Business - 1.1, 1.2, IB

business

a business is any organization that uses resources to meet the needs of customers by providing a product or service they demand

mixed economy

economic resources are owned and controlled by both private and public sectors. Ex/ Canada

free market economy

economic resources are owned largely by the private sector with very little state intervention. Ex/ Hong Kong, Singapore

command economy

economic resources are owned, planned and controlled by the state. Ex/ North Korea, Cuba

Public sector - crown corporation

1. A business owned and controlled by the government

2. Also know as public sector enterprise

Private sector - publicly held companies

1. Owned by shareholders in the private sector

2. Shares are sold on a public stock exchange

ADV public sector - crown corporations (3)

• Managed with social objectives rather than for-profit objectives

• Loss-making services still kept operating if the social benefit is great enough (healthcare)

• Finance is raised mainly by the government so not subject to limitations from banks/shareholders

DISADV public sector - crown corporations (2)

• Inefficiencies as the government will pay for it anyways

• The government may interfere in business decisions for political reasons

  Ex/ open a new branch in a certain area to gain popularity

Sole traders/proprietorships

A single owner

• provides financing, full control, keeps all the profits, most common form

ADV sole traders/proprietorships (6)

• Easy to set up

• Owner has complete control

• Keeps all profits

• Sets their own working hours

• Business is based on owners interests

• Able to establish close personal relationships with staff/customers

DISADV sole traders/proprietorships (6)

• Unlimited liability

• Competition from bigger firms

• Difficult to raise capital

• Long hours

• Owner is responsible for all aspects of management. Ex/ HR, Accounting, operations, marketing

• Lack of continuity: when the owner dies, the business ends too

Partnership

Two or more people with shared capital and usually shared responsibilities

Usually a partnership agreement

ADV partnership (5)

• Partners specialize in different areas of business management (more knowledge)

• Shared decision-making

• Additional capital

• Business losses shared

• Greater privacy and fewer legal formalities as compared to corporations

DISADV partnership (5)

• Unlimited liability for all partners (with some exceptions)

• Profits are shared

• Lack of continuity - the partnership will have to be reformed in the event of the death of a partner

• Not possible to raise capital by selling shares

• Partners share decision-making

Limited Company (Corportations)

Has a seperate identity than the owners, can be sued, does it's own taxes

Privately Held Companies

Shares are sold within the same family

ADV privately held companies (4)

• Shareholders have limited liability

• Separate legal identity

• Continuity in the event of the death of a shareholder

• Able to raise capital from sale of shares to family, friends and employees

DISADV privately held companies (4)

• Legal formalities involved in establishing the business

• Cannot raise capital through the sale of shares

• Difficult for shareholders to sell their shares

• Financial reports are audited and made public

Publicly Held Companies

Companies whose stock is traded on the major stock exchanges. Shareholders vote a board of directors who control management and decisions

ADV Publicly Held Companies (5)

• Limited liability

• Separate legal identity

• Continuity

• Ease of buying and selling shares for shareholders

• Access to substantial capital

DISADV Publicly Held Companies (6)

• Legal formalities in formation/starting up

• Costs of formation

• Share prices subject to fluctuation

• Legal requirements of disclosing information to shareholders and public

• Risk of takeover

• Directors influenced by short-term objectives of major investors

What are the two (3) for-profit social enterprises?

1. Social Enterprises

2. Cooperatives

   (3.) Microfinance institutions

Social Enterprises (2)

Businesses with mainly social objectives that reinvest profits to society (**not a charity)

Triple bottom line - economic, social, environmental

Cooperatives (co-ops)

Organizations composed of individuals or small businesses that have banded together to reap the benefits of belonging to a larger organization

The 3 Types of Cooperatives are?

Retail, agricultural, worker (employees work for the wellbeing of theier work community as they all own it)

Non-profit Social Enterprises

Any organization that has aims other than making and distributing profit and which is usually governed by a voluntary board

Non-governmental organization (NGO's)

A legally constituted body with no participation or representation of any government eg. doctors without borders