Unit 1: Business structure Flashcards
primary, secondary and tertiary sector businesses.
Primary Sector:
- It is the first stage of production. All those businesses which are related with extraction of raw material from Mother Nature.
Secondary Sector:
-They convert raw materials into finished or semi-finished goods. All businesses which manufacture and process the raw materials which can be used by the end consumers are known as Secondary Sector businesses. These include building, construction, compute assembly, shoes factories, textile factories etc.
Tertiary Sector:
-Whereas all the businesses which provide services and assist both the primary and secondary sector .
Difference btw the public and private sectors.
Private Sector:
This sector comprises businesses owned and controlled by individuals or groups of individuals. Such businesses are commonly found in the free market economy. Their main aim is to make profit through the sale of private goods
Public Sector:
Refers to all the businesses that are owned by the government on behalf of the public. They can be district councils or public corporations.
Public Sector and Private Sector contrasted: -
Usually the aim of public sector business is to provide services to the community. For example if the transport system is owned by the government and it is running a bus service to an interior village and it is not getting enough customers, the government might still continue it as its main objective is to provide service and not to maximise profits. Whereas private sectors business give priority to profits and may end the service if it does not find it profitable to run the service.
Secondly Public sector strives to create employment whereas Private sectors main aim is to become efficient and cut cost and in this process they might cut jobs.
Public sector business usually locates in regions where there is underdevelopment so as to create jobs and income for local population. Private sectors might not keep these things in consideration and will look for external economies of scale.
sole trader
def
ad 7
dis 6
- Refers to a business in which one person provides permanent finance and, in return, has full control of the business and is able to keep all of the profits. It is owned by one person. However the owner may employ other people.
Advantages
1 –easy to form (less capital and legal requirements)
2 –owner has direct control of the business (makes decisions that best suit his/her conditions
3 –all profits go to the owner
4 –enjoys major exemptions from Government legislation 5 –no double taxation
6 –has personal contact with both customers and employees
7 –easy to terminate
Disadvantages
1 –unlimited liability
2 –can raise little capital
3 –limited management expertise
4 –poor quality decision making
5 –difficulty in attracting qualified employees
6 –lack of continuity when the owner dies
partnership
def
ad 7
dis 7
a business owned by at least two but not more than twenty people. The partners agree to carry on business together, with shared capital investment and , usually, shared responsibilities.
Advantages
1 –easy to form (same as sole proprietor) 2 –more capital available
3 –diversity of skills and expertise
4 –quality decisions are made
5 –personal contact with employees and clients 6 –risk is spread over a number of people
7 –relative freedom from government control Disadvantages
1 –unlimited liability i.e all of the owner’s assets are potentially at risk 2 –disagreements may easily lead to winding of the business
3 –all partners responsible for the acts of each other
4 –lack of continuity when the key partner dies or become insane
5 –profit/loss sharing ratio not necessarily equal
6-the partnership often face intense competition from large firms 7-the owner , by taking on a partner, will lose control of the business
private limited companies
def
ad 5
dis 4
Refers to a small to medium-sized business that is owned by shareholders who are often member of the same family. This company cannot sell shares to the general public. They have two but not more than fifty shareholders. The right to transfer shares is limited.
Advantages
1 –shareholders have limited liabilities
2 –more capital can be raised
3 –greater status than an unincorporated businesses
4 –easy to transform into public limited companies
5 –do not have to publish annual accounts in the press
Disadvantages
1–not easy to form (up to six months)
2–has to fill complex tax forms
3–cannot raise capital through the stock exchange 4- quite difficult for the shareholders to sell shares
public limited companies
def
ad 6
dis 5
a large business, with the right to sell shares to the general public. The share prices are quoted on the national stock exchange. They have at least two shareholders to no maximum limit. Shares are freely transferable.
Advantages
1 –easy to raise capital through floating shares on ZSE
2 –can operate on a large scale
3 –unlimited life
4 –employees can become shareholders-increases loyalty
5 –managers and directors have room to work independently therefore prove their expertise in their areas of specialization
6-shareholders enjoy limited liability
Disadvantages
1 –difficult to form
2 –files always open for inspection by members of the pubic
3 –decisions take time to make due to large size of the company
4 –no personal touch between employees and customers
5 –conflict of interest-shareholders are usually interested in expanding the business
franchises def franchisee ad dis franchisor ad dis
Refers to an agreement where one party (the franchisor) grants another party (the franchisee) the right to use its trade mark or trade name as well as certain business systems. The franchisee sells the franchisor’s product or services, trades under the franchisor’s trade mark or trade name and benefits from the franchisor’s help and support.
In return, the franchisee usually pays an initial fee to the franchisor and then a percentage of the sales revenue.
Advantages to the franchisee
Franchisee benefit from pre-opening support e.g site selection, design, financing
Franchisor assist in training staff
Franchisor advertise goods on behalf of the franchisee ( saves money)
Franchisee enters into an existing market which increases the chances of business success.
Risk is reduced and is shared by the franchisor.
Relationships with suppliers have already been established.
Disadvantages to the franchisee
The franchisor might go out of business, or change the way they do things.
The franchise agreement usually includes restrictions on how you run the business. You might not be
able to make changes to suit your local market.
The franchisee must pay initial fee and continuing fees to continue to use the trade mark
The franchisee cannot sell goods from other suppliers
Breach of contract can result in a penalty charge
Advantages to the franchisor
It’s a source of income to the franchisor (royalties received)
Risk of the business is spread amoung different franchisees
A network of outlets gives the business a far better chance of success
Disadvantages to the franchisor
Other franchisees could give the brand a bad reputation.
Franchisor must provide the franchisee with on-going support which then requires constant research
Setting up a franchise requires a lot of money
co-operatives
def
ad
dis
Is an association of persons united voluntarily to meet common economic, social and cultural needs. Usually members join together to purchase or sell goods that they cannot afford individually.
Advantages
It is easy to form e.g any ten adults form a co-operative
No legal formalities are involved
Membership is open to everyone
Members enjoy limited liability
Members get goods and services at reasonable prices
There is continuity
Surplus is shared amoung members
State patronage ( government provides special assistance to the co-operatives to enable them to achieve
their objectives successfully
They are usually tax exempted
Disadvantages
unable to raise large amount of financial resources
It is managed by members who may be lacking the required management skills
Can be affected by conflict since it is an association of people from different social, economic and
academic background
Absence of rewards discourage the members to put maximum effort in the society
joint ventures
It occurs when two or more businesses agree to work closely together on a particular project and create a separate business division to do so. Joint Venture is not a long term business relationship but a short term relationship based on a single business project.
Advantages
Provide companies with the opportunity to gain new capacity and expertise Allow companies to have access to new technology
Access to greater resources, including specialised staff and technology
Sharing of risk with a venture partner
Disadvantages
The business failure of the partner would put the whole project at risk
Styles of management and culture might be so different that the two teams do not blend well
together
The parties don’t provide enough leadership and support in the early stages
Errors and mistakes might lead to one blaming the other for mistakes
Def / strengths and weaknesses of family businesses.
Refers to businesses that are actively owned and managed by at-least two members of the same family. Decision making is influenced by multiple generations of a family related by blood.
Strengths of family business
Stability- family positions typically determines who leads the business and as a result, there is longevity in leadership. Family leaders stay usually stay in the positions for many years until a life event such as illness, retirement or death results in change
Commitment- since the needs of the family are at stake, there is a greater sense of commitment and accountability. The family owners often show dedication in seeing the business grow, prosper and get passed on to future generations. This level of dedication is almost impossible to generate in non-family firms
Flexibility- you won’t hear “Sorry but that’s not my job description”. In a family business, family
members are willing to wear several different hats and to take on tasks outside of their formal
job on order to ensure the success of their company.
Long term outlook- non family firms think about hitting goals this quarter, while family firms
think years, and sometimes decades, ahead. This ‘patience’ and long term perspective allows
for good strategy and decision making
Decreased costs- family members working at family businesses are willing to contribute their
own finance to ensure the long term success of the organisation. This could mean contributing capital or taking a pay cut. This advantage comes in handy during economic down turns, where it is necessary to personally suffer in order for the firm to survive.
Weakness of family businesses
Family conflicts- deep seated, long lasting bitter fights and quarrels can affect every single person within the firm and can draw divisive lines. These conflicts are usually difficult to solve and result in a premature ending of the business.
Unstructured governance- governance issues such as internal hierarchies and rules, as well as the ability to follow and adhere to corporate laws, tend to be taken less seriously at family businesses. There is little interest in setting clear and formal business practices and procedures and this situation can lead to inefficiencies
Tunnel vision- there lack of outside opinions and diversity on how to operate the business. Family members are given jobs for which they lack the required skills, education and experience. This has got far- reaching effects on the success of the business.
Issues of fair remunerations can be ‘a can of worms’- the issue of wages and salaries can
be a highly sensitive subject. The question is how the pie is going to be divided. Paying family members and dividing the profits among them can be a difficult affair. Many people usually feel that they are underpaid and family members too. We have family members who comments like this, ‘uncle Jack sits around and gets more than I do’
