business

• Business


  An organisation that exists to provide goods and services on a commercial basis to customers
• Goods


  • Physical or tangible products
• Services


  • Intangible products
• Customers

  • Individuals (buying on their own behalf or for households)
  • Businesses
  • Other organisations
• Why businesses exist


  They are formed by entrepreneurs and are subsequently developed if they manage to get beyond the survival stage
• Main motive for businesses

  To earn a return for the business owners, and the potential for profit is a key motive for entrepreneurial activity
• Roles of businesses in wider society

  • Create and sustain employment & develop the skills of people
  • Drive innovation through research & development (R&D) and new products
  • Contribute to the infrastructure of the country
  • Pay taxes on profits earned & collect taxes on behalf of government
  • Create wealth by providing returns on investment
• Transformation process


  Taking resource inputs and transforming them into goods and services
• Transformation process examples


  • Accountancy: People, Knowledge turned into professional advice
  • Restaurants: People, Ingredients, Buildings, Value added during cooking and through customer service
  • House-building: Land, People, Capital, Building process (design, implementation)
• Entrepreneurs


  • Spot business opportunities
  • Take (calculated) risks in order to gain possible future returns
  • Act a catalyst for the creation & growth of new business enterprises
• Business sectors


  • Primary: Extraction of natural resources (e.g. mining, farming, energy extraction)
  • Secondary: Production of finished goods and components (e.g. manufacturing, food processing, component assembly, raw material processing)
  • Tertiary: Providing services to consumers and businesses (e.g. personal services, retailing, household franchises)
  • Quaternary: Providing information & ICT (e.g. software development, financial services, data processing)
• Adding value


  The process of creating value by transforming the inputs into business activity so that the value of what is created is greater than the costs involved
• Enterprise


  A process whereby business opportunities are identified and exploited for commercial gain
• Forms of business


  • Unincorporated (e.g. sole traders)
  • Incorporated (e.g. private limited companies)
• Unlimited liability


  Business owner/s is personally responsible for the debts and liability of the business
• Limited liability


  The company has a separate legal identity, owners (shareholders) have limited liability
• Private and public sector

  • Private sector
  • Public sector

  
• Public limited company


  A company whose shares can be bought and sold on a public stock exchange
• Unincorporated business


  No legal difference between the owner and the business, owner has unlimited liability for business actions and debts
• Sole trader


  Most common type of unincorporated business, individual owning the business on their own, has unlimited liability
• Advantages of sole trader

  • Quick & easy to set up
  • Simple to run - owner has complete control
  • Minimal paperwork
  • Easy to close/shut down
• Disadvantages of sole trader

  • Full personal liability - "unlimited liability"
  • Harder to raise finance
  • The business suffers if the owner becomes ill, loses interest etc.
  • Can pay a higher tax rate than a company
• Incorporated business


  Legal difference between the business (company) and the owners, company has a separate legal identity, owners (shareholders) have limited liability
• Main features of a limited company


  • Separate legal entity to the founders
  • Owned by shareholders, run by directors
  • Shareholders own a share but don't own the assets and aren't liable for the debts
  • Company owns the assets and pays the debts
  • Shareholders not liable for unpaid debts
• Advantages of limited company

  • Limited liability - protects the shareholders
  • Easier to raise finance
  • Stable form of structure - business continues to exist even when shareholders change
• Disadvantages of limited company

  • Greater administration costs
  • Public disclosure of company information
  • Directors' legal duties
• Public limited company (plc)


  More specialist type of limited company, shares may be quoted and traded on a public stock market, subject to greater regulation
• A relatively small number of companies are owned or controlled by the Government
• There are many organisations that provide goods and services that are owned and operated by public bodies
• Shares


  May be quoted and traded on a public stock market (but don't have to be)
• Public companies


  • Have substantially more shareholders when traded on a stock market
  • Are subject to significantly greater regulation in terms of public disclosure of financial and other information
• Examples of government-owned/controlled companies

  • RBS (nationalised during the banking crisis)
  • Network Rail
• There are many more organisations that provide goods and services that are owned and operated by public bodies
• Public bodies


  Funded by central & local government, but may still levy charges for some services
• Examples of public bodies

  • NHS
  • Highways Agency
  • TeachFirst (which recruits & trains new teachers)
• Not-for-profit organisations


  Businesses that trade in order to benefit the community, with social aims as well as trying to make money
• Limited liability


  Where shareholders in a company are only liable for the amount they have invested in the share capital
• Unlimited liability


  Where the owners of the business are legally inseparable from the business they run, making them liable for the debts of the business
• Businesses must take into account the external environment in which they operate in order to make effective decisions
• Most businesses are unlikely to have much control (if any) over this external environment