LO1 Flashcards
Understand different types of businesses and their objectives
primary sector
all those activities the end purpose of which consists in exploiting natural resources
secondary sector
covers all those activities consisting in varying degrees of processing of raw materials (manufacturing, construction industries)
tertiary sector
consists of the provision of services i
private sector
Privately owned businesses
that exist to make a profit.
The profit from private sector businesses benefit
the owners, shareholders and investors.
The Public Sector
Government owned
businesses, they are operated to provide a public
service/to benefit the community
Public sector businesses are funded by the money
raised by taxes. Examples include the NHS,
Libraries, Schools, Police, etc.
The Third Sector CIC
Organisations are owned and
run voluntarily by trustees. They are not run to
make profit but to help the community and are
funded through donations & gifts.
Examples include Cancer Research, St John
Ambulance & NSPCC
sole trader
a business owned by one
person. They are usually small in size. Hairdressers,
butchers, and electricians often operate as sole
traders.
partnership
a business with more than one owner but
less than 20. Legal documents are required under the
Partnership Act of 1890.
advantages and disadvantages of a sole trader
advantages: Sole traders keep all the profit
they make.
They make all the key decisions by themselves.
Sole traders have less rules and regulations than other types of organisations
disadvantages: They are liable for the business’ debt. This means that personal assets are at risk
Long hours.
Can only raise limited finance, as they are a high risk to any lenders
advantages and disadvantages to a partnership
advantages: Partnerships can raise more finance than sole traders. Banks are more likely to lend money to
an organisation that has many partners
Different partners can bring different skills to the business.
Partners can share the workload and responsibility of the business between them.
disadvantages: Partners may disagree and argue about the future direction of their business.
Any profit made is shared between two to twenty people.
Partnerships have unlimited liability.
private limited company (LTD)
Sell their shares privately to people that they know. They are still normally small businesses and sell their shares privately.
public limited company (PLC)
Sell their shares to the public over the stock market. You must have a minimum of £50,000 share capital i.e. money invested in it.
advantages and disadvantages to a LTD
advantages: The owners of the company retain control.
Easier to raise finance (can sell shares)
disadvantages: Hard to raise finance as you have to sell shares privately
Quite complex to set up
Must publish financial records
advantages and disadvantages to a PLC
advantages: Limited liability
Can raise large amounts of money selling shares on stock exchange
disadvantages: Complex to set up
Anyone can buy shares, even competitors
Can lose control of the business
franchise
The person who buys the right to use the name
franchisor
The company that grants permission to use the name.
Charitable organisations
Charitable organisations are a kind of business that fits
within the non-profit organisation. They are funded mostly by charitable donations and have limited liability
advantages and disadvantages of charitable organisations
Advantages:Charities don’t usually pay income/corporation tax
Charities are often able to raise funds from the public,
grant-making trusts and local government more easily than non-charitable bodies
disadvantages: A charity must have exclusively
charitable purposes.
There are strict rules that apply to trade by charities
Trustees are not allowed to receive financial benefits from the charity which they manage (no profit is kept)
legal status
Some businesses, such as PLCs and LTDs have their
own legal identity, separate from the owners. This
means that the business is sued in the event of a court
case, rather than the owners.
A business with its own legal identity also has
continuity. This means that the business can carry on if
the owner leaves or dies.
unlimited liability
the owner(s) of a business are entirely responsible for its debts.
limited liability
a form of legal protection for shareholders and owners that prevents individuals from being held personally responsible for their company’s debts or financial losses
control/ decision making
The amount of control the owners have can often be a factor to consider
A sole trader makes all of the decisions, a partnership discusses amongst partners, and a limited company has shareholders to control the business. A plc elects a board of directors to make decisions on their behalf but the shareholders are the owners
Admin/legal requirements
A sole trader is very simple to set up from a legal and administrative point of view. Partnerships require a deed of partnership and other forms of ownership have a range of administration and legal requirements.
This may influence the type of ownership chosen if owners want to start trading quickly. There are also different requirements after the business has started trading
what is an aim
An aim is what your business hopes to achieve in the long run, for example “Become market leader in mobile phone industry”
Survival
This is a short term objective, usually for start up businesses, or in a time of crisis.
what is an aim of profit
To try and make as much profit as possible
Growth
This could be to increase sales or expand the business by opening new branches or increase the product range/portfolio
Reputation
This objective can help achieve growth and brand recognition. Raising the reputation of the business through ethical, environmental or other practices
SMART objectives
Specific - aimed at what the business does
Measurable - you can put a value on the objective
Agreed - by those concerned in achieving the objective
Realistic - a challenge but able to be achieved
Timed - a limit of when the objective should be achieved
