Chapter 6: The Business Organisation

Question 1

Merger

Answer 1

An agreement between business owners to combine two businesses owners and operate as a larger one

Question 2

Takeover

Answer 2

Purchasing another business from it’s owner

Question 3

Horizontal integration

Answer 3

Joining two businesses in the same industry and stage of production (e.g two hairdressing business)

Question 4

Vertical backward integration

Answer 4

Joining two businesses in the same industry but a different stage or production, towards the supplier (e.g a computer manufacturers takeover of a ‘chip’ maker)

Question 5

Diversification

Answer 5

Joining two businesses in different industries (e.g an insurance company merges with a publishing business)

Question 6

Vertical forward integration

Answer 6

Joining two businesses in the same industry but a different stage of production, towards the customer (e.g a farmer’s takeover a butcher’s shop)

Question 7

Limited company

Answer 7

A business recognised as a legal unit that offers investors (shareholders) limited liability

Question 8

Private limited company (ltd)

Answer 8

A company that cannot sell shares to the general public. It is not listed on the Stock Exchange

Question 9

Public limited company (PLC)

Answer 9

A company able to sell shares to the general public by being listed on the Stock Exchange

Question 10

Limited liability

Answer 10

Investors (shareholders) in a limited company can only lose their investment in the business if it fails; they cannot be forced to sell assets to pay off firm’s debts

Question 11

Shareholders

Answer 11

Part owners of a limited company - they own shares in it

Question 12

Dividend

Answer 12

Payment made to shareholders from company profits - usually made annually

Question 13

Divorce between ownership and control

Answer 13

When directors control public limited company and thousands of shareholders own it, but the two groups may have different objectives

Question 14

Ethical objective

Answer 14

A business aim to ‘do the right thing’ according to the values and beliefs of managers, even if this is not the most profitable way (e.g. pay workers in low-wage countries above average rates)

Question 15

Environmental objective

Answer 15

A business aim to protect the environment during its operations (e.g. to recycle waste water). This will reduce social costs

Question 16

Social costs

Answer 16

The costs of business activity, including both financial and costs paid by the firm and the costs on society (e.g. factory pollution)

Question 17

Social benefits

Answer 17

The benefits of a business activity, not just to the firm but to society (e.g. new jobs created by business expansion)

Question 18

Globalisation

Answer 18

Increasing trend for goods to be traded internationally and or companies to locate abroad

Question 19

Offshoring

Answer 19

Making products or parts of products in other countries. Services can be offshored too, as with telephone call centres moving to India

Question 20

Multinational

Answer 20

A business with operations in more than one country