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