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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

Definition of multinationals

A
  • Having operations in other countries as well as nationally in the UK
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2
Q

Definition of chain of production

A
  • Stages that a product passes through until it reaches the final consumer
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3
Q

What happens as a product passes along a chain?

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

What are the 3 sectors of economic activity?

A
  1. Primary sector
  2. Secondary sector
  3. Tertiary sector
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5
Q

Primary sector

A
  • Businesses in the primary sector are concerned with the extractive industries
    E.g. farming, Fishing, forestry, mining and 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)
  • It also includes the construction industry
    E.g. building houses, factories, office blocks and 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 and transportation
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8
Q

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

A

Tertiary (80%)
Secondary (14%)
Primary (6%)

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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

Definition of deindustrialisation

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

What is there likely to be if manufacturing is thriving?

A
  • A positive effect on the other two sectors as there will be a need for more 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 export earnings
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13
Q

Definition of private sector

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

Definition of public sector

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

Examples of organisations in the public sector

A
  • BBC
  • NNL
  • NHS
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16
Q

What is legal structure particularly important for?

A
  • Ownership and control of the business
  • Responsibility for any debts
  • Sources of finance available
  • Objectives pursued
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17
Q

What is a sole trader?

A
  • Simplest form of a business organisation
  • They own the business and make all the decisions affecting it
  • They can employ a number of people
  • They are in overall control
  • Business and owner are inseparable (unincorporated)
  • Business doesn’t exist in its own right
18
Q

Advantages of being a sole trader

A
  • Sole trader doesn’t have to consult with anyone so making decisions is quick and easy
  • A sole trader keeps all the profit after tax
  • Can’t be subject to a takeover as they can’t issue shares
19
Q

Disadvantages of being a sole trader

A
  • They are fully responsible for all their debts (unlimited liability)
  • Sole traders have to be the jack of all trades
  • Limited opportunities for growth as it’s hard to raise capital for expansion as a small business is seen as risky
20
Q

Definition of 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
21
Q

Definition of deed of partnership

A
  • It’s a legal document that governs the running of this type of business (partnership)
22
Q

What does a deed of partnership set out and clarify?

A
  • Responsibilities and duties of each partner
  • How decisions are to be made within the partnership
  • Arrangements to cover absence, sickness or holidays
  • Arrangements for finance
23
Q

What happens if no deed exists?

A
  • Business will be governed by the partnership act of 1890
24
Q

What does the partnership act of 1890 state?

A
  • That the responsibility for running the business and the distribution of profits and losses are to be shared equally among the partners
25
Q

Advantages of partnerships

A
  • Easy to establish
  • Additional partners means there will be more capital so expansion is likely to be easier than it is for a sole trader
  • Partners can specialise in what they do best
26
Q

What do partnerships and sole traders both pay?

A
  • Income tax
  • This means the financial state of the business can be kept private
27
Q

Disadvantages of partnerships

A
  • Decision making is slower and there is a possibility of disagreement
  • The legal restriction on the maximum number of partners means a business can still lack capital for expansion
  • They have unlimited liability so they are liable for any debts
28
Q

What is a ‘sleeping partner’?

A
  • When partners may have limited liability if they simply contribute money and take no active part in running the business
  • But a partnership must have at least one partner with unlimited liability
29
Q

What is a limited liability partnership?

A
  • They became legal in 2001
  • They combine some features of partnerships with some of those of limited companies
  • LLP is a separate legal entity so it’s owners have limited liability
  • Beore 2001, if a group of people wanted limited liability they had to form a company
  • Creation of LLPs means its possible to have the advantages of a partnership combined with limited liability
  • Limited liability comes at a price, there required to file their annual accounts at companies house meaning their accounts are therefore available publicly for competitors to view
30
Q

Differences between companies and other types of business organisations

A
  1. Incorporation- sole traders/partnerships are unincorporated (they don’t exist separately from their owners)
    Company is incorporated (business exists in it’s own right)
  2. Shares-
    Companies can raise capital via the issue of shares but sole traders/partnerships can’t
  3. Limited liability-
    In companies if they go into liquidation, it’s shareholders have limited liability meaning that shareholders only lose their shares potentially meaning a loss of a significant amount of money
    Shareholders aren’t liable for the business’s debts in the way that sole traders and partners are
31
Q

Share definition

A
  • Buyers own a share of a company
  • They become one of it’s owners (unit of ownership in a company)
32
Q

Why do companies issue shares?

A
  • To raise money
33
Q

What are the 2 aims of investors buying shares?

A
  • Receiving a return on their money (dividend)
  • Making a capital gain (selling their shares for a higher price than they bought them at)
34
Q

What are the 2 types of company?

A
  1. Private limited company
  2. Public limited company
35
Q

Differences between private and public limited companies

A
  • Public companies are larger than private companies
  • Public company is a ‘plc’ but a private company is a ‘ltd’
  • Plc can sell shares on the stock market but a private company can’t. A public companies shares can be bought by anyone but in a private limited company shares must be sold through private negotiation and can’t be advertised for sale by the public
  • PLC has the ability to be took over due to its shares being available for anyone to buy but LTD can’t be took over
36
Q

Similarities between private and public limited companies

A
  • Voting by shareholders is ‘one vote per share’
  • Shareholders elect a board (group) of directors to run the company on their behalf. In a private company, the directors may be the shareholders
  • Shareholders must receive a copy of the company’s report and accounts every year. They are also entitled to attend the annual general meeting (AGM) where they receive a report from the directors on the state of the company e.g. finances
37
Q

Advantages of companies

A
  • Access to large amounts of capital through the ability to issue shares (greater opportunities for growth)
  • Limited liability for shareholders encourages people to invest in the company
  • Investors such as banks regard companies as less risky than sole traders/partnerships meaning better terms for borrowing money
  • Continuity as a company is a separate legal entity so it doesn’t come to an end
38
Q

Disadvantages of companies

A
  • Setting up a company can be expensive (with time, complexity and money)
  • Company accounts aren’t private as they are on open access at companies house so its difficult to keep the businesses main financial details hidden from competitors
  • Danger of a takeover
39
Q

What 2 documents need to be completed for a business to be established as a company?

A
  • Memorandum of Association
  • Articles of association
40
Q

Memorandum of Association

A
  • Deals with the company’s relationship with the outside world (e.g. nature of the products it will sell)
41
Q

Articles of Association

A
  • Deals with the internal running of the company (e.g. arrangements for the election and removal of directors)
42
Q

What is a third sector organisation?

A
  • They include charities, community groups, faith groups
  • They are motivated by the desire to achieve social goals (e.g. improving housing) rather than the desire to maximise profit
  • A profit may be made but the profit is reinvested in order to improve the service being provided rather than distributing to its shareholders.

Business Studies (10 decks)

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