The business environment Flashcards
(38 cards)
What is business activity?
All economic activity carried out by a company during the course of business aimed at making a profit.
Includes trading activities as well as banking, insurance, manufacturing, and more.
What are common features of business organizations?
- Formal structure
- Aim to achieve objectives
- Use of resources
- Legal regulations controlling them
Business organizations may focus on profit generation or societal improvement.
What is a sole trader?
The simplest form of a business, wholly owned and financed by one individual.
Not confined to retail trade and may employ others.
What are the advantages of a sole trader business structure?
- Simple and cheap to set up
- No legal or administrative costs
- Quick operational decisions
Sole traders do not need to file formal reports each year.
What are the disadvantages of a sole trader?
- Limited business size
- Unlimited liability
- Difficulty in sourcing outside finance
Sole traders are responsible for all debts.
What defines a partnership?
An association of two or more persons to run a business, with shared management and profits.
Defined by the Partnership Act of 1890.
What are the two types of partnerships?
- General Partnership
- Limited Partnership
General partners manage daily operations; limited partners contribute capital but do not manage.
What are the advantages of a partnership?
- Fewer formalities in setup
- Broader skill base
- Shared risk and decision-making
No requirement to file annual reports.
What are the disadvantages of a partnership?
- Joint liability for debts
- Unlimited liability for partners
- Potential personality clashes
Death or bankruptcy of a partner can dissolve the partnership.
What is a limited company?
An association where two or more people come together for a common business goal, treated as a separate legal entity.
Members’ liability is limited to the nominal value of their shares.
What are the features of a private limited company?
- Designated as Ltd
- Minimum of 2 and maximum of 50 shareholders
- Legal formalities required for setup
Shareholders have limited liability.
What are the advantages of a private limited company?
- Separate legal entity
- Limited liability of shareholders
- Easier capital raising through shares
Assured continuity as the company does not depend on one person.
What are the disadvantages of a private limited company?
- Many legal formalities
- Annual auditing required
- Less flexibility compared to sole proprietorships
Higher costs to form than sole proprietorships.
What defines a public limited company?
Designated as plc, typically starts as a Ltd and can sell shares publicly.
Formed by at least two persons without a maximum number.
What are the advantages of a public limited company?
- Limited liability for shareholders
- Ability to raise capital through stock exchange
- Can employ professionals for efficiency
Its size allows for modern equipment and technology.
What are the disadvantages of a public limited company?
- Compliance with many regulations
- Little secrecy in financials
- Delayed decision-making due to bureaucracy
Risk of takeover bids due to ease of buying shares.
What is the business environment?
External forces, factors, and institutions that affect the functioning of a business.
Includes uncontrollable external factors like economic conditions.
Why study the business environment?
- Develop strategies and policies
- Address technological advancements
- Analyze competitors
Helps keep businesses flexible and dynamic.
What are the components of the business environment?
- Internal Environment
- External Environment
Each component influences business operations.
What is included in the internal environment of an organization?
- Board of Directors
- Employees
- Culture
These components shape the organization’s effectiveness.
What is the role of the Board of Directors?
Oversees management and sets corporate strategy to serve stockholders’ interests.
Reviews important decisions and determines compensation.
What influences do employees exert on organizations?
Demand for good working conditions and fair compensation.
Critical for harnessing skills and talents.
What is organizational culture?
Set of values that shape member understanding of the organization.
Strong cultures contribute to effectiveness and long-term success.
What constitutes the external environment of an organization?
Everything outside an organization that might affect it.
Includes micro and macro environments.
