Types of Business
Business activities
Secondary
Tertiary
Primary
Extraction/harvesting of raw materials
Manufacture products
Provision of services
E.g. agriculture/fishing
To be sold to retail customers or business customers
E.g. Schools, shops, banks, transport etc
Business Sectors
Public
Third
Private
Aim to make a profit
Small local businesses (electrician) to multinational corporations (Walmart)
Provides a wide range of public services e.g healthcare, education
Some public corporations are owned by the public sector e.g. Ofsted, Royal Mint
Financed via sources including taxes, business rates
Don't aim to make a profit and aren't government owned
Rely on donations, fundraising and grants
E.g. NSPCC and Alcoholics Anonymous
Business Ownership
Sole trader
Owned by one person
Disadvantages
Advantages
Soley responsible for decision making, hours, wages
Few legal requirements
Can start with limited finance
Unlimited liability
Don't have partners to help make decisions
Lack of finance may restrict business - can't take many holidays due to loss of finance
Partnership
Two or more partners - a deed of partnership is advisable
Advantages
Disadvantages
Others to make decisions with
More finance as all partners contribute to capital
Shared skills
Doesn't have separate legal identity: if one partner dies the partnership would end
Disagreements and shared profits
Unlimited liability
Private limited company (Ltd)
Separate legal entity, shares are sold to raise finance but have to be authorised
Disadvantages
Advantages
Owners can keep control of the business
Shares can raise additional finance
Limited liability
Shares can't be transferred without permission - time consuming
Expensive and lengthy process - Articles of Association and Memorandum of Association (certificate of incorporation)
Public limited company (PLC)
Shares are sold on the stock market. Must have share capital £50,000, two shareholders, two directors and a secretary
Disadvantages
Advantages
Everyone can view accounts
Legal process is lengthy and expensive
An annual general meeting has to be helf
Original owners are unlikely to remain in control
High profile so easier to attract new customers
Shares can be sold on the stock market - large amount of share capital
Limited liability
.State/government owned (public sector)
The government sets aims and objectives and a board of directors runs the business e.g. the BBC/ordnance survey
Disadvantages
Advantages
Government can support businesses struggling to survive
In some industries it'd be inconvenient to have more than one service e.g. the Royal Mint
Government support ensures vital businesses survive
Large businesses may be inefficient due to dis economies of scale (cost per unit may increase so the business becomes inefficient)
Not answerable to shareholders - may not focus on cost control
Can be used for political gain
Charity/not for profit (third sector)
Aims other than making money, the profit they make will be invested in the cause they support
Disadvantages
Advantages
Charities - same advantages of Ltd
Quick/easy to set up and can make an immediate impact
Small charitable groups - same a sole trader advantages
Depend on volunteers - difficult to maintain support
Formal charity set up is expensive - regulated by Companies House and Charity Commission
Annual accounts must be provided to the above places
Community interest companies (CIC)
Limited companies aiming to benefit the community/trade with a social purpose other than earning large profits. Shareholders get a small return but most profits are invested into community projects
Disadvantages
Advantages
Reputation may be enhanced
own legal identity
Articles of Association and Memorandum of Association must be completed and sent to Registrar of Companies
Tax must be paid on profits
Factors that inform business ownership
Legal status
In an Ltd the business would rather have separate legal entity from its owners
Some forms will result in a business having a separate legal entity
Liability
Being a sole trader has higher financial risk than becoming an Ltd
The owners personal situation will affect liability - someone with more commitments will be more careful
Must consider financial risk involved
Funding
Sole traders must register for tax but being a PLC has high costs
Is the financial outlay outweighed by the benefits of the form of ownership
Some forms of ownership require more paperwork/legal expense
Control/decision making
A sole trader has a lot of control however a PLC can lose control quickly as shares are sold on the stock market
The form of ownership may depend on the amount of control the owner wants to have
Legal/administrative requirements
This may affect the ownership depending on the timescale the owners want to set up their business in
PLCs also have more requirements once up and running e.g. annual accounts to the Companies House
It is simpler to set up as a sole trader than a limited company
Business aims and objectives
Survival
Important for a new business
Influenced by many factors including the economy and competitors
Reputation
E.g. producing good quality goods will improve reputation
Aims and objectives may aim to improve reputation
A business with a unique selling point will also help to achieve this aim
Financial
These may include:
Break even
Increase revenue
Reduce costs
Make a profit
Growth
Can be measured in no. of employees, value of sales or output
Reasons why businesses may want to grow:
Wanting a greater market share
Wanting physical expansion
Increasing provision
Benefiting from economies of scale
Spreading risk by diversification
A larger business may find it easier to get financial help e.g. loans
Cost advantages gained when a business grows in size
Be enterprising
Are likely to take risks to pursue an idea
Try to identify gaps in the market, remain competitive and use experience to produce new and exciting products
Often sole trader trying to pursue a career that interests them