Sizes and types of firms Flashcards
Define private sector
The private sector is made up of firms that are privately owned
Define public sector
The public sector is made up of state owned organisations
What are the characteristics of a sole trader?
- self employed
- Unlimited liability
What are the characteristics of a partnership?
- 2 or more people share the costs, risks
and responsibilities of being in business
together - unlimited liability
- profit is shared
What are the characteristics of limited companies?
- The owners and the company are
separate legal entities - limited liability
What are the types of limited companies?
- Private limited companies
- Public limited companies
What are the characteristics of a private limited company?
Cannot offer shares to the public for sale
What are the characteristics of a public limited company?
Shares are freely transferable, anyone can buy them
What are mutuals?
Mutuals are organisations that operate for the wellbeing of their members
Why do some firms choose to remain small?
-They operate in a niche market
- Alternative business objectives e.g. profit
satisficing
- Avoid stress of expanding
- Possible diseconomies of scale if output is
increased
Why do some firms choose to grow?
- Gain market share
- Respond to external factors such as political or legal change
- Respond to internal factors such as shareholders/owners objectives
- Gain competitive advantage economies of scale)
What is meant by the divorce of ownership from control?
The shareholders (owners) are not the ones controlling the company
What is the principal agent problem?
When there is difficulty in getting an agent to work in the best interest of the principal
Who is considered an agent?
The managers and directors who control and run the business on a day to day basis
Who is considered a principal?
The shareholders who own the firm
