Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

iB Business Management > Unit 1.2 : Types of Business Organizations > Flashcards

Unit 1.2 : Types of Business Organizations Flashcards

1
Q

Private sector

A
  1. Organizations that operate in the private sectors are owned and controlled by private individuals and businesses, rather than by the government
  2. Main aim of most, if not all, private sector organizations is to make a profit (have a big difference between a first’s sales revenue and its cost)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Sales revenue

A

money earned from selling it’s products

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Costs

A

production expenditure such as wages and rent

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Public Sector

A
  1. Organizations that operate in the public sector are under the ownership and control of the government
  2. They are principally controlled, financed, and operated by the government
  3. They provide essential goods and services that would be under-provided or inefficiently provided by the private sector such as healthcare, education, or emergency services
  4. Could be state-owned enterprises
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

State-owned enterprises

A
  1. Organizations that are wholly owned by the government

2. e.g. America’s USPS or UK’s BBC

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Reasons for public sector business activity

A
  1. Ensures that everyone has access to basic services such as education, health care, public parks, and public libraries
  2. To avoid wasteful competition as the government is able to achieve huge economies of scale in many services such as postal services
  3. To protect citizens and businesses through institutions such as the police or the courts that govern the law and order system
  4. To create employment for their citizens
  5. To stabilise the economy and prevent financial turmoil
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Sole Traders

A
  1. A sole trader is an individual who runs and owns a personal business. The owner is held responsible for its success or failure
  2. It is the most common type of business ownership such as self-employed mechanics or freelance photographers
  3. They can work alone or employ other people to help them run the business
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Pros of being a sole trader

A
  1. Few legal formalities so it is easy to set up and start-up costs are much lower in comparison to other business ownership types
  2. The sole trader is the only owner and therefore receives all the profits that the business makes
  3. They are their own boss - they do not have to take orders from anyone and have flexibility in their own decision-making
  4. Sole traders can provide a personalised service to their customers
  5. Unlike other business ownership types, sole traders enjoy privacy as their financial records are not available to the public
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Con of being a sole trader

A
  1. They have unlimited liability which is risky
  2. Sole traders often find it difficult to secure any funds beyond their personal savings so there sources of finances are often limited to their own savings - makes it hard to expand
  3. There are high risks or survival as larger and more established firms are more likely to survive
  4. Owners usually have to do most of the work so they can be overworked and stressed out
  5. Limited economies of scale as they can not exploit the benefits of large scale production - prices might be less competitive
  6. There is a lack of continuity as the runner of a business can be jeopardised if the owner is not present (company has no separate legal identity from the owner)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Limited Liability

A

Limited liability indicates that even if a business is unable to repay a debt, the owners liability does not exceed the amount invested as it is limited to a fixed sum. (the owner’s personal property and possessions are protected)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Unlimited Liability

A

Unlimited liability indicates that if a business is unable to repay a debt, each of the business’ owners is equally responsible and personal wealth could be seized to cover the balance owed. (liable for beyond what was invested)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Incorporated Business

A
  1. Have separate legal identity from the owners. When a company incorporates, it becomes its own legal business.
  2. A company exists separately from the owners and will continue to exist if one of the owners should die
  3. A company can make contracts or legal agreements
  4. Company accounts are kept separate from the accounts of the owners
  5. Has shareholders and board of directors
  6. Shareholders receive dividends
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Shareholders

A

Companies are owned by the people who have invested in the business and the people who buy shares in the company are called shareholders

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Dividends

A

Payments made to shareholders from the profits (after tax) of a company. They are the return to shareholders for investing in the company

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Annual General Meeting

A
  1. Legal requirement for all companies where shareholders may attend and vote on who they want to be on the Board of Directors for the next year
  2. They also allow for shareholders to ask questions about the chief executive officers, directors, and chairperson about various aspects of the company
  3. Shareholders use the AGM to approve the previous year’s financial accounts
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Board of Directors

A

Group of people who will be given the responsibility of managing the business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Company

A

incorporated business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Unincorporated Business

A
  1. Sole traders and partnerships
  2. Has owners
  3. Unlimited liability
  4. Company does not have a separate legal identity
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Partnerships

A
  1. A partnership is a profit-seeking business owned by two or more persons. For ordinary partnerships, the maximum number of owners is 20
  2. Sources of finance are mainly from the personal funds of each owner but they can also raise money from owners who do not actively take part in the funning of the partnership. These investors are called silent partners
  3. Unincorporated business and all partners share the liability
  4. Although it is not a legal requirement, most partnerships formulate a legal agreement between each of the partners known as deed of partnership
  5. Without a contract, profits or losses must be shared equally amongst the partners and all partners have the same rights in the running of the business.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Contents of a deed of partnership

A
  1. the amount of finance contributed by each partner
  2. The roles, obligations, and responsibilities of each partner
  3. How profits or losses will be shared among the partners
  4. Conditions for introducing new partners
  5. Clauses for the withdrawal of a partner
  6. Procedures for ending the partnership
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Pros of being a partnership

A
  1. Partnerships have more financial strength that sole proprietorships as there are more owners who can invest in the business, yet they are still fairly easy to set up
  2. Easier to secure external sources of finance in partnerships than sole proprietorships due to lower risk
  3. They can benefit from specialisation and division of labour. Partners can benefit from shared expertise, shared workload, and moral support
  4. They have financial privacy as they do not have to publicise their financial records
  5. Partnerships can be more cost-effective than sole traders as each partner specialises in certain aspects of the business, thus raising productivity
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Cons of being a partnership

A
  1. Partnerships have unlimited liability so they are responsible for their debts “wholly or severally” which means that debts can be repaid by one partner (whollY) or by several partners (severally)
  2. They have a lack of continuity - if a partner dies or leaves the firm, a partnership deed may have to be set up again
  3. Prolonged decision making because there may be conflicts and disagreements between owners
  4. Could have a lack of harmony because conflict can exist.
  5. Each partner is legally and financially answerable to the others, so a mistake by one person can reduce the profits for all other partners so the risk is higher
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Joint-stock companies

A
  1. also known as corporations

2. shares of the business are jointly held by numerous entities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

types of limited liability companies

A
  1. private limited companies

2. public limited companies

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

private limited companies

A
  1. private limited company is a company/incorporated business
  2. They cannot raise share capital from the general public. Instead shares are sold to private family members and friends. These shares cannot be traded without the prior agreement from the BOD so that the directors can maintain overall control of the company
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

public limited companies

A
  1. incorporated business
  2. Are able to advertise and sell its shares to the general public via a stock exchange
  3. Can raise capital to expand nationally or even internationally
  4. Still have control of the company but not as much as sole traders or partnerships
  5. Largest shareholders tend to be institutional and commercial investors
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Documents needed to becoming incorporated

A
  1. Memorandum of Association
  2. Articles of Association or Articles of Incorporation
    3 Certificate of Incorporation
28
Q

Memorandum of Association

A

a relatively brief document outlining the fundamental details of the company such as its name, purpose, registered address etc

29
Q

Articles of Association

A
  1. also known as articles of incorporation
  2. stipulates the internal regulations and procedures of the company such as the rights, roles, and power of the BOD and shareholders
  3. administrative issues are also covered such as the process for the appointment of directors and how profits will be distributed
30
Q

Certificate of incorporation

A
  1. Once authorities are satisfied with the memorandum of association and articles of association and an application fee has been paid, a certificate of incorporation is issued to the company
  2. this licence recognises the business as a separate legal identity from its owners and allows the business to start trading as a limited liability company
31
Q

Flotation

A

Flotation occurs when a business first sells all of part of its business to external investors in a process known as initial public offering (IPO)

32
Q

Pros of companies

A
  1. Companies can raise a large amount of capital by selling shares. There are no interest charges and shareholders are paid only if the company makes a profit
  2. Shareholders have limited liabilities which also makes it easier for a company to attract investors as risks are lower
  3. The legal difference between owners and the company means that their is continuity
  4. Can benefit from economies of scale due to their large size
  5. Companies can higher specialist directors and managers to run the firm as there is no qneed for the owners to be directly involved in the daily running of the business. Therefore, the output and productivity levels of limited companies are higher
  6. Companies pay corporate tax rather than income tax on their profits which generally has a lower rate
33
Q

Cons of companies

A
  1. Communication problems as the company is very big and relationships cab become impersonal to both customers and employees
  2. Financial data must be provided to all shareholders which can be time-consuming and expensive. They lack financial privacy
  3. There is far more bureaucracy involved in setting up and running a company
  4. They may lose more control since they are selling shares
34
Q

pros of private limited companies

A
  1. people buying shares are likely to be friends or relatives of the owner so there is a lower risk of a loss of control
  2. All shareholders have limited liability
  3. The people who start the company are able to keep control of it as they do not sell to many shares to other people
35
Q

cons of private limited companies

A
  1. The company cannot offer shares to the general public to expand the business
  2. The shares cannot be sold or transferred to anyone else without the agreement of shareholders. - can make people reluctant to invest because they may not be able to sell their shares
36
Q

pros of public limited companies

A
  1. Opportunity to raise large capital sums to invest in the business as there is no limit to the number of shareholders a public limited company
  2. No restriction on the buying selling or transfer of shares
  3. High status and is easier to attract suppliers who are prepared to sell goods on credit
37
Q

cons of public limited companies

A
  1. High compliance costs in order to comply with the rules and regulations of the stock exchange which will add to their running costs
  2. They can face the potential threat of a takeover by a rival company that purchases a majority stake in the business as shares are openly available for purchase on the stock exchange
  3. More regulations and controls to protect the shareholders
38
Q

for-profit social enterprises

A
  1. social enterprises are revenue-generating businesses with social objectives at the core of their operations
  2. Whilst commercial for-profit businesses strive to return a profit for their owners, social enterprises strive to return a surplus for social gain
  3. Social enterprises can be operated as a non-profit organization or as a for-profit company
  4. They have two goals : to achieve social objectives and to earn revenue in excess of costs
  5. Their success in helping others depends on their ability to operate as a sustainable business
39
Q

Main types of for-profit social enterprises

A
  1. co-operatives
  2. micro-finance providers
  3. public-private partnerships (PPP)
40
Q

Co-operatives

A
  1. Cooperatives are a form of a partnership whereby the business is owned and run by all the “members” but, unlike partnerships, cooperatives may have more than 20 members.
  2. Each member participates actively in the running of the business.
  3. In each case, the cooperative’s priority is not to make profit. Rather, the cooperative sells or offers its products or services typically at as close to cost price as possible, thereby lowering the costs to members.
  4. However, if prices are too low, the cooperative runs the risk of failure by not reinvesting in the business or not having a significant financial cushion to weather a difficult period or an unexpected expense.
  5. Thus, cooperatives generally aim to make some surplus, but maximising profit is not their most important aim.
41
Q

3 main types of cooperatives

A
  1. Consumer co-operatives
  2. Worker co-operatives
  3. Producer co-operatives
42
Q

Consumer co-operatives

A
  1. consumer co-operatives are owned by the customers who buy the goods and services for personal use
  2. e.g. food, credit unions, child care, housing, and healthcare co-operatives
  3. In most cases, members get access to goods and services at lower prices than those charged by traditional commercial businesses
  4. Individual consumers would become “members”, which entitles them to purchase groceries at the cooperative, often at lower prices than for-profit grocery stores.
43
Q

worker co-operatives

A
  1. worker co-operatives are set up, owned, and organised by their employee members
  2. By operating as an enterprise, members are provided with work
  3. Workers collectively own and run the business
  4. They make the important decisions.
  5. Managers are not paid significantly higher wages /salaries.
  6. Priority is to provide employment to workers.
  7. These cooperatives often form when a business is about to fail. Workers fear they may lose their jobs so they takeover the business, sack the managers (or drastically reduce their pay).
  8. They reinvest all profits in the business rather than pay them out as dividends.
44
Q

producer co-operatives

A
  1. Groups of producers collaborate in certain stages of production.
  2. Common in agriculture.
  3. Often aim to maximise the utilisation of an expensive piece of equipment that individual members could not afford on their own.
  4. Cost efficiencies can be achieved because many producers pool their resources.
45
Q

Pros of co-operatives

A
  1. Incentives to work as employees have a key stake in the co-operatives so they are more interested in how it performs. This can enhance staff motivation and labour productivity.
  2. Employees have a say in how the business is run, there is a democratic system of members having equal voting rights so this improves members commitment and motivation
  3. Co-operatives are run on socially responsible principles leading to gain for other members of society rather than for the owners. Thus, co-operatives create social gains that can be enjoyed by a wider community
  4. Co-operatives tend to have a lot of public support because people want to help them succeed because they believe in the cause
46
Q

Cons of co-operatives

A
  1. There might be inefficient managers and employees as co-operatives do not pay high salaries and bonuses as incentives to work
  2. There are limited sources of finance as they often can not raise funds through a stock exchange so they are limited to the amount contributed by their members
  3. Slower-decision making because all members of the co-operative work in a democratic way
  4. There are limited promotional opportunities as co-operatives tend to have flatter organisational structures so there are fewer opportunities for employees to progress in their career
47
Q

Micro-finance providers

A
  1. provide small amounts of finance to those who traditionally would not have access to it, for example low-income individuals, families in rural communities, and women.
  2. The money is lent with specified conditions of use and scheduled repayments.
  3. The micro-financier expects to receive repayment of principal and to make a profit on the loans (interest).
  4. The loan amounts are small and the interest rates are low, and micro-financiers do not use aggressive tactics of other forms of moneylenders.
  5. often seen in low-income economies
48
Q

Pros of micro-finance providers

A
  1. Microfinance helps those in poverty to become financially independent whereas banks do not typically lend such small amounts
  2. The effective use of micro-finance can help create new job opportunities with beneficial effects on society as a whole
  3. Successful applicants who receive micro-finance are less likely to take their children out of school. It allow recipients to gain better access to things like healthcare for their families. It improves social wellbeing.
49
Q

Cons of micro-finance providers

A
  1. Critics claim that microfinance is an unethical operation as the lenders are for-profit organization so they profit from the poor and the unemployed
  2. They have limited finance as microfinance schemes only offer small amounts of money to borrowers given the high risk of default (failure to repay loans)
  3. There is limited eligibility as not all poor individuals qualify for micro-finance. As a for-profit organization, microfinance providers have to minimise their own risks by ensuring borrowers have the ability to repay their loans
50
Q

Public-Private Partnerships (PPP)

A
  1. A PPP is a business created between a private sector business and the public sector. Typically, a PPP involves the construction of a facility with a social aim (e.g. healthcare or education). It could also be for a specific project such as the development of a site for alternative energy or a nature reserve.
  2. The business is expected to make a return on the money invested into it, but the priority is not profits.
  3. The public sector usually provides the finance and the private business the expertise.
  4. Often, the government offers tax incentives to the private sector to take part in the partnership.
  5. A PPP may not be limited to small partnerships such as a drug rehabilitation service, but can involve large businesses doing big projects.
51
Q

Pros of PPPs

A
  1. Both private and public sectors contribute financial resources towards the project and share some of the risk.
  2. Private sector management skills and financial support help create better value for money for tax payers (who help to fund the PPP)
  3. Can create employment and impact economic growth
52
Q

Cons of PPPs

A
  1. PPPs are usually large projects and involve vast sums of money and high operational costs for a long period of time so are high risk investments.
  2. Conflict of interest between stakeholders of the PPP e.g. private sector managers need to please shareholders whilst the government has public interests in mind
53
Q

Non-profit social enterprises

A
  1. Some businesses operating in the private sector do not aim to make profits at all. These businesses are also enterprises – their main aim however is for a social purpose – but they are different from for-profit social enterprises in that they do not aim to make any profits whatsoever.
  2. Though these social enterprises are run as businesses, they aim to generate surpluses rather than profits. A surplus is, conceptually, very similar to a profit. However, rather than be distributed to the owners of the business, the surplus is used to advance the social purpose for which the business was set up
  3. Social enterprises can take many possible forms – two broad categories of NPOs exist: enterprises and charities.
54
Q

surplus

A

surplus = total revenues - total costs

55
Q

Types of non-profit social enterprises

A
  1. Non-governmental organizations (NGOs)

2. Charities

56
Q

NGOs

A
  1. Non-governmental organizations (NGOs)
  2. A non-profit social enterprise that operates in the private sector
  3. They do not aim to make a profit but rather are set up and run for the benefit of others in society
  4. the UN defines NGOs as “private organizations that pursue activities to relieve suffering, promote the interests of the poor, protect the environment, provide basic social services, or undertake community development”
  5. There are two types of NGOs: Operational NGOs and Advocacy NGOs
57
Q

Operational NGOs

A
  1. established from a given objective or purpose
  2. These NGOs tend to be involved in relief-based and community projects
  3. e.g. UNICEF
58
Q

Advocacy NGOs

A
  1. takes a more aggressive approach to promote or defend a cause, striving to raise awareness through direct action
  2. e.g. Greenpeace
59
Q

Charities

A
  1. A charity is a non-profit social enterprise that provides voluntary support for good causes such as the protection of children, animals, and the natural environment
  2. It’s key function is raising funds from individuals and organizations to support a cause that is beneficial to society
  3. Since charities do not necessarily ‘sell’ anything to customer, they use refined marketing strategies to catch the attention of donors such as celebrity endorsements
  4. Charities differ from NGOs in that their focus is on philanthropy and a desire to help those who cannot help themselves.
60
Q

Pros of charities

A
  1. There are social benefits to charities. They provide financial support for the welfare of society. Many charities help to raise funds for medical research and other worthy causes including the protection of children and the prevention of cruelty to animals.
  2. Non-profit organizations such as charities are exempt from corporate tax
  3. Donors can get income tax allowances on the funds that are donated to charity which raises the incentives for donors to give money to charities
  4. Charities can register to be limited companies so employees and managers are protected with limited liability.
  5. Once registered with the authorities as a charity, they gain public recognition and trust so the general public and donors are more confident in donating money
61
Q

Cons of charities

A
  1. Charities have to be registered before they can operate so the governing bodies of the countries can also place restriction on what charities can and cannot do
  2. The lack of a profit motive can cause problems such as most volunteers cannot offer their services for a long time. Even salaried workers likely are paid far less than what they could earn in a for-profit organization
  3. Financial activities much be recorded and reported to a governing body. This is to protect the interest of donors and to prevent charity fraud
  4. It could be inefficient because those who run the charities are not personally held liable for any debts incurred due to them becoming incorporated
  5. They have limited sources of finance as most charities survive solely on one source of finance - donations. With a huge number of rival charities, they have to constantly compete for donations
62
Q

Deed of partnership

A
  1. legal contract signed by the owners of a partnership

2. the formal deeds specify the name and responsibilities of each partner and their share of any profits or losses

63
Q

stock exchange

A
  1. a market place for trading stocks and shares of public limited companies
  2. such as the New York Stock Exchange (NYSE)
64
Q

pressure groups

A
  1. a pressure group is a non-profit-making organization that aims to change the behaviour and decisions of either organisations or governments.
  2. Pressure groups want change to be made in the governmental, business and consumer areas in order to see change in a system
  3. e.g. greenpeace
65
Q

How does a pressure group achieve their goals

A
  1. Publicity through media coverage
  2. Influencing consumer behaviour
  3. Lobbying of the government

iB Business Management (14 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions