1.2 BUSINESS STRUCTURE

• Economic sectors


  • Primary sector
  • Secondary sector
  • Tertiary sector
  • Quaternary sector

  
• Primary sector


  Extraction industry. Extraction of resources (raw materials) for the production of goods and services
• Secondary sector


  Manufacturing industry. Process raw materials into finish goods
• Tertiary sector


  Service sector. Provide services to other firms and customers
• Quaternary sector


  Knowledge-based sector. Providing information services
• Common types of entrepreneurial businesses

  • Primary sector firms
  • Secondary sector firms
  • Tertiary sector firms
  • Quaternary sector firms
• Most countries are moving from Primary sector


  To Secondary sector
• The more developed the country


  The more they will emphasize on tertiary sector
• Reason for moving from Primary to Tertiary sector


  • As income increases, consumer spend extra income on services than goods
  • Competition from other countries increases as their efficiency increases and labor cost decreases
• Industrialisation


  The growing importance of the secondary sector (manufacturing industries) in developing countries
• Deindustrialisation


  The decline in the importance of secondary-sector activity and an increase in the tertiary sector (service sector)
• The importance of each sector in an economy changes over time
• The relative importance of each sector is measured in terms of either employment levels or output levels as a proportion of the whole economy
• Industrialisation is more important to developing countries such as Africa and Asia, while it is getting less important to developed countries such as USA or UK
• Benefits of becoming more industrialised


  • GDP increases, raising average standards of living
  • Increase outputs, lower imports, higher exports of such products
  • Expanding manufacturing businesses, more jobs are created
  • Business profits increase, government receives more corporate tax
  • The value added to the countries' output of raw material, higher profit margin
• Problems of becoming more industrialised


  • A huge movement of people from the country to the towns, leading to housing and social problems
  • Import of raw materials and components are often needed, increase the country's import costs
  • If the expansion is due to multinational companies then the benefits are accompanied with some problems
• Tertiary sectors are more important to developed countries
• Consequences of deindustrialisation


  • Job losses in agriculture, mining and manufacturing industries
  • Movement of people towards towns and cities
  • Job opportunities in service industries - tertiary and quaternary sectors
  • Increased need for retraining programmes to allow workers to find employment in service industries
• Private sector


  Comprises business owned and controlled by individuals or group of individuals
• Public sector


  Comprises organisations accountable to and controlled by central or local government (the state)
• Economic systems


  • Command economies - economic resources owned, planned and controlled by the state (Government sector)
  • Free-market economies - economic resources owned largely by the private sector with very little state intervention
  • Mixed economies - economic resources are owned and controlled by both private and public sectors
• We will focus on the sectors in the mixed economic system
• Types of business ownership


  • Sole traders
  • Partnerships
  • Private limited companies
  • Public limited companies
  • Franchises
  • Co-operatives
  • Joint ventures
  • Social enterprises
• Sole trader


  A business which is owned and controlled by one person. Owner provides all the finances for the business
• Advantages of a sole trader


  • Easy to set up
  • Full control
  • Sole trader receives all profit
  • Personal
• Disadvantages of a sole trader


  • Unlimited liability
  • Full responsibility
  • Lack of capital
  • Lack of continuity
• Partnership


  A legal agreement between two or more (usually, up to twenty) people to own, finance and run a business jointly and to share all profits
• Advantages of a partnership


  • Easy to set up
  • Partners can provide new skills and ideas
  • More capital investments
• Disadvantages of a partnership

  • Conflicts
  • Unlimited liability
  • Lack of capital
  • No continuity
• Deed of partnership


  A legal document which states partner's rights in the event of a dispute
• Incorporation


  The name given to the process by which a company gains its own separate legal identity
• Limited companies


  Companies that are incorporated and have a separate legal identity
• Differences between limited companies and unincorporated businesses


  • Limited liability
  • Legal personality
  • Continuity
• Unlimited companies


  Companies that have unlimited liability, where the owner is responsible for all debts
• Private limited company (Ltd)


  One or more owners who can sell its' shares to only the people known by the existing shareholders (family and friends)
• Advantages of a private limited company (Ltd)


  • Limited liability
  • Original owner is still often able to retain control
  • Able to raise capital from sales of shares to family, friends, and employees
• Disadvantages of a private limited company (Ltd)


  • Required to disclose financial information
  • Private Limited Companies cannot sell shares to the public
• Public limited company (plc)


  Two or more owners who can sell its' shares to any individual/organization in the general public through stock exchanges
• Advantages of a public limited company (plc)


  • Limited liability
  • Raise huge amounts of capital
  • Public Ltd. Companies can advertise their shares
• Disadvantages of a public limited company (plc)


  • Required to disclose financial information
  • Public Ltd. Companies require a lot of legal documents and investigations before it can be listed on the stock exchange
  • Public Ltd. Companies must also hold an Annual General Meeting (AGM)
  • Public Ltd. Companies may have managerial problems
  • In Public Ltd. Companies, there may be a divorce of ownership and control