Chapter 2- Business sectors and types of business Flashcards
1
Q
Definition of multinationals
A
- Having operations in other countries as well as nationally in the UK
2
Q
Definition of chain of production
A
- Stages that a product passes through until it reaches the final consumer
3
Q
What happens as a product passes along a chain?
A
- It has value added to it
- It becomes worth more because of the business activity at each stage of the chain
4
Q
What are the 3 sectors of economic activity?
A
- Primary sector
- Secondary sector
- Tertiary sector
5
Q
Primary sector
A
- Businesses in the primary sector are concerned with the extractive industries
E.g. farming, Fishing, forestry, mining and oil/gas extraction
6
Q
Secondary sector
A
- Businesses in the secondary sector are concerned with manufacturing (turning raw materials into semi-finished and finished products)
- It also includes the construction industry
E.g. building houses, factories, office blocks and roads
7
Q
Tertiary sector
A
- Businesses in the tertiary sector are concerned with the output of services
E.g. retailing, banking and transportation
8
Q
What are the proportions of each sector in the output of the UK?
A
Tertiary (80%)
Secondary (14%)
Primary (6%)
9
Q
What is a feature of an advanced economy?
A
- A large tertiary sector
10
Q
Definition of deindustrialisation
A
- The decline in the size of the secondary sector of the economy
11
Q
What is there likely to be if manufacturing is thriving?
A
- A positive effect on the other two sectors as there will be a need for more inputs and services to support the business
12
Q
Why does the UK need a successful manufacturing sector?
A
- To generate export earnings
13
Q
Definition of private sector
A
- Businesses owned and run by private individuals usually for profit
- Referred to as ‘private enterprise’
14
Q
Definition of public sector
A
- Businesses and organisations owned and run by local or central government whose objective is to provide a service rather than make a profit
- Referred to as ‘public enterprise’
15
Q
Examples of organisations in the public sector
A
- BBC
- NNL
- NHS
16
Q
What is legal structure particularly important for?
A
- Ownership and control of the business
- Responsibility for any debts
- Sources of finance available
- Objectives pursued
17
Q
What is a sole trader?
A
- Simplest form of a business organisation
- They own the business and make all the decisions affecting it
- They can employ a number of people
- They are in overall control
- Business and owner are inseparable (unincorporated)
- Business doesn’t exist in its own right
18
Q
Advantages of being a sole trader
A
- Sole trader doesn’t have to consult with anyone so making decisions is quick and easy
- A sole trader keeps all the profit after tax
- Can’t be subject to a takeover as they can’t issue shares
19
Q
Disadvantages of being a sole trader
A
- They are fully responsible for all their debts (unlimited liability)
- Sole traders have to be the jack of all trades
- Limited opportunities for growth as it’s hard to raise capital for expansion as a small business is seen as risky
20
Q
Definition of partnership
A
- Whenever 2 or more people run a business together
- It’s not a legal entity in it’s own right
- The law requires a minimum of 2 and a maximum of 20 partners
21
Q
Definition of deed of partnership
A
- It’s a legal document that governs the running of this type of business (partnership)
22
Q
What does a deed of partnership set out and clarify?
A
- Responsibilities and duties of each partner
- How decisions are to be made within the partnership
- Arrangements to cover absence, sickness or holidays
- Arrangements for finance
23
Q
What happens if no deed exists?
A
- Business will be governed by the partnership act of 1890
24
Q
What does the partnership act of 1890 state?
A
- That the responsibility for running the business and the distribution of profits and losses are to be shared equally among the partners
25
Advantages of partnerships
- Easy to establish
- Additional partners means there will be more capital so expansion is likely to be easier than it is for a sole trader
- Partners can specialise in what they do best
26
What do partnerships and sole traders both pay?
- Income tax
- This means the financial state of the business can be kept private
27
Disadvantages of partnerships
- Decision making is slower and there is a possibility of disagreement
- The legal restriction on the maximum number of partners means a business can still lack capital for expansion
- They have unlimited liability so they are liable for any debts
28
What is a ‘sleeping partner’?
- When partners may have limited liability if they simply contribute money and take no active part in running the business
- But a partnership must have at least one partner with unlimited liability
29
What is a limited liability partnership?
- They became legal in 2001
- They combine some features of partnerships with some of those of limited companies
- LLP is a separate legal entity so it’s owners have limited liability
- Beore 2001, if a group of people wanted limited liability they had to form a company
- Creation of LLPs means its possible to have the advantages of a partnership combined with limited liability
- Limited liability comes at a price, there required to file their annual accounts at companies house meaning their accounts are therefore available publicly for competitors to view
30
Differences between companies and other types of business organisations
1. Incorporation- sole traders/partnerships are unincorporated (they don’t exist separately from their owners)
Company is incorporated (business exists in it’s own right)
2. Shares-
Companies can raise capital via the issue of shares but sole traders/partnerships can’t
3. Limited liability-
In companies if they go into liquidation, it’s shareholders have limited liability meaning that shareholders only lose their shares potentially meaning a loss of a significant amount of money
Shareholders aren’t liable for the business’s debts in the way that sole traders and partners are
31
Share definition
- Buyers own a share of a company
- They become one of it’s owners (unit of ownership in a company)
32
Why do companies issue shares?
- To raise money
33
What are the 2 aims of investors buying shares?
- Receiving a return on their money (dividend)
- Making a capital gain (selling their shares for a higher price than they bought them at)
34
What are the 2 types of company?
1. Private limited company
2. Public limited company
35
Differences between private and public limited companies
- Public companies are larger than private companies
- Public company is a ‘plc’ but a private company is a ‘ltd’
- Plc can sell shares on the stock market but a private company can’t. A public companies shares can be bought by anyone but in a private limited company shares must be sold through private negotiation and can’t be advertised for sale by the public
- PLC has the ability to be took over due to its shares being available for anyone to buy but LTD can’t be took over
36
Similarities between private and public limited companies
- Voting by shareholders is ‘one vote per share’
- Shareholders elect a board (group) of directors to run the company on their behalf. In a private company, the directors may be the shareholders
- Shareholders must receive a copy of the company’s report and accounts every year. They are also entitled to attend the annual general meeting (AGM) where they receive a report from the directors on the state of the company e.g. finances
37
Advantages of companies
- Access to large amounts of capital through the ability to issue shares (greater opportunities for growth)
- Limited liability for shareholders encourages people to invest in the company
- Investors such as banks regard companies as less risky than sole traders/partnerships meaning better terms for borrowing money
- Continuity as a company is a separate legal entity so it doesn’t come to an end
38
Disadvantages of companies
- Setting up a company can be expensive (with time, complexity and money)
- Company accounts aren’t private as they are on open access at companies house so its difficult to keep the businesses main financial details hidden from competitors
- Danger of a takeover
39
What 2 documents need to be completed for a business to be established as a company?
- Memorandum of Association
- Articles of association
40
Memorandum of Association
- Deals with the company’s relationship with the outside world (e.g. nature of the products it will sell)
41
Articles of Association
- Deals with the internal running of the company (e.g. arrangements for the election and removal of directors)
42
What is a third sector organisation?
- They include charities, community groups, faith groups
- They are motivated by the desire to achieve social goals (e.g. improving housing) rather than the desire to maximise profit
- A profit may be made but the profit is reinvested in order to improve the service being provided rather than distributing to its shareholders.
