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Business Studies GCSE 2022-24 (Units 1-3) > Chapters 4 & 5 > Flashcards

Chapters 4 & 5 Flashcards

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1
Q

What are the 7 forms of business organisation in the private sector?

A
  • Sole trader
  • Partnership
  • Limited companies
  • Franchise
  • Joint venture
  • Private limited company
  • Public limited company
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2
Q

Why do people want to become sole traders?

A
  • Be their own boss and make their own decisions
  • Decide when and how many hours to work
  • Have a business that uses their skills and interests
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3
Q

What are the advantages of being a sole trader?

A
  • Quick and easy to set up a business
  • Sole trader makes all of the decisions so has complete control
  • Can be set up with a small amount of start-up capital
  • E.g. someone setting up a window cleaning business may only need to buy a ladder, bucket, detergent and cloths
  • The owner keeps all the profit
  • It is very popular
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4
Q

What are the disadvantages of being a sole trader?

A
  • The owner has unlimited liability for the debts of the business and risks losing personal wealth to pay for these
  • Difficult to raise funds to expand the business
  • Hard to compete with larger firms in the same industry
  • Owners often lack some of the essential business skills needed for running a business, such as financial management
  • Have to work very long hours to make a living from their business
  • If a sole trader retires or dies, the business no longer exists
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5
Q

What are the advantages of a partnership?

A
  • Easy to set up with a Deed of Partnership
  • Partners invest in the business so greater access to funds
  • Shared decision making
  • Shared management and workload
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6
Q

What are the disadvantages of a partnership?

A
  • Unlimited liability - responsible for business debts
  • Share the profits
  • Business ceases to exist if one partner leaves
  • Decisions binding on all partners
  • Difficult to raise finance
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7
Q

What are the two main types of limited company?

A
  • Private limited companies
  • Public limited companies
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8
Q

What are the shared features of private limited and public limited companies? (Card 1)

A
  • Legal documents must be competed when setting up the business
  • Shareholders invest their capital by purchasing shares (shares aren’t products) in the company
  • Ordinary shareholders are the owners of the company
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9
Q

What are the shared features of private limited and public limited companies? (Card 2)

A
  • Shareholders have LIMITED liability so if the business fails, they risk losing the value of their shares, the amount of money they’ve invested in the company
  • Business continues even if one or more shareholders die
  • Company can raise finance by selling shares
  • Profit belongs to the ordinary shareholders
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10
Q

What are the shared features of private limited and public limited companies? (Card 3)

A
  • Profit is shared between the shareholders through the payment of dividends
  • Shareholders vote on major decisions taken by the company
  • EOY financial statements must be produced and submitted to the correct authorities and the public can look at this
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11
Q

Top tip on page 49

A

Don’t confuse public limited companies with public sector organisations. Public limited companies are in the private sector as well as private limited companies.

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12
Q

Differences between private limited and public limited companies: Owners

A

Private limited:
Usually a very small number of shareholders, often members of the same family or friends.

Public limited:
Usually a very large number of shareholders.

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13
Q

Differences between private limited and public limited companies: Size

A

Private limited:
Usually fairly small.

Public limited:
Most common form of organisation for very large companies.

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14
Q

Differences between private limited and public limited companies: Sale of shares by the company

A

Private limited:
Can be only sold privately, often to family members, friends or employees.

Public limited:
Can be offered for sale to the general public and other organisations.

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15
Q

Differences between private limited and public limited companies: Sale of shares by shareholders

A

Private limited:
Difficult to sell as must be sold privately and with the agreement of other shareholders.

Public limited:
Quick and easy to sell as they can be offered for sale to the public.

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16
Q

Differences between private limited and public limited companies: Control

A

Private limited:
Only a few shareholders. One shareholder may own 51% of the shares in the company and so has control over major decisions. Ownership isn’t separated from control.

Public limited:
Often thousands of shareholders. The Board Directors appointed by shareholders at the AGM controls major decisions. Ownership and control are separated.

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17
Q

Differences between private limited and public limited companies: Raising additional capital share issue

A

Private limited:
Even if successful, it may be difficult to raise additional capital as shares can’t be sold to the general public.

Public limited:
If successful, it can often raise very large sums quite easily through the sale of additional shares.

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18
Q

Differences between private limited and public limited companies: Borrowing finance

A

Private limited:
Difficult to raise finance as unincorporated businesses because they’re usually small businesses with low-value assets to offer as security - known as collateral.

Public limited:
Can often raise very large sums at good rates of interest because of its reputation and valuable collateral.

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19
Q

What are the disadvantages of public limited companies?

A
  • Legal formalities are costly
  • Directors’ decision-making is sometimes influenced by major investors who seek to satisfy their own objectives
  • Company is always at risk of a takeover by another company, because its shares can be freely bought and sold
  • Any other business needs to only buy 51% of the shares in a company to become the new owner
20
Q

Examples of franchises

A
  • McDonald’s
  • KFC
  • Subway
  • Pizza Hut
  • Hilton Hotel
21
Q

Franchisor and franchisee

A

A firm that already has a successful product or service - called the franchisor - agrees to allow another business - called the franchisee - to use the franchisor’s trade name, logo and products in exchange for a fee.

22
Q

What are the benefits of a franchise?

A
  • There is less chance of business failure because the product and brand are already well established.
  • The franchisor often provides advice and training as part of the agreement.
  • The franchisor will finance the promotion of the brand through national advertising.
  • The franchisor will have checked the quality of suppliers.
23
Q

What are the disadvantages of a franchise?

A
  • Initial cost of buying into a franchise can be very expensive
  • The franchisor will take a percentage of the revenue or profits made by the franchisee each year.
  • Very strict controls over what the franchisee is allowed to do with the product, pricing and store layout
  • E.g. all McDonald’s restaurants sell identical products
  • Franchisee will still have to pay for any local promotions they decide to do
24
Q

What are the main reasons for a joint venture?

A
  • Reduces the risk for each business and cuts costs
  • Each business brings various expertise
  • Market and product knowledge can be shared to the benefit of the businesses in the JV
25
Q

What are the limitations of a joint venture?

A
  • Any mistakes made may damage the reputation of all firms in the JV, even if they weren’t the cause of the mistake
  • Businesses may have different business cultures or styles or leadership, making decision-making more difficult
26
Q

What are the differences between unincorporated businesses and limited companies?

A 
- An unincorporated business is one which doesn't have a separate legal identity from its owners
- This means that the owners are legally responsible for the activities of the business
- Owners have unlimited liability
- E.g. sole traders and partnerships
  • An incorporate business, such as a limited company, has a separate legal identity from its owners.
  • The company, not the owners (shareholders), is legally responsible for the activities of the business
  • Shareholders have limited liability
27
Q

What are the main features of public corporations?

A
  • Owned and controlled by the state
  • Financed mainly through taxation
  • Social objectives rather than profit objectives
  • Free or low priced
28
Q

Chapter 5
What are the SMART objectives?

A
  • Specific
  • Measurable
  • Achievable and Agreed
  • Realistic and Relevant
  • Time-specific
29
Q

What are the 5 business objectives for businesses in the private sector?

A
  • Make a profit
  • Stay in business beyond the first two years
  • Expand the size of the business
  • Increase market share
  • Be socially, ethically and environmentally responsible in all business activities
30
Q

What are the 3 business objectives for businesses in the public sector?

A
  • Accessible (can be used by everyone regardless of location or income)
  • Affordable (must be cheaper than if the service was provided by the private sector or free)
  • Open to all (regardless of income, class, ethnicity, religion etc.)
31
Q

Survival

A
  • Many new businesses fail in their first or second year
  • Short-term objective
32
Q

Profit

A
  • Important objective
  • Aim to produce and sell the level of output where there’s the greatest difference between revenue and total costs
33
Q

Growth

A
  • May benefit from economies of scale
  • Reduce the cost of producing each item
  • Increase the firm’s competitiveness, revenue and profits
34
Q

Market share

A
  • As a business grows, it may achieve a larger share of the market
  • Increased market share often benefits a business
  • Helps to develop a strong brand image
  • Easier to sell the product to consumers
35
Q

Corporate social responsibility (CSR)

A
  • Businesses that ignore their social responsibility run the risk of bad publicity and possible legal action
  • Both can affect the reputation, sales, revenue and profits of a business
36
Q

What are the objectives of social enterprises?

A
  • Businesses mainly concerned with social objectives
  • Activities relate to the needs of the community and environment
  • Profit is reinvested back into the business
37
Q

What are the two types of stakeholders?

A
  • Internal stakeholders (owners and shareholders, managers, employees)
  • External stakeholders (lenders, suppliers, customers, government, local community)
38
Q

Objectives of internal stakeholders: Owners and shareholders

A
  • To receive high returns/dividends as reward for risking their investment in the business
  • To benefit from an increase in share value
39
Q

Internal stakeholders: Managers

A
  • To have job satisfaction and status
  • To receive salary increase and bonuses
40
Q

Internal stakeholders: Employees

A
  • To have job security
  • To receive a fair wage that reflects their contribution to the business’s success
41
Q

Objectives of external stakeholders: Lenders

A
  • To receive interest payments when due
  • To have borrowing repaid by the due date
42
Q

External stakeholders: Suppliers

A
  • To receive prompt payment for goods supplied on credit
  • To be treated fairly and not be forced to reduce their prices by businesses with strong buying power
43
Q

External stakeholders: Customers

A
  • To receive quality goods and after-sales service
  • To be charged a fair price which gives value for money
44
Q

External stakeholders: Government

A
  • To be paid the correct amount of taxes on time
  • To have minimal spending on unemployment benefits
45
Q

External stakeholders: Local community

A
  • To receive benefits for the local economy such as employment and subsidising of community facilities
  • To avoid the negative impact of business activities such as noise, air and traffic pollution

Business Studies GCSE 2022-24 (Units 1-3) (21 decks)

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