Types of businesses Flashcards
Explain the features of primary industry.
Refers to firms involved in the extraction of natural resources. They have little choice in their location.
Examples: Farming, fishing, diamond, mining, oil draining, etc.
Identify the core business sectors
- Primary industry
- Secondary industry
- Tertiary industry
Explain the features of the secondary industries.
Refers to firms involved in the conversion of raw materials from the primary industries into manufactured components or finished goods.
Example: Petrol-refining from crude oil, tyre-making from rubber.
Explain the features of the tertiary industries.
Refers to firms involved in the provision of supporting services to any industry or to final consumer. Located close to where demand/market is.
Example: Wholesale and retail, banking, transport, F&B outlets, etc,
State the criteria for a small and medium enterprise in Singapore.
Annual sales turnover below S$100 million & employment size below 200 workers.
Explain what owner management means.
SMEs
Managed and controlled by owner, close and less formal relationship with employees.
Explain what limited capital means.
SMEs
Financed by personal savings and loans from relatives and friends. Problem for SMEs because it is difficult to borrow from banks as collaterals are needed.
Explain small number or workers.
SMEs
Employ mainly family members and relatives. Owner-manager plays multiple roles.
Explain the term neighborhood-based.
SMEs
Serve the neighborhood community. Close and friendly relationship with their customers.
Explain indispensable owner management.
SMEs
Owner knows all details of the operation.
Explain inadequate bookkeeping.
SMEs
Do not keep proper business accounts, difficult to compute profits.
Explain what holding company means.
Large business
Formed for the sole purpose of acquiring a controlling ownership in two or more companies.
Voting and management control in these acquired companies if ownership is more than 50%
Example: Temasek Holdings has controlling ownership of PSA (100%), SIA (56%), and SMRT (54%).
Explain subsidiary company.
Large business
Subsidiary is effectively controlled by another company through either partial or complete ownership.
Example: PSA, SIA and SMRT are subsidiaries of Temasek Holdings.
Explain associate company.
Large business
Associate is owned by another company that has substantial interest but less than a majority ownership.
Two companies that are both subsidiaries of a third company are associates.
Explain franchises.
Large business
Refers to the practice and methods of operating a business based on another business’ philosophy and operation.
Example: 7-eleven, MacDonald’s and Subway
Explain the relationship between franchisor and franchisee.
Large business
Franchisor grants independent operator (franchisee) the right to distribute it’s products, techniques and trademarks in return for a percentage of gross monthly sales and a royalty fee.
Explain management buy out.
Large business
A company’s existing managers acquire a large part of the company from the existing shareholders because they have the expertise to grow the business better.
Explain mergers and takeovers/acquisitions.
Large business
Merger is the mutual decision of two companies to combine and become one entity.
Takeover occurs when a smaller company is purchased by a larger one.
Cut costs, increase profits and boost shareholder values.
Define unincorporated businesses
Unincorporated
Businesses registered in the name of owner thus not registered as legal corporations. Business and owner are seen as one and the same. Legal obligations by the business are legal obligations of the owner.
State the features of sole proprietorship.
Unincorporated
Owned and controlled by one person.
Oldest and most common form of business ownership.
Easiest form of business to start with limited funds under Business Registration Act with ACRA
Unlimited liabilities. No legal distinction between owner’s personal assets and business assets.
Most are in retail and wholesale trading, building and contrition and service industries. Small scaled.
What are the advantages of sole proprietorship?
Unincorporated
Ease of formation
- Any person with legal status can start business with little caption without proper offices with approval from ACRA.
Ease of dissolution
- End business by selling his inventory, paying his business debts and de-registering his business with ACRA.
Control of business
- Full control so he can decide how and when he wants to work.
Flexibility
- Quick decisions and respond to changing situations.
Direct reward
- Owner is rewarded directly and proportionately to his own effort.
Secrecy
- Does not need to share confidential information which is useful if the success of business depends on a secret formula/techniques.
What are the disadvantages of sole proprietorship?
Unincorporated
Limited sources of funds
- Personal savings and borrowings from relatives and friends to start a new venture or expand his business
Limited life
- Owner and business are not a separate entity so owner’s death, imprisonment or insanity terminates the business.
Unlimited liability
- Personally liable to an unlimited extent for his business debts because there is no distinction between personal and commercial assets.
Lack of specialized management skills
- Rely on his own skills and judgement in managing his business as he could not afford to hire professional managers
State the feature of partnership.
Unincorporated
Pooling of resources by 2 to 20 people for the purpose of making profit.
Register under Business Registration with ACRA.
Partnership agreement can be made orally or in writing. Otherwise the partnership act shall apply.
Partners are collectively called a “firm”.
No separate legal entity so the partners are individually and collectively responsible for the debts and obligations or the partnership.
Amount of capital invested by each partner need not be equal.
Partnership agreement must state that profits and losses are borne in proportional to their shares. Otherwise, each partner shares equally in profits and losses.
State the advantages of partnership.
Unincorporated
More funds available
- 2 to 20 partners combined can raise more funds
Enhanced credit standing
- Banks are more willing to extend credit because partners are liable for firm’s debt.
Increased specialization of management skills
- Partners of different backgrounds can complement one another interns of skills, contacts and specialization.
Possibilities of growth & expansion
- Diversification in management skills and multiple sources of capital enhances firm’s growth and expansion into new products or markets.
Freedom from regulations
- Partnership does not need to submit their accounts to ACRA
Tax savings
- No tax is levied on the partnership itself. Individual partners must pay their own personal income tax.
