unit 1 - chapter 2 & 3 Flashcards
advantages of operating as a sole trader
- easy to start up and manage
- freedom to make their own decisions
- ## profits don’t have to be shared
challenges of working as a sole trader
- lonely
- demanding hours
- difficult to raise finance (mainly own money)
- risk with having unlimited liability
sole trader definition
a business that is owned and managed by one person, but it may employ other people
unlimited liability definition
occurs when an individual or group is personally responsible for all the actions of the business.
with sole traders, there is no distinction between the business and the person so they could lose their personal assets if the business has financial problems
company definition
a business organisation that has its own legal identity and that has limited liability
who owns a company
owned by shareholders
what happens if a company fails
shareholders lose the money they invested when they bought the shares but nothing else (limited liability)
what 2 ways can shareholders benefit from
- the value of the company and the value of the shareholders part ownership may increase
- shareholders may receive a cut of the companies profits (known as dividends)
incorporation definition
the process of establishing a business as a separate legal identity that allows it to benefit from limited liability
shareholder definition
an investor in and one of the owners of a company
limited liability definition
in the event of financial difficulties, the personal belongings of shareholders are safe
dividends definition
a share in profits of a company that are distributed to the holders of certain types of company shares
what is a private limited companies (LTD)
- relatively cheap to start up
- benefit from limited liability
- shareholders can restrict who the shares are sold to
- shares cannot be advertised and sold publicly
benefits of being a private limited company
- the desire to retain control over the company
- taking decisions in the company’s long term interests (shareholder in PLC seek short-term profits)
- enjoying the profits generated by the company (dividends shared between fewer shareholders)
what are public limited companies (PLC)
- tend to be larger the LTD
- sell shares publicly
- easier to raise finance
- many more stakeholders
how do you measure the size of a PLC
market capitalisation
market capitalisaion definition
total value of the issued shares of a public limited company
market capitalisation equation
company’s current share price X the number of current shares
advantages of being a public limited company (PLC)
- easy access to capital
- publicity (in media for size and importance, so free advertisement)
- ability to take over other companies
takeover definition
occurs when one company acquires control of another by buying more than 50% of its share capital
privatisation definition
process under which sate sells businesses that it has previously owned and managed to private individuals and businesses
what are public sector businesses
organisations that are owned by national or local governments
what are the 3 elements of the public sector:
- public corporations (owned by state but offer products for sale publicly
- public services (NHS)
- municipal services (services offered by gov e.g libraries)
why do not-for-profit businesses exist
- owners strong beliefs
- provide a hobby to replace employment
- to act change and create funding
what are mutual businesses
characterised as a mutual business run for the benefit of their members, whether they are employees, customers, suppliers or the local community
what are 3 types of co-operatives
- consumer co-operatives
- worker co-operatives
- producer co-operatives
what is the role of shareholders
- influence decision making (1 share 1 vote)
- annual general meeting (all shareholders invited receive a copy og the companies annual report)
what are the 2 main things influences share prices
- companies performance
- economic conditions
the effects of changes in share price of a company
rising share price :
- easier to raise capital
- easy to get loans
falling share price :
- difficult to raise capital
- vulnerable for a takeover
2 reasons for changing business forms
- growth/expansion, to gain more capital and limited liability
- privatisation
what is the external environment
influences on costs and demand
what are 4 external factors
- economic factors
- demographic factors
- market factors
- environmental and social factors
what are 2 examples of economic factors
(external factors)
- consumers incomes
- level of interest rates
what are 2 examples of demographic factors
(external factors)
- changes in migration
- changes in birth and death rates
what are 2 examples of market factors
(external factors)
- changes in the power of competitors
- growth in sales within the market
what are 2 examples of environmental and social factors
(external factors)
- consumers prefer environmentally friendly products
- growth in popularity of fair trade products
external environment definition
external forces that can have both a negative or positive effect on a businesses costs and sales
market conditions definition
refers to number of features of a market such as the level of sales, the rate at which they are changing and the number and strength of competitors
unit 2
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flotation definition
the process of a private limited company offering shares for sale on the stock market to therefore become a public limited company
what are the pros of flotation
- raise capital/external finance
- stable business ownership structure
- higher prestige (media coverage)
- shareholders retain limited liability
- become larger
cons of flotation
- very expensive
- anyone can buy shares (no longer in control, potential takeover)
- increased legal requirements (more info public)
- short-term shareholders for profits
PESTLE meaning (external factors)
unit 3
Political
Economic
Social
Technological
Legal
Environmental + ethical
