships?

A
  • They are easy to establish
  • Expansion is easier- as additional partners means more capital
  • Losses are shared
  • Partners can specialise in what they do best
  • Financial state of business can be kept private
27
Q

What do sole traders and partnerships both pay?

A

Income tax

28
Q

Disadvantages of partnerships?

A
  • Decision making is slower and there is a possibility of disagreement
  • Losses are shared but so are profits
  • Business can still lack capital for expansion- due to legal restriction on maximum number of partners
  • They have unlimited liability
29
Q

What is a sleeping partner?

A
  • When partners can have limited liability if they contribute money but take no active part in running the business
    (Partnership must have at least 1 person with unlimited liability)
30
Q

What is a limited liability partnership? (LLPs)

A
  • They became legal in 2001
  • They combine some features Of partnerships with some of those of limited companies
  • It is a separate legal entity so it’s owners have limited liability
  • Owners of LLPs are called members
  • Before 2001, if a group of people wanted limited liability, they had to form a company
  • The creation of LLPs meant that its possible to have the advantages of a partnership combined with limited liability
  • But limited liabilities comes at a price- they’re required to file their annual accounts at Companies House meaning their available publicly for competitors to view.
31
Q

Differences between companies and other types of business organisations

A
  1. Incorporation- company is incorporated meaning the business exists in it’s own right- those who own the company (shareholders) are not the same as those who run it for them (directors) but sole traders/partnerships are unincorporated
  2. Shares- Companies can raise capital via the issue of shares whereas sole traders/partnerships can’t.
  3. Limited liability- if a company goes into liquidation, its shareholders have limited liability so they only lose their shares. This could mean a loss of a significant sum of money but at least shareholders aren’t liable for business’s debts.
32
Q

What is a share?

A
  • Buyers own a share of a company
  • They become one of it’s owners
33
Q

Why do companies issue shares?

A

To raise money

34
Q

What are the 2 aims investors buy shares for?

A
  • Receiving a return on their money (dividend)
  • Making a capital gain (selling their shares at a higher price than they bought them at)
35
Q

What are the two types of companies?

A
  • Private limited company (Ltd)
  • Public limited company (plc)
36
Q

Differences between private and public limited companies?

A
  • Public company is a plc but a private company is Ltd
  • A plc can sell shares on the stock market and can be bought by anyone but a Ltd can’t and shares must be sold through private negotiation and can’t be advertised for sale to the public.
  • plc can be took over as shares are available for anyone to buy but Ltd can sell out to an investor but can’t be took over.
  • A plc is required to have a minimum share capital of £50,000 but Ltd has no minimum
37
Q

Similarities between private and public limited companies?

A
  • Shareholders elect a board of directors to run the company on their behalf and in a Ltd company the directors may be the shareholders
  • Shareholders must receive a copy of the companies report and accounts every year and they’re entitled to attend the annual general meeting
  • Voting by shareholders is 1 vote per share
38
Q

What is an annual general meeting?

A
  • At this meeting shareholders receive a report from the directors on the state of the company including information on the company’s finances.
39
Q

Advantages of companies?

A
  • Greater opportunities for growth- due to access to large amounts of capital through the ability to issue shares
  • Limited liability for shareholders- encourages people to invest in the company
  • Investors regard companies as less risky meaning better terms for borrowing money
  • Continuity- due to a company being a separate legal entity
40
Q

Disadvantages of companies?

A
  • Setting up a company can be expensive (in terms of time and money)
  • Running a company is more complicated- added complexity may mean the company has to hire new staff which is an additional expense
  • Company accounts are not private- they are on open access at companies house meaning it’s difficult to keep the businesses main financial details hidden from competitors
  • Danger of a takeover
41
Q

For a business to be established as a company what 2 legal documents need to be completed to protect the interests of shareholders?

A
  1. Memorandum of association
  2. Articles of association
42
Q

What is the memorandum of association?

A
  • It deals with the companies relationship with the outside world
43
Q

What is the articles of association?

A
  • It deals with the internal running of the company
44
Q

Third sector

A
  • Neither in public or private sector
  • They include charities, community groups e.g.
  • They’re motivated by the desire to achieve social goals
  • May make a profit but it is reinvested in order to improve the service being provided.
45
Q
A

Business Studies (7 decks)

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