Flashcards in Unit 4 Deck (64):
What are sole traders and partnerships ?
- businesses owned and run by one or just a few partners.
If they sell you a harmful product you can take the business and the owners to court
What are private limited companies?
- Private companies are often family businesses
- owned by shareholders - around 2 of them
Advantages of sole traders
- get all the profits
- choose your own hours
- complete control
- make it your own style
- easy to set up -> start trading very quickly
Disadvantages of sole traders
- unlimited liability
- can be sued personally
- can be very busy
Advantages of partnerships
- when one partner goes on holiday the other partner can stay and keep in charge
- share workload and decisions
- share knowledge and skills
Disadvantages to partnerships
- partners may disagree
- unlimited liability
Advantages of private companies
- can sell shares to raise capital
- limited liability
- separate legal identity
Disadvantages of private companies
- if you sell more than 50% of your shares you can be voted off the board of directors
- have to publish info
- share of profits -> shareholders
What do all companies need ?
At least one person as shareholders
How do you sell shares in a private company ?
Shares can only be sold to people agreed by the board of directors - can't sell on the shares
How are shares sold in a public company ?
They are trade on the stock exchange
Functions in a private company ?
- must register with Registrar of companies -> who are the board of directors, tell the no. Of shares, names of shareholders
- have to have board of directors (at least 1 person) who manages the company
- rules relating to shareholders rights, accounts and Anual General Meeting (AGM) -> all shareholders must be invited to the AGM where they get to vote in the Directors and where they get the copy of accounts
- must complete annual returns
- raise finance through selling shares
Functions in public companies
- shares tracked on one or more stock exchanges
- apply for listing / stock exchange checks
- accounts audited + much more detailed reports : • independent •accountants
- lots of shareholders - expect early dividends and early returns / dividends
Advantages of public companies
- earn capital from shareholders
- have limited liability
- separate legal identity
Disadvantages of public companies
- can't choose shareholders
- shareholders expect early dividends
- don't get all the profits
What is a multinational?
A business that operates in more than one country I.e. Produces and sell products in many countries
Where are the headquarters of a multinational?
Only be in one country
Advantages of the multinational
- more potential customers / sale
- access to natural resources e.g. Primark
- economies of scale
Disadvantages of multinationals
- communication - different time zones / languages
- must adapt to local laws and conditions
- becomes more complicated to manage
Advantages of the multinational for the country
- tax revenues
- source of jobs
- can aid development / bring new technology
Disadvantages of multinationals for the country
- may exploit workers
- pressure on the government
- may pollute environment
What is a retail cooperative?
Owned and controlled by the consumers e.g. The UKs co-op
- members who shop at the stores get a share of the profit
What is a worker cooperative?
Owned and controlled by the workers
E.g. John Lewis
Advantage of worker cooperative
Motivates the employees - work harder and are more reliable
What is a cooperative?
It is a particular type of business where a group of people join together to run a business
What is a farming cooperative?
Group of farm owners who work together to grow, market and sell crops and animals e.g. Onion storage
What public corporations?
Public corporations are owned by the government e.g. BBC or transport for London
What are public corporations also known as?
State owned companies, government owned corporations or public sector
What are the key features public corporations?
- separate legal identity
- run by board directors
- government sets policies
- government funding or self funds
What are the reasons for public corporations?
- ensure an essential function continues
- remove wasteful competition or duplication
- run in the 'national interest'
- investment needed beyond what companies would pay for
Disadvantages of public corporations
- op cost of scarce government funds
- may not attract best people / managers
- may be restricted by politics
- lack of competition may lead to waste / inefficiency
- monopoly may result in high prices or poor services
What are fixed costs?
Fixed costs are the same whatever quantity is produced
What are variable costs?
Increase as output increases e.g. Raw materials
What does total cost measure?
Measures all costs at a given level of output
It rises with the level of output
How do you calculate AC?
Total cost / Q of output
AC = TC/Q
What do AC show?
The cost of producing a typical unit at a given quantity of output
What does the lowest point on the AC curve show?
Where the businessmen work most efficiently-> called the OPTIMUM OUTPUT LEVEL
TFC / Q
AFC x Q
TVC / Q
AVC x Q
AC x Q
Total revenue - total costs
What is revenue?
All the money that the business gets from their customers
- receipt from sales
Q x P = area of rectangle
What does TR look like on a graph?
A straight line through the origin
Why do shareholders invest?
- they want their dividends
- they want shares to go up in value
- both of these depend on profits
What are business goals?
- they work hard to boost revenue by advertising and marketing
A they aim for the point where the gap between revenues and costs is greatest
What is the ultimate goal for a business?
To build the business to make more successful so that future profits are higher
What is perfect competition?
- Lots of small, similar firms competing
- all firms and buyers know every product and price
- no barriers to firms entering or exiting the market
What are price takers?
A company must take their prices from what the market is charging
What does average cost also equal?
(Where cost includes just enough to cover fixed costs + pay any interest and satisfy shareholders) -> known as Normal Porfit - just enough to keep going
What is a monopoly?
Monopoly is the opposite of perfect competition: there is only one firm and no competition
If a dingle firm can choose to lift its price what is it called?
A price Maker
What are features of a monopoly?
Only one firm and it controls the market
Strong barriers against entry by others
It is a price maker
Monopolists make 'super profits' (above normal)
When does internal or organic growth occur?
Occurs when a firm increases its own scale of production
- it will often need to invest in better facilities by reinvesting profits or borrowing from banks
What is integration?
This is where firms join together to form a larger one and can be either:
- TAKE OVER -> where one company buys nearly all the shares in another one
- MERGER -> where 2 companies join to form a new one
Forms making the same thing:
- econ of scales - bigger, better machines
- better skilled staff
Join firms in the same supply chain
Forward: e.g. An oil company and petrol stations
Backwards: e.g. A wine maker buys vineyards
Join with firms using the same outlets or channels
E.g. A chocolate maker and a sweet maker
Large companies buy up related or different companies around the world
E.g. Tats tea takes over Tetley tea
Firms can grow by becoming multinationals
what is unlimited liability?
the owners are personally responsible for the debts of the business and also for their actions