3.1.2 Flashcards
(40 cards)
what are sole traders?
individuals that establish and operate a business on their own
usually small businesses
advantages- sole trader
easy to start up and manage this form of business
freedom of decision making
decision making is quick
motivating to be your own boss
disadvantages- sole trader
-may be difficult to cope with this
pressure
-they hold all responsibility- can be overwhelming
-business stops operating if trader is on holiday or ill
-may be difficult to raise finance for start up
-unlimited liability
what is incorporation?
the process of establishing a business as a separate legal identity that allows it to benefit from limited liability
benefits of being a shareholder to a company
- the value of the company and therefore the shareholders part ownership may increase
- shareholders may receive a share of the companys profit (a dividend)
what is a company?
a business organisation that has its own legal identity and that has limited liability
private limited companies (ltd)
- generally smaller than plcs
- relatively cheap to set up
- limited liability
- many (not all) ltds are owned by families who limit the sale of shares to other members of the family
- owners of shares cannot advertise their shares for sale- have to sell them privately
advantages of ltds
- owners may retain control of the company
- may keep most profits
- they can take decisions in the companys long term interests
what is market capitalisation?
the total value of the issued shares of a public limited company
- can be used to measure the size if a plc
market capitalisation formula
current share price x number of issued shares
plcs
- can advertise their shares in the media
- usually raises capital quickly
- can be at risk of takeover
advantages of plcs:
- access to large amounts of capital
- publicity- in the media
- ability to take over other companies
how does a takeover occur?
- occurs when one company acquires control of another by buying more than 50 % of its share capital
what is privatisation?
the process under which the state sells businesses that it has previously owned and managed to private individuals and businesses
public corporations
- enterprises owned by the state but offering products for sale to the public and private sector businesses
- may be managed by central government e.g. channel 4 television or local governments like manchester airport
what is a public service?
- includes organisations that provide services to the whole nation
- e.g. the NHS
what is a municipal service?
- services offered by local governments and councils
- examples- libraries, leisure centres
social enterprises:
- businesses that have social aims and trade in order to benefit the community or society in general- like job creation and training
- examples- the co-operative group, the eden project etc.
- want to raise funds for a particular cause- protecting the environment
what are mutual businesses?
businesses that are run for the benefit of their members, whether they are employees, customers, suppliers or the local community
influences on share prices
- business performance
- business environment- economic conditions- interest rates, recession
- management of the company
- political climate
- supply and demand in the market
impact of rising share prices:
- reflects well in the management team
- may be easier to raise capital
- shareholders are more likely to invest
- banks may be more willing to offer loans
impacts of falling share prices:
- judged as poor performance by the management team
- may be difficult to raise capital
- may make the company vulnerable to takeover as the cost of investing is reduced
- a long term decline may affect the company’s ability to recruit quality employees or to raise major investment
sole trader- mission:
- may be unlikely to have a mission, the sole owner provides a sense of direction
sole trader- objectives:
- may centre around meeting personal goals- such as generating sufficient income
