1. Ch. 2 Business Structure
EQ: What are the different types of business structures and the different ways of classifying business activity.

2. Classifications of business activity
Extract natural recourse to be used and processed by other firms
EX: Farms, oil drilling, fishing…
Primary sector business activity
Manufacture and process products from natural resources
EX: Computers, baking, clothing…
Secondary sector business activity
Provide services to consumers & other businesses
EX: Retail, transportation, banking…
Tertiary sector business activity

3. Classifications of business activity
Balance of the different sectors depends on a country’s level of industrialization.
Employment data 2008
as % of total employment
Country
Primary
Secondary
Tertiary
United Kingdom 2 20 78
China 44 24 32
Ghana 54 26
How would you explain the high level of Primary sector business activity in Ghana?

4. Changes in Business Activity
In DEVELOPING countries….
(Africa & Asia)
Benefits of Industrialization
Problems of Industrialization
Increases national output (GDP)
Increases standard of living
Increases exports
Lowers imports
Increases jobs
More taxes generated for government
Increased production adds value to exports
Mass movement of pop. to towns (Housing & Social problems)
Imports of raw material needed for production (increases import costs)
Growth of multinational companies

5. Changes in Business Activity
In DEVELOPED countries….
(USA & UK)
Benefits of Deindustrialization
Problems of Deindustrialization
Rising incomes mean people spend more on services rather than goods
Growth in tourism, hotels, and restaurant services, financial services
Spending on physical goods rises slowly
Manufacturing businesses in developed countries face more competition from developing countries
Rising imports of goods is taking away from the domestic secondary-sector firms

6. Public and private sectors
Public Sector
Private Sector
Government owns the business
Important services (education, police, public transportation)
“Public Goods”
Street lights
Individuals own the business
Types & sizes vary greatly

7. Types of economies Mixed Economy
Economic resources are owned and controlled by both private and public sectors
Free- market Economy
Economic resources owned largely by the private sector with very little state intervention
Command economy
Economic resources owned, planned and controlled by the state

8. Local, national, international businesses
Local businesses
Operate in a small & well-defined part of the country
No attempt to expand to across the whole country
Small construction businesses, Hair Salons, Family Businesses
National Businesses
Branches & operations across the country
No attempt to expand to other countries
Large car dealerships, Retail shops, National banking firms
International businesses
Operate in more than one country
Multinational businesses

9. Legal structure of business (private sector)
businesses
Sole trader
Partnerships
Cooperatives
Limited Companies
Private
Public

10. Sole Trader (one owner)
Most common form
Likely very small
Unlimited liability
People can sue the owner for business & personal assets
Hard to raise money & additional capital
Advantages
Disadvantages
Easy to set up – no legal
Owner has complete control
Owner keeps all profits
Choose working conditions
Establish close relationships with staff & customers
Based on interests and skills of the owner
Unlimited liability
Competition from bigger businesses
Owner responsible for all aspects of management
Difficult to raise capital
Long hours
No continuity – owner dies, business dies

11. Partnership (more than one owner)
Not a separate legal unit like a corporation
Group of individuals
Unlimited liability
People can sue each partner for business & personal assets
Partnership agreements – management roles, splitting $$$...
Advantages
Disadvantages
Partners work in diff. areas of management
Shared decision making
Additional capital from partners
Business losses shared btw partners
Greater privacy
Fewer legal formalities than corporations
Unlimited liability for all partners
Profits are shared
No continuity – a partner dies, business needs to be reorganized
Bound by partner decisions
Can’t sell shares to raise capital
A sole trader, taking on partners, will lose independence of decision making

12. Limited companies (Incorporated/corporations)
Limited liability
If business fails, the shareholders personal assets are protected
Legal personality
Has a legal identity separate from owners
Continuity
The death of an owner or director does not impact the business
Limited Companies
Private Limited Company
Public Limited Company

13. Private Limited Company (Ltd) (shares sold privately)
An incorporated privately owned business
Small businesses
Shares usually sold to family, friends, and employees
A corporation not listed on the stock exchange
Advantages
Disadvantages
Shareholders have limited liability
Separate legal personality
Continuity – Business lives forever
Original owner may retain control
Raises capital by selling shares to family, friends, & employees
Greater status than an unincorporated business
A lot of legal work in forming the corporation
Can’t raise capital by selling shares to the general public
Difficult for shareholders to sell shares
Less secrecy over financial affairs than sole trader or partnership

14. Public Limited company (PLc) (Shares sold on stock exchange)
Sale shares (ownership pieces) on stock exchange
Most common form for large businesses
Can raise VERY LARGE amounts of capital ($$$) for expansion
Separation between ownership & control
Large amounts of shareholders, Who runs the company?
Shareholders appoint a board of directors to run the business
Many Public Limited Companies convert back to Private status to keep control in the hands of the original owner.
Plc., Inc.

15. Examples of Public Limited Company

16. Public Limited company (PLC) (Shares sold on stock exchange)
Advantages
Disadvantages
Limited liability
Separate legal identity
Continuity
Ease of buying and selling of shares for shareholders – encourages investment
Large capital sources from publically selling shares
Legal formalities in formation
Cost of business consultants and financial advisers when creating the company
Share prices subject to change – sometimes for reasons beyond the company’s control
Legal requirements to share financial info with shareholders & public
Risk of takeover due to the availability of the shares on the stock exchange

17. Legal formalities in setting up a company
All governments require legal steps to starting a company.
In the UK…
Memorandum of Association
Name of Company
Address of head office
Maximum share capital
Aims of business
Articles of Association
Explains internal workings (business procedures)
Control of the business (names of directors)

18. Other forms of business organization
Cooperative
All members contribute to the running of the business
All members have one vote
Profits shared equally among member
Franchises
Allows an owner to use the logo, marketing, product, & style of the parent company (McDonalds, Subway, Monkey Joe’s)
Joint ventures
Two or more businesses agree to work closely together on a particular project and create a separate business division to do so
Holding companies
A business that owns and controls a number of separate businesses, but DOES NOT unite them into on unified company

19. Example of a cooperative
Today, 54 grower-members make up the Cooperative. Since its inception, each member, no matter how large or small his farm, is treated equally with each member having one vote. Equal voice in Cooperative business has helped to sustain progress and keep alive the pioneering spirit that originally brought the Cooperative into being. The Board of Directors is responsible for determining policy and providing direction for the management team. Day-to-day business operations are handled by the professionals that make up the Cooperative staff.

20. Public-sector enterprises public corporations
Public limited companies (Plcs) are in the private sector of industry – but public corporations are not!!!
We us “Public” in two ways!
Public corporations ≠ Public limited companies
Public corporations are owned by government
Public corporations are in the Public Sector
Profit is not a major objective
Check Pros & Cons on p. 28

21. Example of Public Corporation
Citizens is a not-for-profit, tax-exempt government corporation whose public purpose is to provide insurance protection to Florida property owners throughout the state. The corporation insures hundreds of thousands of homes, businesses and condominiums whose owners otherwise might not be able to find coverage.