Understanding Business Flashcards
What are the sectors of industry?
Primary
Secondary
Tertiary
Quaternary
Describe the primary sector
Business involved in extracting natural resources e.g. Farming, coal mining, fishing
Describe the secondary sector
Business involved in manufacturing and construction of goods, e.g house construction, car manufacturing
Describe the tertiary sector
Business which provide a service rather than physical goods, e.g shops, banks, gyms, transport companies
Describe the quaternary sector
Industries which provide specific information services such as computing, ICT, consultancy
What are the main types of business organisations?
Sole traders, partnerships, private limited companies and public limited companies.
Describe a private limited company
The capital of a Ltd is divided into shares and each shareholders owns a number of these.
It must have a minimum of 2 shareholders.
It is managed by a board of directors.
It cannot sell shares to the general public on the stock market.
It must be registered with the Registrar of Companies and complete a Memorandum of Association and Article of Association.
Advantages of a private limited company
Shareholders have limited liability-shareholders do not risk personal bankruptcy.
More finance can be raised from shareholders.
Shareholders and/or directors bring a degree of expertise to the business.
No loss of control to outsiders.
Disadvantages of a private limited company
Profits are shared among shareholders
More complicated to set up as it involves a legal process
Difficult to raise large amounts of finance as shares aren’t sold on the stock market.
Must adhere to rules and regulations of the Companies Act.
Describe a public limited company
It must be registered with the registrar of Companies
It must have a minimum of £50,000 share capital
Shares can be bought and sold on the stock exchange
There must be two shareholders
It is controlled and managed by a board of directors
Must complete memorandum of Association and articles of Association.
Advantages of a PLC
Can raise large amounts of capital by selling shares on the stock market.
Considered less risky by lenders.
Shareholders have limited liability.
Shares can be given to employees.
Death and illness do not affect the operation.
Disadvantages of a PLC
The firm can be taken over if a rival firm is able to acquire enough shares.
There is no control over who buys shares.
A PLC must purchase annual accounts.
Profits must be shared.
Not all decisions are made by the owners.
Set up costs are high.
Describe a multinational company
This is when a PLC operates on an international scale - they operate in more than one country.
This is done to reduce production costs, reduce transport costs, to penetrate markets protected by import controls, to earn higher after-tax profits and to escape government regulations at home.
Advantages of MNC
Employment is created in ‘host’ country
Economies of scale can be achieved-countries producing on such a large scale can spread production costs over a larger output so prices can be reduced.
MNC’s can introduce new management styles in ‘host’ countries.
Disadvantages of MNC’s
Jobs created can be low skilled assembly jobs with high skilled research jobs being kept in the country of origin.
Profits earned in the host country are usually transferred back to shareholders in the country on origin.
Company could withdraw from the country if government does not accept the Companies requests, creating unemployment.
