WHAT IS A BUSINESS?: Unit 2

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What are private-sector organisations?
Owned and financed; run by private individuals; large number are non-profitable e.g. charities (MOST BUSINESSES ARE IN THE PRIVATE SECTOR)
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What are public-sector organisations?
state-owned/government organisations; owned by the government; provide services e.g. healthcare and education
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Unincorporated Organisations
have no distinction in law between the business and owner, unlimited liability, e.g. sole traders and partnerships
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Incorporated Organisations
have a distinction in law between business and owner, limited liability, e.g. private limited company and public limited company
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Unlimited Liability
found in unincorporated organisations and is when owners are liable for all debts of a business and can have their personal assets taken
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Limited Liability
found in incorporated organisations and shareholders have no responsibility for further payments if they'd fully paid their share and personal assets can't be used to pay debts
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Sold Traders
unincorporated organisation, unlimited liability, owned by one person, e.g. newsagents, hairdressers
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Advantages of Sole Traders
easy and cheap to set up; few legal formalities; owner takes profit; independence and more privacy
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Disadvantages of Sole Traders
unlimited liability; limited capital for expansion; difficulty if owner is ill/on holiday; limited skills as owner needs to be a jack of all trades
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Partnerships (NOT INCLUDED IN AQA SPEC)
A form of unincorporated organisation where two partners operate with the same goal of making profit
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Private Limited Companies (ltd)
usually run by families; can keep finances private; funded by shares; can't list on stock exchange; capital may be less than £50,000
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Advantages of a private limited company?
limited liability; access to more capital than unincorporated businesses; more privacy than a plc; more flexible than a plc
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Disadvantages of a private limited company?
shares are less attractive as can't be exchanged on Stock Exchange; finances difficult to raise; more legal formalities than unincorporated organisation
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Public Limited Companies (plc)
limited liability; share capital over £50,000; two shareholders; two directors; qualified secretary; listed on Stock Exchange
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Advantages of a public limited company?
limited liability; easier to raise finance; greater scope for new investment; positive publicity on stock exchange; suppliers more willing to offers credit
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Disadvantages of a public limited company?
must publish great deal of financial information; greater scrutiny of activities from press; founders of firm may lose control; stock exchange listing means pressure from investors
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Institutional Investors
pension funds, insurance companies, banks etc that invest huge sums of money in the shares of a plc quoted on the stock exchange. They invest on behalf of others and are huge influencers on companies
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Ordinary Share Capital
money given to a company by shareholders in return for a share certificate that gives them part ownership of the company. This is permanent and a business won't be required to repay the value of these shares
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Dividend
a payment made by a company to its shareholders out of profits earned. These are allocated as fixed amounts per share
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Market Capitalisation
the value of outstanding shares in a plc. Outstanding shares are the total of all ordinary share issued and fully paid up/
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Shareholders
the owner of a limited company; any person, company that owns at least one share in a company.
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How do you calculate market capitalisation?
market capitalisation = total outstanding shares x current market price of an individual share
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Share Price
the price of a single share in a company; share prices are usually determined by supply and demand
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Factors that affect supply and demand for shares?
state of the economy; performance of the company; competition in the market; proposed takeovers
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What factors would help decide what form a business should take?
need for finance; size of the business; type of investment required; degree of control desired by the original owners; level or risk; nature of business
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Non-profit Organisations
known as the third sector - aren't part of the profitable private or public sector. This includes voluntary/community organisations, trade unions, pressure groups and charities etc.
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Other cards in this set

Card 2

Front

What are public-sector organisations?

Back

state-owned/government organisations; owned by the government; provide services e.g. healthcare and education

Card 3

Front

Unincorporated Organisations

Back

Preview of the front of card 3

Card 4

Front

Incorporated Organisations

Back

Preview of the front of card 4

Card 5

Front

Unlimited Liability

Back

Preview of the front of card 5
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