Nature Of business

• Role of business


  • Profit
  • Employment
  • Quality of life
  • Wealth
  • Entrepreneurship and risk
  • Innovation
  • Choice
  • Income and employment
• Economic role of business


  The financial impact that activities of a business have on groups in the business environment
• Social role of business


  The impact of business on the community
• Goods


  Tangible products to satisfy our needs and wants
• Services


  Intangible, value-added activities that a company provides to its customers
• Product


  The end result of production can be a good or a service
• Types of products


  • Goods
  • Services
• Profit


  The return or reward that business owners receive for producing products that consumers want and need
• Employment


  The act of being hired or employed by a company or employer
• Income


  Money received by a person for providing his or her labour, or a business
• Choice


  The act of selecting among alternatives
• Innovation


  An improvement on something already established
• Entrepreneurship


  Someone who starts, operates and assumes the risk of a business
• Risk


  The possibility of loss
• Wealth


  Measures the value of all the assets of worth owned by a person, company, or country
• Quality of life


  The overall wellbeing of an individual and is a combination
• Types of businesses by size

  • Small
  • Medium
  • Large
• Types of businesses by geographical spread

  • Local
  • National
  • Global/transnational corporation
• Types of businesses by industry

  • Primary
  • Secondary
  • Tertiary
  • Quaternary
  • Quinary
• Types of businesses by legal structure

  • Sole trader
  • Partnership
  • Private company
  • Public company
  • Government enterprise
• Incorporated business


  A separate legal entity from the owner/s
• Unincorporated business


  A business that does not possess a separate legal identity from its owner(s)
• Unlimited liability


  The business owner is personally responsible for all debts
• Limited liability


  The owners (shareholders) of the company are not personally responsible for the business debt
• Factors influencing choice of legal structure

  • Size
  • Ownership
  • Finance
• As business expands


  Legal structure must change to cater for more employees and owners
• As business expands


  Owners have less control
• Source of finance


  May be limited depending on legal structure
• Sole trader/partnership have limited availability of debt finance due to high risk, mainly rely on equity finance which is hard to raise
• Private/public company can easily obtain debt finance (large loans) due to less risk
• Legal structure


  Depends on amount of control business owners want
• Sole trader


  • Only option with complete control
• Partnership, private


  • Less control as owners must share control is diluted when more people join
• Public


  • Once a company floats and sells shares to the public, ownership is divided amongst thousands of small shareholders - no control over business operations
• If original owner/s wish to retain ownership and control of the business, they must to hold more than 50% of all shares sold
• As business expands, owners have less control
• Sole trader/partnership


  • Limited availability of debt finance due to high risk
  • Mainly equity finance (own capital) however is hard to raise and obtain due to less owners
  • Overall harder to obtain capital
• Private/Public company


  • Easy to obtain debt finance (large loans) due to less risk
  • Greater amount of shareholders allows for more external equity finance
  • Capital can be raised by selling shares in a public company
  • Overall easier to obtain capital
• As business expands more capital is required
• The business environment refers to the surrounding conditions in which the business operates, and can be divided into two broad categories : external and internal