Theme 3

Why do firms tend to remain small?

a small market, limited access to finance, the choice of not wanting to grow

Why do firms tend to grow?

to meet objectives, respond to external and internal forces, gain competitive advantage, economies of scale

The principal agent problem

when the agent makes the decisions on behalf of the group (principal) favouring what the agent wants

Moral Hazard

when the individual is willing to take risks because the impact of failure is felt more by the owner

Private sector

owned and run by individuals or groups of individuals inclusing sole traders and PLCs

Public sector

owned or controlled by local or central government

Profit organisations

to make profit and maximise financial benefits for shareholders

Not-for-profit organisations

all profit made is used to support their aim of maximising social welfare

Limited companies

the owner and the company have separate legal entities

Private limited companies

can have one or more shareholders but cant sell shares to the public

Public limited companies

shares are freely transferable and anyone can buy them

Sole trader

an individual who owns and runs their own business

features of a sole trader

any profit is classed as income, has unlimited liability

Partnerships

2 to 20 people share the costs, risks and responsibilities of being in a business together

features of partnerships

has unlimited liability, each partner has a share of profit, most of each partner has a share in decision making