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
2
Q
Definition of chain of production
A
- Stages that a product passes through until it reaches the final consumer
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
4
Q
What are the 3 sectors of economic activity?
A
- Primary sector
- Secondary sector
- Tertiary sector
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
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
7
Q
Tertiary sector
A
- Businesses in the tertiary sector are concerned with the output of services
E.g. retailing, banking and transportation
8
Q
What are the proportions of each sector in the output of the UK?
A
Tertiary (80%)
Secondary (14%)
Primary (6%)
9
Q
What is a feature of an advanced economy?
A
- A large tertiary sector
10
Q
Definition of deindustrialisation
A
- The decline in the size of the secondary sector of the economy
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
12
Q
Why does the UK need a successful manufacturing sector?
A
- To generate export earnings
13
Q
Definition of private sector
A
- Businesses owned and run by private individuals usually for profit
- Referred to as ‘private enterprise’
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’
15
Q
Examples of organisations in the public sector
A
- BBC
- NNL
- NHS
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
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
- Incorporation- sole traders/partnerships are unincorporated (they don’t exist separately from their owners)
Company is incorporated (business exists in it’s own right) - Shares-
Companies can raise capital via the issue of shares but sole traders/partnerships can’t - 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
- Private limited company
- 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.
