Business Structure

Question 1

What is the Private Sector?

Answer 1

The private sector includes all these businesses that are set up by individuals or groups. E.g; Sole traders

Question 2

What is the Public Sector?

Answer 2

The public sector is essentially business activity that is owned/run by the government for the benefit of everyone. E.g; police, schools, hospitals.

Question 3

What is a good?

Answer 3

Items produced by the conversion of raw materials into finished products

They are tangible/physical products.

Question 4

What is a service?

Answer 4

Intangible, a task performed in return for payment

E.g, A haircut

Question 5

Public Goods

Answer 5

Public goods are goods that wouldn’t be provided in a free market system, because businesses would not be able to charge for them.

Question 6

Characteristics of Public Goods?

Answer 6

Non-rivalry - the consumption of one good by one individual does not reduce the amount available for others

Non-excludability - it is impossible to exclude others from benefiting from their use. I.e, people who use the street will benefit from the street lighting provided.

Example of Public Goods - street lighting, lighthouses, defence, police

Question 7

Aims of the Private Sector

Answer 7

Survival
Profit Maximisation
Maximising growth
Gaining Market Share
Increasing sales revenue
Improve reputation
Improve quality
Increasing efficiency
Competitiveness

Question 8

Aims of Public Sector

Answer 8

Provide a universal service to all UK households

Provide a service that the private sector may not be willing to provide as it may not be profitable to do so.

Ensure provision of both merit and public goods

Question 9

Importance of the Public Sector

Answer 9

Goods and services needed in our everyday lives would not be provide by the private sectors who are looking to make profits.

We all benefit from them without paying for them.

Question 10

Merit Goods

Answer 10

Merit goods are goods that could be provided by the free market but policy makers recognise that they would be under-consumed.

Examples - Health, education, roads

Question 11

Sole Traders

Answer 11

A business owned and run by one individual but they may employ people.

Question 12

Advantages of sole traders

Answer 12

Independence / Own boss

To increase rewards - earn more

Privacy of business affairs - there is no legal requirement to share how the business is performing with anyone.

Want to achieve something for themselves

Question 13

Disadvantages of sole traders

Answer 13

Unlimited Liability

More responsibility

Limited sources of resources

Work long hours with limited holidays

If they don’t work they don’t get paid (illness)

Question 14

Partnerships

Answer 14

A business owned and run between 2-20 people.

Question 15

Deed of partnership

Answer 15

The partners may choose to draw up a ‘Deed of Partnership’ which is a legal agreement setting out the right and responsibilities of the partners. It covers issues such as

How profits will be shared
How much control each partner has
The procedure for ending the partnership
Rules for taking on new partners

Question 16

Advantages of Partnerships

Answer 16

Can share resources and ideas

Can cover for each other (during holidays, illnesses)

Gave more sources of finance

Have shared responsibility and decision making

Question 17

Disadvantages of Partnerships

Answer 17

Unlimited liability

Loss of control

Slow decision making

Disagreements between partners

Profits must be shared

Question 18

Private Limited Companies (LTD)

Answer 18

Often a small business. Shares do not trade on the stock exchange.

Shares cannot be brought by the public

Minimum 2 people - expand by selling more shares, owners control who buys shares.

Question 19

Advantages of Private Limited Companies (LTD)

Answer 19

Limited Liability

Better control over the business

Raise finance by selling shares needed to expand the business

Question 20

Disadvantages of Private Limited Companies (LTD)

Answer 20

Not open to big investors

Profits have to be shared with other shareholders

Slower decisions making

Have to publish accounts - can be looked at by competitors.

Question 21

Public Limited Companies (PLC)

Answer 21

Is usually large, well known business. Shares can be brought or sold by anyone on the stock exchange.

Question 22

Advantages of Public Limited Companies

Answer 22

All shareholders maintain limited liability

Anyone can buy shares which can result in huge amounts of money being raised to expand the business

May gain greater presence in the market.

Banks willing to lend money

Question 23

Disadvantages of Public Limited Companies

Answer 23

Less control of the business

Have to publish more information than private limited companies

Can be expensive - setting up costs

Shared profit

Question 24

Charities

Answer 24

A non-profit-making organisation established with the aim of collecting money from individuals and spending it on a cause.

Question 25

Social Enterprises

Answer 25

Social enterprises include for-profit and not-for-profit businesses with primarily social objectives, who surpluses are re invested for that purpose in the business, rather than being driven to maximise profits for shareholders and owners.