understanding business pt 1

• Sectors of industry


  • Primary sector (Industries which extract raw materials)
  • Secondary sector (Process and manufacture products)
  • Tertiary sector (Industries that provide a service)
  • Quaternary sector (Incorporate high degree of research)
• Sectors of the economy

  • Public (Owned and controlled by individuals to profit)
  • Private (Owned and controlled by government to provide a service)
  • Third (Non-profit making organisations)
• Non-profit organisations


  Charities that support a cause
• Social enterprises


  Have an environmental aim
• Private limited companies


  Not allowed to offer shares to the public through the stock exchange
• Advantages of private limited companies

  • Shareholders are entitled to limited liability (Shareholders do not risk personal bankruptcy, a company is treated as a separate legal entity from its owners, owners of a company cannot be forced to pay the company's debts)
• Disadvantages of private limited companies

  • Profits have to be shared with shareholders
• Experience and skills can be gained from being a shareholder in a private limited company
• Procedures to set up a public limited company (PLC)


  1. Register with Companies House

  2. Have a minimum of £50,000 share capital
• Public limited company (PLC)


  Generally a large company
• Shares of PLCs


  • Can be bought and sold on the stock exchange
  • Large amounts of capital can be raised by selling to investors
• Setting up a PLC


  1. Complete a memorandum of association

  2. Register with Companies House
• Consumers


  • Have wants
  • Buy goods
• Businesses


  • See their wants
  • Provide goods and services that satisfy human wants
• Goods


  • Sweets
  • Drinks
  • Newspapers
  • Non-durable
  • Machinery
  • Cars
  • Computers
  • Durable
• Consumer goods


  Tangible goods that are bought by consumers
• Industrial goods


  Goods which help produce other goods
• Factors of production


  • Land
  • Labour
  • Capital
  • Enterprise
• Tangible


  Things you can see and stock
• Intangible


  Things done, services
• Business activity is any activity that results in the provision of goods and services that satisfies human wants
• Wealth refers to the total value of all the goods and services which can be given a monetary value
• Wealth creation involves the use of the factors of production - land, labour, capital and enterprise
• The entrepreneur takes the risk of selling goods and services in order to make a profit
• Partnership


  A business which is formed by 2 or more people on the basis of a partnership agreement
• Partnership


  • Maximum number of partners allowed by law is 20
  • Some exceptions are made for some partners
• Types of partnerships


  • Lawyers
  • Accountants
  • Plumbers
  • Bankers
  • Decorators
• Sole trader


  An organisation which is owned and run by an individual
• Sole trader


  • Easy and cheap to set up as no legal formalities
  • Owner has complete control over the business
• Sole traders have unlimited liability
• Private sector partnerships


  • Sleeping partners (contribute finance but don't run the business) have limited liability
  • Profits must be shared
  • May be lack of continuity as partners change
• Franchising


  A business run by one firm under the name of another, where the franchiser gives the franchisee a licence to sell goods under the franchiser's brand name
• Franchising


  • Franchisee pays the franchiser an initial and ongoing fees, usually a share of profits
  • Franchiser provides guidance
• Multinational corporations (MNCs)


  Large PLCs that have branches in multiple countries
• MNCs

  • Secure sales outlets for their products in various countries
  • Set up production facilities in multiple countries
  • Major employers
  • Avoid trade barriers like tariffs
• Businesses have objectives like survival, growth, profit maximisation, sales maximisation, and corporate social responsibility
• Businesses need to balance the interests of different stakeholders like shareholders, customers, employees, and the local community
• Businesses can grow organically or through mergers and acquisitions
• Vertical integration involves a business taking over suppliers or customers, while horizontal integration involves merging with competitors
• Conglomerate integration involves a business diversifying into unrelated markets