Understanding Business

• Businesses


  Any organisation which is set up in order to achieve a set of objectives
• Businesses meet their objectives by fulfilling the wants and needs of consumers, through the provision of goods and services</b>
• Durable goods

  Goods that can be used again and again like computers, mobile phones. They have a reasonable life span
• Non-durable goods


  Things we can normally only use once like food, drinks, etc.
• Services


  Things that are done for us. They can be described as non-tangible products
• Factors of production


  • Land
  • Labour
  • Capital
  • Enterprise
• Land


  All the natural resources such as oil, water, and the land itself
• Labour


  All the people required to make the organisation work
• Capital


  The man made resources like factories, machines, lorries and tools
• Enterprise


  The human effort and will to provide goods and services
• Sectors of industry


  • Primary sector
  • Secondary sector
  • Tertiary sector
  • Quaternary sector
• Business organisations


  Organisations made up of people working together, using resources to achieve various objectives such as producing goods and services
• Types of business organisations

  • Private sector
  • Public sector
  • Third sector
• Private sector


  Organisations run by private individuals, with the basic aim of making a profit
• Private Limited Companies (LTDs)

  • Shareholders own a share of the business and have limited liability
  • Minimum of 2 shareholders required
  • Registered with Companies Registrar and have Memorandum and Articles of Association
• Dividends


  Profits shared out, with each shareholder receiving an amount for each share certificate they own
• Public Limited Companies (PLCs)

  • Larger than private LTDs
  • Shares can be sold to the public through the stock exchange
  • Can raise large amounts of capital by selling shares
• Franchise


  A business model where a franchisor grants the right to use their business model and brand to a franchisee in return for a fee
• Franchises


  • Franchisee benefits from an established brand and business model
  • Franchisor benefits from rapid expansion with less capital investment
• Multinationals


  • Large companies that operate in multiple countries
  • Can benefit from economies of scale and global reach
  • May face challenges of cultural differences and local regulations
• Public sector


  Organisations operated by the government on behalf of taxpayers
• Third sector


  Non-profit organisations that exist to benefit society, such as charities and social enterprises
• Limited liability


  Shareholders only lose the money they have invested in the business, not any of their personal possessions
• Becoming a limited company

  1. Register with the Companies Registrar

  2. Complete Memorandum of Association

  3. Complete Articles of Association
• Memorandum of Association


  Sets out the aims of the business and how it will be run and financed
• Articles of Association


  Sets out how the business will be run and financed
• Dividends


  Profits shared out, each shareholder receiving a certain amount for each share certificate they own
• Public limited company (PLC)


  Larger organisation than a private limited company, where shares can be sold to the public through the stock exchange
• Private limited company


  Shares can only be sold through invitation, usually to friends and family
• Advantages of limited companies

  • Shareholders have limited liability
  • In PLCs, shares can be bought and sold easily, allowing more investment
  • Economies of scale for large PLCs
  • In private limited companies, original owners can retain control
• Disadvantages of limited companies

  • Have to disclose financial information
  • Original PLC shareholders can lose control
  • Big organisations can be difficult to manage efficiently
  • Difficult to keep workers happy in large organisations
• The majority of large, well-known businesses in the UK are PLCs
• Incorporation


  The process by which a new or existing business is converted into a corporate body
• Memorandum of Association


  Gives details of the company's name, location and what it will do
• Articles of Association


  Describes how the company will be run, the rights of the shareholders and the powers of the company's directors
• PLCs must have at least two shareholders, two directors and a qualified company secretary
• Franchise


  A method of setting up a business involving a franchiser (parent company) and a franchisee (individual or business buying the rights)
• What the franchiser provides

  • The brand or product(s)
  • Store layout
  • Advice and training
  • Marketing
• Benefits for the franchiser

  • Allows growth without investment
  • Reduces competition
  • Reduces risk
  • Retains control
  • Guaranteed income
• Advantages for the franchisee

  • Training and support
  • National marketing
  • Less risk
  • Decisions made by franchiser
  • Limited competition