AS Business Busienss Structures

• Three broad types of business activity:

  • Primary sector: firms engaged in farming, fishing, oil extraction, and other industries that extract natural resources
  • Secondary sector: firms that manufacture and process products from natural resources
  • Tertiary sector: firms that provide services to consumers and other businesses
• Industrialisation describes the growing importance of secondary-sector manufacturing industries in developing countries
• Deindustrialisation refers to the decline in the importance of secondary-sector activity and the increase in the tertiary sector in developed economies
• Public sector: organisations accountable to and controlled by central or local government

  Private sector: businesses owned and controlled by individuals or groups of individuals
• Sole trader: a business where one person provides the finance, has full control, and keeps all profits
• Partnerships are formed to overcome some drawbacks of being a sole trader, with shared capital investment and responsibilities
• Partnerships are the most common form of business organization in some professions like law and accountancy
• Advantages of partnerships:

  • Easy to set up with no legal formalities
  • Owner has complete control and keeps all profits
  • Able to establish close personal relationships with staff and customers
  • Business can be based on the interests or skills of the owner
  • Partners may specialize in different areas of business management
  • Shared decision-making and additional capital injected by each partner
• Disadvantages of partnerships:

  • Unlimited liability for all partners
  • Intense competition from bigger firms
  • Difficulty in raising additional capital
  • Long hours of work necessary to make the business pay
  • Lack of continuity as the business does not have separate legal status
• In a partnership, partners may specialize in different areas of business management and share decision-making
• Partnerships have the advantage of shared decision-making and additional capital injected by each partner
• Partnerships have the disadvantage of unlimited liability for all partners and lack of continuity as the business does not have separate legal status
• Directors control the management and decision-making of a business
• A clear distinction between ownership and control can lead to conflicts over objectives and direction in a business
• Shareholders might prefer short-term profits, while directors may aim for long-term growth, possibly to increase their own power and status
• Many private limited companies convert to public limited company (plc) status for reasons like raising capital from the general public
• It's possible for directors or original owners to convert a business back from a plc to a private limited company, as seen with Richard Branson and the Virgin group
• Advantages of private limited companies include limited liability, separate legal personality, continuity, and the ability to raise capital from family, friends, and employees
• Disadvantages of private limited companies include legal formalities in establishment, difficulty in selling shares, and end-of-year accounts being available for public inspection
• A public limited company (plc) is a large business with the legal right to sell shares to the general public, with share prices quoted on the national stock exchange
• Legal stages to establish a company include completing a Memorandum of Association stating company details and aims, and Articles of Association detailing internal workings and control
• After completing necessary legal documents, the registrar of companies issues a certificate of incorporation, allowing private limited companies to begin trading
• Cooperatives involve members sharing workload, responsibilities, and decision-making, with profits shared equally among members
• Cooperatives buy goods and materials in bulk to benefit from economies of scale, then sell collectively to obtain a better price
• Advantages of cooperatives:

  • Buying in bulk
  • Working together to solve problems and make decisions
  • Motivation for members to work hard as they benefit from shared profits
• Potential drawbacks of cooperatives:

  • Poor management skills unless professional managers are employed
  • Capital shortages due to no sale of shares to the non-member general public
  • Slow decision-making if all members need to be consulted on important issues
• A franchise is a legal contract between two firms where one (franchisee) uses the name, logo, and trading systems of the other (franchiser)
• Franchises allow rapid business expansion and have advantages like:

  • Established brand and product reduce chances of new business failing
  • Advice, training, and national advertising provided by the franchiser
  • Supplies obtained from quality-checked suppliers
• Disadvantages of franchises include:

  • Initial franchise license fee can be expensive
  • Local promotions may still have to be paid for by the franchisee
  • Strict rules over pricing and layout reduce owner's control over their business
• Joint ventures involve two or more businesses working closely together on a project, sharing costs and risks
• Holding companies own and control multiple separate businesses without unifying them into one company, allowing for diversified interests
• Public corporations are state-owned enterprises managed with social objectives rather than solely profit-driven