chapter 4 Flashcards

Question

define a joint venture

Answer 1

A joint venture is where two or more businesses start a new project together, sharing capital, risks and profits

Answer 2

Sharing of costs – very important for expensive projects such as new aircraft Local knowledge when joint venture company is already based in the country Risks are shared

Answer 3

If the new project is successful, then the profits have to be shared with the joint venture partner Disagreements over important decisions might occur The two joint venture partners might have different ways of running a business – different cultures

Answer 4

A public corporation is a business in the public sector that is owned and controlled by the state (government).

Answer 5

» Some industries are considered so important that government ownership is thought to be essential. These include water supply and electricity generation in many countries. » If industries are controlled by monopolies because it would be wasteful to have competitors – two sets of railway lines to a certain town, for example – then these natural monopolies are often owned by the government. It is argued that this will ensure consumers are not taken advantage of by privately owned monopolists. » If an important business is failing and likely to collapse, the government can step in to nationalise it. This will keep the business open and secure jobs. » Important public services, such as TV and radio broadcasting, are often in the public sector. Non-profitable but important programmes can still be made available to the public.

Answer 6

» There are no private shareholders to insist on high profits and efficiency. The profit motive might not be as powerful as in private sector industries. » Government subsidies can lead to inefficiency as managers will always think that the government will help them if the business makes a loss. It may also be unfair if the public corporation receives a subsidy but private firms in the same industry do not. » Often there is no close competition to the public corporations. There is therefore a lack of incentive to increase consumer choice, increase efficiency or even improve customer service. » Governments can use these businesses for political reasons, for example, to create more jobs just before an election. This prevents the public corporations being operated like other profit-making businesses.

Answer 7

- shares can be sold to a large number of people , these could be relatives or family members - all shareholders have limited liability. It means that if the company failed with debts, the shareholders could not be forced to sell their possessions but could lose their original investment in their shares

Answer 8

- The Articles of Association – this contains the rules under which the company will be managed – the rights and duties of all of the directors; rules concerning the election of directors and the holding of official meetings; and the procedure to be followed for the issuing of shares. - The Memorandum of Association – this contains very important information about the company and the directors. The official name and the address of the registered offices of the company must be stated. The objectives of the company must be stated as well as the number of shares to be bought by each of the directors. - The shares in a private limited company cannot be sold or transferred to anyone else without the agreement of the other shareholders