Chapter 2 - Business sectors PDF

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Chapter 2 - Business sectors and types of business Chain of production: stages that a product passes through 1) Primary sector - concerned with the extractive industries this could include farming, forestry, mining as well as oil and gas extraction 2) Secondary sector - concerned with manufacturing, that is turning raw materials into semi-finished and finished this could include the car production and the construction industry - building houses, factories, office blocks and roads 3) Tertiary sector - concerned with the output of services and services still count as production despite no finished product. This can include retailing, banking, transportation, professionals such as teachers and doctors Deindustrialisation: the decline in the size of the secondary sector of the economy

Types of business Private sector: businesses are owned and run by individuals usually for profit Public sector: businesses and organisations owned and run by local or central government whose objective is to provide a service rather than profit (BBC, NHS, local libraries)

Businesses in the private sector The legal structure of a business is important as it influences the firm’s operations. Legal structure important for its effects on: - Ownership and control of the business - Responsibility for any debts - Sources of finance available - The objectives pursued

1) Sole trader

- Simplest form of organisation - Owns the business and makes all the decisions - The legal aspect: the business and its owner are inseparable, it does not exist int ti own right it is said to be ‘unincorporated’ (unlimited liability)

- Possibility to employ a number of people but will retain control Advantages

Disadvantages

Few legal requirements - possible to start a business quite quickly and with little capital

Fully responsible for all the debts - ST must pay (unlimited liability)

The ST does not have to consult others - decision making is quick and easy

The St must be a ‘jack of all trades’ - must perform all of the functions

ST keeps all the profit after tax

Hard to raise capital to expand

Financial state of the business can be kept private compared to a company that has to publish

Lack of continuity -the ST is the business so if they die the business comes to an end

2) Partnership

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2 or more people run a business together by law they are partners Does not necessarily mean there needs to be formal documentation Often common in professions such as solicitors, accountants and dentists Not a legal entity in it owns right, the partners are the ‘business’ Minimum of 2 and a maximum of 20 partners Deed of partnership: legal document governs the running of this type of business and clarifies matters such as income of partners, absence, sickness, responsibilities/duties

Advantages

Disadvantages

Easy to establish

Restriction of number - lack capital for expansion

Additional partners mean more capital, therefore expansion is likely to be easier than ST

Unlimited liability, however if they simply contribute money they do have limited (sleeping partner0

Work is shared and different partners with different skills can be employed

Decision making is slower, possibility of disagreement

Partners specialise in what they do best

Losses are shared but so are profits

Pay income tax like ST so the financial state of the business can be kept private

Can be automatically ended by departure resignation or death - needs to be a provision

Losses are shared

Limited liability partnership (LLP)

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Combine some features of partnerships with some of limited companies An LLP is a separate legal entity, limited liability Owners are called members rather than partners Became legal in 2001, possible to combine advantages of a partnership with limited liability Like private limited companies must file accounts to Companies House, available publicly for competitors to view

3) Limited Company Number of important differences between companies and other types: A. Incorporation - sole traders and partnerships are unincorporated - does not exist separately from their owners. A company is incorporated the business exists in its own right B. Shares - companies raise capital via the issue of shares. Buyers own a share of the company, companies issue shares to raise money, investors like to receive return on shares (dividends) and making a capital gain when selling their shares C. Limited Liability - shareholders will only lose their shares, not personally liable for the business’ debts Private limited company - often a small business such a independent retailer. The shares are not traded on the stock exchange.

Public limited company - usually a large, well known business. Shares are trade on the stock exchange

Similarities

Differences

Directors - shareholders elect a board to run the company on their behalf

The name - a public company is a ‘Plc’ whereas a private company ends with ‘Ltd’

Information - must receive a company of report and accounts, entitled to attend AGM

Shares traded - plc sells shares on the stock market whereas ltd cannot

Voting - ‘one vote per share’ not ‘one person, one vote’

Share capital - plc must have a minimum of £50,000 whereas ltd has no minimum Company reports - plc required to include more detail, for ltd reporting to shareholders and accounting procedures are less complicated

Companies

Advantages

Disadvantages

Access to large amounts of capital through the ability to issue shares - greater opportunities for growth

Expensive to set up - two legal documents need to be completed to protect the interests of shareholders. (Memorandum of association, Articles of association)

Limited liability - encourages more people to invest in a company

More complicated that running as a partnership or sole trader

Banks - regard companies as less risky, better terms Accounts are not private - they can be accessed at for borrowing money Companies House, therefore difficult to keep financial details hidden from competitors. Continuity as a company is a separate legal entity and does not come to an end when the original owner(s) die.

Large companies require complicated management structures - more people to mange the more difficult communication and co-ordination becomes Danger of a takeover - in a public company the original owners may lose control

Memorandum of association: regulates a company’s external activities and must be drawn up on the formation of registered or incorporated company

Articles of Association: deals with the internal running of a company including the regulations for a company’s operations and purpose

Companies House: all UK companies must be registered and must submit details about themselves such as identity of directors, number of shares, latest ‘Report and Accounts’ every year. This where these details are on open access to the public

Public sector Central government - money raised through taxation is spent on essential services such as healthcare, pensions and education Local government - a range of services including lighting, fire service, refuse and recycling must be provided for all residents • The priority for most public sector is to provide value-formoney service • Objectives different from those organisations in then private sector

Third sector • Organisation that is one that is neither in the public nor the private sector • Includes charities, community groups, faith groups, self-help groups, social enterprises and cooperatives • Motivated by the desire to achieve social goals e.g. improving housing, the environment, helping people with social problems...