Business in Contemporary Society Business Enterprise: Sectors and Types of Organisations

Sectors of Industry Industry can be divided into 4 main sectors: Primary Secondary Tertiary Quaternary

Primary Sector The part of the economy concerned with growing or extracting raw materials/gifts of nature e.g. oil drilling, mining, agriculture, fishing and forestry.

Secondary Sector Manufacturing, assembly and construction.

Decline of Secondary Industries Secondary Sectors across the UK have experienced a decline resulting in fewer firms. This has been due to changes: in consumer demand lack of competitiveness increased competition from abroad Lack of investment New government policies

Tertiary Sector Service industries e.g. transport, banking, insurance or hairdressing

Growth of Tertiary Sector Grown at the expense of Primary and Secondary. Over the last 40 years due to an increase in technology and peoples wants, businesses in the service sector has seen considerable growth.

Question Describe the 3 sectors of activity and give an example of an activity that takes place in each sector. (6)

Answer The Primary Sector grow products or extract resources from the land eg mining, farming, forestry. The Secondary Sector manufacture products eg construction, car factories. The Tertiary Sector provide a service eg banking, railways, bus companies.

Quaternary Sector This sector is based on knowledge applicable to some business activity that usually involves the provision of services eg information gathering, research and development, business consulting, financial services.

Types of Organisations Organisations are groups of people who COMBINE their efforts and their resources to achieve a particular purpose. Business organisations’ purpose is to satisfy wants by producing goods and/or services.

SECTORS OF THE ECONOMY PRIVATE - these are owned and controlled by private individuals and investors. PUBLIC – these are owned and controlled by the government VOLUNTARY – these are set up to raise money for good causes or to provide facilities for their members

Private Sector: Sole Trader OwnershipOne owner ControlControlled by owner FinanceOwner’s savings, bank loan, bank overdraft, grants. LiabilityUnlimited liability – could lose all personal possessions ObjectivesTo survive, maximise profits, to improve owners status, good image in the community

Advantages Vs Disadvantages of a Sole Trader All profits kept by the owner Owner has complete control Owner can choose hours of work/holidays More personal service offered to customers Very easy to set up Owner has unlimited liability (need to pay back all debts from own money). Available finance is restricted. No-one to share decisions/workload with Work stops if owner is ill/on holiday

Private Sector: Partnership Ownership2-20 partners (exception can be made by some professions eg solicitors and doctors) ControlBy the partners – after producing a ‘Partnership Agreement’ laying out the rules, financial implications, workload etc. LiabilityUnlimited liability (although Partnership Act allows for sleeping partners) – they merely contribute finance but do not undertake any duties FinancePartner Savings, profits, invite a new partner to join, bank loan, overdraft, government grant ObjectivesTo survive, maximise profits, to improve owners status, good image in the community

Advantages Vs Disadvantages of a Partnership Partners can bring in different areas of expertise More Finance Available Workload can be shared Partners in a stronger position than a sole trader to raise finance from lenders. Partners have unlimited liability Profits have to be shared between partners Partners may disagree If one partner dies, a new Partnership Agreement needs to be set up.

Private Limited Company (Ltd) OwnershipMin 2 who have purchased their shares privately (by invitation). ControlBoard of Directors appointed by the shareholders LegalitiesComplete 2 documents: Memorandum of Association & Articles of Association (set out aims; how it will be run & financed). Must be registered with - Registrar of Companies FinanceCompany profits, selling shares (not via stock exchange), bank loan, grants LiabilityShareholders do not risk personal bankruptcy – company is treated as a separate entity from its owners. Other FeaturesPrivate companies do not have to publish their annual accounts or issue a prospectus to members of the public. ObjectivesMaximise profits, expand output, to grow, higher sales revenue, dominate the market, strong image.

Public Limited Company - PLC OwnershipGeneral Public (min 2) who have purchased shares on stock market. ControlBoard of Directors elected by the shareholders FinanceIt must have minimum of £50,000 share capital. Company profits, selling shares, bank loan, debentures (long term loans) grants. Profits are paid in the form of dividends to the shareholders LegalitiesPLCs must be registered with the Registrar of Companies and they must disclose some financial information which their competitors and public have access to. LiabilityLimited liability to the value of their ownership. ObjectivesMaximise profits, expand output, to grow, higher sales revenue, dominate the market, strong image.

Advantages Huge amounts of finance can be raised via selling shares on stock market Plcs often dominate their market Easy to borrow money from lenders due to their large size Shareholders have limited liability Plc due to their size find it easier to plan, develop and expand

Disadvantages Set up costs of company may be high – due to legal requirements Must abide by the Companies’ Act & publish their annual reports No control over who buys shares The bigger the organisation the more difficult to manage and supervise Difficult to keep workers happy and motivated Competitors have access to their published accounts

Question Compare the features of a partnership and a public limited company in terms of ownership, control and finance. (3)

Answer Partnerships are owned by between 2 and 20 partners whereas a PLC is owned by a minimum of 2 shareholders. Partnerships are controlled by their general partners whereas a PLC is controlled by an elected Board of Directors. Partnerships can be financed by money invested by the partners, bank loans etc whereas a PLC can be financed by issuing shares, issuing debentures etc. Both partnerships and PLCs can be financed by loans from a bank.

Question Describe 2 advantages of a partnership and 2 advantages of a public limited company. (4)

Answer Partnership advantages include Workload can be shared. Partners can specialise in certain areas. More money invested with more owners. Debts can be shared. PLC advantages include Large amounts of finance can be raised. Can dominate the market. Easy to borrow from lenders. Have limited liability.

Question Explain 3 reasons why an organisation would become a private limited company (3)

Answer A private limited company gives limited liability to shareholders/owners which would reduce the risk of personal loss to the shareholders. The company becomes a larger organisation and this would mean it should attract finance easier, it would also allow for economies of scale and there would also be less risk of liquidation As it is a small group of shareholders control is still not lost to complete outsiders and experience and skills can be gained from shareholders (When the command word explain is used then there must be a development to explain the reason. No marks are credited for merely identification.)

Question Explain advantages and disadvantages of becoming a public limited company. (5)

Answer Shares can be sold on the stock exchange meaning large amounts of finance can be raised. PLCs often dominate their market meaning they can force smaller organisations out of business/dictate market prices. Lenders are more likely to give money as they have greater confidence it will be paid back. Investors will have limited liability meaning PLCs will find it easier to attract shareholders. Initial set-up costs will be high resulting in poorer profit results for the first few years. There is a large amount of legislation which must be complied with or the company may be fined/have legal action taken against them. PLCs have no control over who buys shares which might mean investors can plan a hostile takeover. PLCs are required by law to publish annual accounts which will be costly to produce.