Unit 2 Business Structure Flashcards
How is business activity being classified?
Business activity can be classified into three stages,
Primary Sector
Secondary sector
Tertiary Sector
What explains primary sector business activity?
This refers to firms engaged in farming, fishing, oil extraction and all other industries that extract natural resources so that they can be used and processed by other firms.
What explains secondary sector business activity?
The secondary sector of the economy is an economic sector in the three-sector theory that describes the role of manufacturing. It encompasses industries that produce a finished, usable product or are involved in construction.
What explains the tertiary sector business activity?
The tertiary industry is a technical name for the service sector of the economy, which encompasses a wide range of businesses, including financial institutions, schools, hotels, and restaurants.
Define “ Industrialisation”.
Industrialization is the process by which an economy is transformed from a primarily agricultural one to one based on the manufacturing of goods.
What are the benefits of industrialisation?
- GDP increases and this raises the standards of living.
- Increasing output of goods can result in lower imports and higher exports of such products.
- Expanding manufacturing businesses will result in more jobs being created.
- Expanding and profitable firms will pay more tax to the government.
- Value is added to the countries’ output of raw materials, rather than just exporting these as basic, unprocessed products.
What are the disadvantages of industrialisation?
- The chance of work in manufacturing can encourage a huge movement of people from the countryside to the towns, which leads to housing and social problems ; urbanization.
- Imports of raw materials and components are often needed, which can increase the country’s import costs.
- Much of the growth of manufacturing is due to the expansion of multinational companies, where labour may be exploited and profits will be taken back to the MNC’s home country.
What is a sole trader business?
It is a business in which one person provides the permanent finance and in return has full control over the business and is able to keep all profits.
What is a partnership?
A business formed by two or more people to carry on a business together, with shared capital investment and usually shared responsibilities.
What are the advantages of running a sole trader business?
- Easy to set up - no legal formalities
- owner has complete control
- owner keeps all profits
- able to choose times and patterns of working
- business can be based on the interests and skills of the owner rather than working as an employee for a large firm.
What are the advantages of a partnership?
- partners may specialise in different areas of business management
- shared decision making
- additional capital injected by each partner
- business losses shared between the partners
What are the disadvantages of a sole trader business?
- unlimited liability- all of owner’s assets are potentially at risk
- often faces intense competition from bigger firms, for example in food retailing
- owner is responsible for all aspects of the business
- difficult to raise additional capital
- lack of continuity - as the business does not have a separate legal status, when the owner dies, the business ends too.
What are the disadvantages of a partnership?
- unlimited liability
- profits are shared
- all partners bound by the decisions of any one of them
- will lose independence of decision making
What is a private limited company?
a small to medium sized business that is owned by shareholders who are often members of the same family;
this company cannot sell shares to the general public.
What is a public limited company?
It is a limited company , often a large business, with the legal right to sell shares to the general public- share prices are quoted on the national stock exchange.
What is “ limited liability”?
the only liability or potential loss, a shareholder has if the company fails is the amount invested in the company, not the total wealth of the shareholder.
What is “ legal personality”?
A company is recognised in law as having a legal identity separate from its owners.
What is “continuity” ?
In a company, the death of an owner or directer wouldn’t lead to its dissolution. Ownership will continue through the inheritance of shares.
What are the advantages of private limited companies ?
- Shareholders have limited liability
- separate legal personality
- Continuity in the event of the death of a shareholder
- original owner is still often able to retain control
- able to raise capital from the sale of shares to family & friends
- greater status than an unincorporated business
What are the advantages of a public limited company?
- limited liability
- separate legal identity
- continuity
- ease of buying and selling shares
- access to substantial capital sources due to the ability to issue a prospectus to the public and to offer shares for sale ( called a flotation )
What are the disadvantages of a private limited company ?
- legal formalities involved in establishing the business
- capital cannot be raised by sale of shares to the general public
- quite difficult for shareholders to sell shares
- end of year accounts must be sent to Companies house for public inspection giving less privacy over financial affairs like in a sole trader business or partnership.
What are the disadvantages of a public limited company ?
- legal formalities in formation
- cost of business consultants when creating such a company
- share prices subject to fluctuation - for reasons beyond business control such as the state of economy.
- risk of takeover due to the availability of shares on the stock exchange
What are cooperatives?
Cooperatives are businesses owned by “member-owners”. Co-ops are democratically controlled by their member-owners, and unlike a traditional business each member gets a voice in how the business is run. Services or goods provided by the co-op benefit and serve the member owners.
Name a few features of a cooperative.
- All members can contribute to running the business
- All members have one vote at important meetings
- profits are shared equally among members
