Business Structure (Cambridge (CIE) A Level Business): Flashcards

True.

Only in the least developed nations does the primary sector consistently employ a high proportion of the workforce.

Many businesses have relocated production to emerging economies to take advantage of lower average wage rates in these economies.

Developed economies use their wealth to fund advanced education and higher-level skills training, which supports the growth of the tertiary and quaternary sectors.

Governments around the world have tended to move away from the centralised provision of services.

A sole trader is a business with a single owner, although it may still hire employees.

Sole traders often run their business alone. They need skills such as managing money, customer service, marketing and problem-solving.

False.

The owner has complete control, so decisions can be made very quickly and the business can react swiftly to market change.

The owner is personally responsible for any debts the business incurs.

Sole traders have limited access to finance and capital, and the owner has a limited skill set.

By changing their form of business, sole traders can access more funding or provide more security for the owners.

A partnership is a business in which two or more people join together to own it.

A deed of partnership is a document stating the formal rights of each partner, such as the capital each contributes and how profits or losses are shared.

More skills and knowledge mean that partners can specialise in their area of expertise. Responsibilities and decision-making are also shared.

True.

Ordinary partners have unlimited liability for business debts, but a limited liability partnership removes this risk where the law allows it.

In a partnership, the decisions of one partner are legally binding on all owners.

Profits are often shared equally regardless of each partner's contribution, which can cause disagreements.

A private limited company is a business owned by one or more shareholders, whose shares are sold privately and who benefit from limited liability.

True.

Shares are often passed from generation to generation, so a private limited company can remain family-owned for many years.

A private limited company benefits from business continuity, as the business does not die with its original owner.

Ownership can be transferred easily by selling shares.

Investors and lenders consider limited companies to be less risky.

False.

A private limited company is more expensive and time-consuming to set up, as legal advice is often required. Annual financial reporting and auditing are also required.

A public limited company is a large business that sells its shares publicly on the stock exchange.

Flotation is when a company sells its shares on the stock exchange for the first time, also known as going public.

Each ordinary share in a public limited company gives its owner a vote at the Annual General Meeting.

Its shares can be bought by rival businesses on the stock exchange.

Managers aim to maximise profits for shareholders. This can come at the expense of long-term strategic planning, such as retaining talented staff.

True.

A public limited company may have many thousands of shareholders, so the risk of the business is shared widely.

Costs include fees for legal and accounting advice and flotation costs, such as producing a prospectus and public relations.

A co-operative is a business owned and run by and for its members, based on the principle that working together means more power.

False.

Each member has one vote on key decisions.

Profits are either shared equally between members or reinvested for their benefit.

The member's share is relinquished and they receive no further benefits.

In a retail co-operative, independent retailers operate under one brand name so that buying power is increased and marketing costs are shared.

A key aim is sharing and maximising the use of expensive capital equipment. Producer co-operatives are common in agriculture.

True.

An employee co-operative is owned equally by the workers within the business.

Financial co-operatives serve individuals who may not otherwise qualify for standard banking products, often within a particular community.

A social enterprise is a business whose primary purpose is creating social or environmental impacts, in addition to generating profits.

Its financial objective is to make a profit to invest back into the enterprise and expand the social work it performs.

A good reputation can attract highly-qualified employees and encourage customer loyalty.

False.

For-profit rivals may be encouraged to improve their business practices to compete better with social enterprises.

Social enterprises may face media scrutiny, so they must ensure they behave responsibly at all times.

Franchising is a business format in which an individual (the franchisee) buys the rights to operate a business model from a larger company (the franchisor).

The franchisee pays an initial lump sum plus ongoing royalty fees, which are often around 5–10% of sales revenue.

The franchisor usually provides training, equipment and supplies, marketing support, advice and the use of software systems.

False.

Franchisees have little say about how the business is run and must operate under the franchisor's established system.

Franchisees buy an exclusive area to sell to, so the franchisor will not create any more franchises there.

This form of ownership is considered more stable than sole traders or partnerships.

True.

Franchisors protect the quality and consistency of the brand, so a franchisee that falls below the standard can lose the franchise.

A joint venture is a medium- to long-term agreement for two or more separate businesses to join together to achieve a defined business outcome, such as entry into a new market.

In a joint venture, a new combined business entity is formed.

They usually hope to benefit from complementary strengths and resources, such as distribution channels and R&D expertise.

The local partner's managers and employees understand market needs and consumer tastes, which gives the venture a greater chance of success.

False.

Joint ventures are less risky than going it alone, because costs and risks are shared between the partner businesses.

The objectives of each business may change over time, leading to a conflict of objectives between the partners.

The joint venture may need to be dismantled, reorganised or sold, which is likely to take significant time and resources.

The main factors are the size and scale of the business, the amount of capital needed, the desired level of control, the degree of risk and future growth plans.

False.

A franchise owner must follow strict rules set by the franchisor, whereas a sole trader has full control.

Partnerships are most appropriate for professional services, such as accountants, doctors, lawyers and architects.

A social enterprise is most appropriate for an organisation with these aims.

A joint venture is most appropriate for international market entry or large-scale projects.

Unlimited liability means there is no legal distinction between the owners and the business, so the owners are fully responsible for all business debts and may have to use their personal assets to pay them.

Limited liability means the owners' assets are separate from those of the business, so shareholders can only lose the original amount they invested if it fails.

False.

In most cases, shareholders cannot be held responsible for such acts. It is owners with unlimited liability who are legally responsible for them.

The owner may need more capital to expand or want to reduce their personal financial risk.

Becoming a private limited company increases administrative work, such as registering the business and filing accounts publicly.

Profits might be lower due to franchise fees, ongoing royalties and restrictions set by the franchisor.

True.

Becoming a public limited company also gives the business a higher public profile, which enhances brand awareness and market presence.

There is a risk of a takeover bid or pressure from external shareholders.

Joint ventures often have a limited lifespan, requiring renegotiation or an exit strategy.