Sectors of the Economy and Types of Business Organisations

Vocabulary flashcards covering sectors of the economy (public, private, third sector) and types of business organisations (sole traders, partnerships, Ltds, PLCs, franchises, multinationals) with their key terms and definitions.

Public Sector

The sector of the economy owned by the government, controlled by mps, funded by taxes, and aimed at providing services such as education, health care, the armed forces, and social services.

Private Sector

The sector of the economy owned by private individuals, controlled by a board of directors or business owners, and funded by private individuals and shareholders with aims such as survival, making a profit, and expanding the business.

Third Sector

Not-for-profit organisations controlled by trustees and run by volunteers, including charities, community organisations and social enterprises, funded by donations, fundraising, and grants.

Sole Trader

A person who starts to work for themselves as the single owner who invested and organised business, has full decision-making authority, and requires no legal procedures to start.

Unlimited Liability

business owners are personally responsible for all business debts and losses, meaning they could lose personal possessions such as their home and car or face court bankruptcy.

Partnership

business usually owned by between 2-20 partners who have each invested some of the start-up capital for the organisation.

partnership advantage

• if one is sick the other can cover

• finance is raised easier

• different areas of expertise shared

partnership disadvantage

• unlimited liability

• profits shared

• argument could happen slowing decision making

Public Limited Company (PLC)

A company with no limit to the number of shareholders, where members have limited liability and management is run by a Board of Directors accountable to shareholders

plc advantage

• huge amounts of finance raised

• plc dominate market

• easy to borrow money due to large size

plc disadvantage

• high set up costs

• no control who buys shares

• must publish annual accounts

Limited Liability

A condition where shareholders are only liable for the debts of the company to the extent of the capital they have invested.

Private Limited Company (Ltd)

A business organisation owned by between 2 and 50 shareholders where shares are sold privately by invitation, and management is delegated to a Board of Directors.

Ltd advantage

• limited liability

• control not lost to outsiders

• finance raised by selling shares

Ltd disadvantage

• profits split amounts shareholders

• shares can’t be sold to public. difficult to raise finance

• set up costs high

Franchise

A business agreement that allows one business (the franchisee) to use another business's name and sell the other business's products or services.

Franchisee

The business that pays a franchisor a percentage of annual turnover or a set royalty to use its business name and sell its products or services.

franchisee advantage

• franchiser my advertise nationally so advertisement is needed

• Failure risk shared our business is already established

• new business can start trading on established reputation of franchisor immediately

franchisee disadvantage

• product, selling price, store layout is dictated by franchisor

• royalty payment or percentage of revenue raised has to be paid to the franchiser

• costly to purchase a successful Franchise

Franchisor

The established business whose name and products are used by a franchisee in exchange for a fee, percentage of turnover, or set royalty.

franchisor advantage

• increase market share without heavily investing in business

• Reliable source of revenue

• risks are shared

franchisor disadvantage

• franchise are only receives portion of profits

• Profits depend on stability of franchisee

• reputation of whole franchise depends on individual franchisee

Multinational Organisation

An organisation that has its headquarters in one country but also has assembly or production facilities in other countries.

multinational advantage

• create jobs in local economy

• brings expertise in an improves skills of workforce

• A benefit from economy of scale

multinational disadvantage

• they can be accused of relying on the skilled jobs that may be low and repetitive

• they can be accused of exploiting workforce, e.g. paying below the national minimum wage on making them work long hours

• might not keep profits in host country