105 business structure

Question 1

difference between private and public sector

Answer 1

~public- businesses that are owned and run by the government , public services eg
NHS, they are run to provide a service , not a profit

~private-businesses that are owned by shareholders and individuals and are run to make a profit eg.Tesco,JD

Question 2

private sector business aims

Answer 2

~survival- to establish a business and make enough sales to cover costs and make profits

~growth- to increase size of business eg.more customers and assets

~to make profit

Question 3

public sector aims

Answer 3

-to provide services that business would not provide at all eg. streetlights , or would not provide in a way that everyone would be able to afford them eg. education
-employment-public sector employs 5.44 million people

Question 4

role of the public sector

Answer 4

-(public goods)- it’s difficult for a business to make profit selling eg.streetlights , no workable system of making people pay - no profit- government pays for it by taxes

-(merit goods) are goods and services that the government feels people would under consume if not provided. eg. education - government benefits from employees having healthcare -better work provided , more ability to pay tax to buy these goods and services

Question 5

evaluate public sector

Answer 5

(+) provides goods and services for members of the community who can’t afford them so accessible, provides employment on a large scale , offers important services eg.hospital improving quality of life

(-) business has monopoly power(only business in the market) so less inventive to improve -less competition and no profit motive - lazy In improving products/services, must be paid by tax

Question 6

evaluate private sector

Answer 6

(+) profit motive and more competition-business will continue to develop new and better products - good for customers-get good quality products

(-) would not be able to offer some goods to consumers at a price they could afford , some hoof eg. streetlights would not be offered at all

Question 7

what are the four types of private sector organisations

Answer 7

~sole trader (one owner)
~paternership (between 2-20 owners )
~private limited company LTD (owners are private shareholders)
~public limited company PLC (the owners are public shareholders)

Question 8

describe sole traders

Answer 8

-a business owned by one person
-usually small in size eg.hairdresser, plumber.
-they rely on own savings/ bank loans or family to finance their business
-‘unlimited liability’
-when owner dies , the business ends

Question 9

describe partnerships

Answer 9

-up to 2-20 partners.
-lawyers, doctor operate as partnerships
-a deed of partnership document sets out the terms of the partnership eg . how much money each partner invests , what role partner will have
-‘unlimited liability’

Question 10

describe public limited companies

Answer 10

-the shareholders put money in the company and they are the owners (owner=shareholder)
-‘limited liability’
-they will expect to be paid a % of the profits (dividend)
-the business continues if one if the owners dies-ownership can be transferred

Question 11

describe private limited companies

Answer 11

shareholder puts money into the business and they are the owners -> they appoint directors to run the company
business sells the shares to the public - this means more finance can be raised
-‘limited liability
each shareholder gets 1 vote at general meeting where policies and directors are voted for

Question 12

what is unlimited liability

Answer 12

if a business fails , the owners of the business are liable for all the debts of their businesses, and have to pay off those debts if they are able to, through selling their personal possessions
-eg. sole traders , partnerships

Question 13

what is limited liability

Answer 13

shareholders are only liable to lose the amount of money they have invested in the business, they do not have to sell their personal possessions. they can only lose the amount of money they put into the business
eg. public limited companies LTD , public limited companies PLC

Question 14

(+)/(-) of using sole traders for a business

Answer 14

(+) keep all the profit for themselves , make key decisions by themselves (control over business), easy to set up (less rules and regulations)

(-) long hours (must do most of the work themselves), lower ability to raise finance (one person can’t access large loans ), more to loose if business fails

Question 15

(+)/(-) of using partnership for a business

Answer 15

(+) more finance available compared to sole trader, different partners/different skills, workload shared.

(-)unlimited liability, profit shared between all partners, disagreement on decisions

Question 16

(+)/(-) of using private limited companies for a business

Answer 16

(+) more able to raise money by borrowing and through selling shares (seen as a better risk by a bank),limited liability (the shareholders will only lose their investment if business fails)

(-) higher legal costs, shareholders may want to keep profits instead of reinvesting it back into the business

Question 17

(+)/(-) of using public limited companies for a business

Answer 17

(+) very large amounts of finance can be raised through selling shares to the public, easier to grow the business

(-)shareholders expect to be paid a dividend, anyone can buy the shares and take control of the company if they buy more than 51% of the shares

Question 18

evaluate the factors affecting the choice of the legal structure of a business

Answer 18

~control- how much control does the owner want to have

~finance- how much finance does the business need raise /what source

~ liability- limited or unlimited liability

~ cost/ complexity-can business afford setting up a LTD or PLC

~continuity- does the business want to continue if the owner dies

Question 19

explain not-for-profit organisations

Answer 19

-organisations that are not in the business for money-instead their focus is on social or ethical objectives. eg.charities, co-operatives
-they still count as a business as they have income, revenues, costs and can make profits same as other business

Question 20

explain social enterprises

Answer 20

-social enterprises trade to help solve social problems, improve the community, and improve the environment
-they aim to make profit by selling goods and services in the open market, instead of paying dividends, they reinvest the profits towards achieving their social goals eg.big Issue, cafè direct

Question 21

explain charities

Answer 21

-they raise money though eg.collecting donations, selling goods for a profit in a retail outlet
-any profit made is called surplus and must be given to the cause rather than back to shareholders/ owners

Question 22

explain co-operatives and societies

Answer 22

-they were set up in the 19th century as part of a social movement by working people-they were designed to prevent profiteering and exploitation
-they are owned by their members-each member has the right to vote on decision made about the business
-members benefit through payment of a dividend (their share of co-operatives profits)