CIE As Level Business | 1.2 Business Structure - Business and Its Environment

What are the 4 main sectors of industry?

1. Primary

2. Secondary

3. Tertiary

4. Quaternary

Primary Sector Business

Businesses which extract raw materials from land, sea or air

Secondary Sector Business

Businesses which process raw materials and components

Tertiary Sector Business

Businesses which provide services for consumers and or other businesses.

Quaternary Sector Business

Businesses providing information services to other businesses.

Gross Domestic Product (GDP)

The total monetary value of goods produced and services provided in a country, for one year.

What are the *advantages* of *industrialisation*?

✅ Increases *GDP* —> Higher *standard of living*

✅ Increases in *national output* —> Higher *exports*

✅ Increases in *manufacturing businesses* —> More *jobs*

✅ Increases in *value added* to raw materials —> *Decrease* in exporting of *just raw materials*

What are the *disadvantages* of *industrialisation*?

❌ *Rural depopulation* to see jobs in manufacturing —> Increase in *housing* and *social issues*

❌ Increases in *imports* of *raw materials* and *components* —> Increase in *import costs*

Public Sector Firms

Organisations (not just businesses) which are owned and controlled by the *government*.

They are usually funded through *taxation*.

(—> Includes Public Corporations)

Private Sector Firms

Firms which are owned and controlled by *other firms* or *private individuals*.

They are usually funded by *owners' capital*, *borrowing* and *retained profits*.

Privatisation

When government-owned firms are sold to the private sector.

(e.g. Singapore Airlines is *partially privatised*. Their shares are 55% government owned & 45% privately owned.)

Planned / Command Economy

An economy in which more than *70%* of businesses are owned by the government.

Free-Market Economy

An economy where less than *30%* of businesses are owned and controlled by the government.

Mixed-Economy

An economy in which *30-70%* of businesses are owned/controlled by the government.

Public goods / services

Goods / services provided *without profit* to all members of society, usually by the government.

Public corporation

A business enterprise *owned + controlled by the state*, similar to a nationalised industry.

What are the *advantages* of *public corporations*?

✅ Managed w/ *social objectives* rather than just profit.

✅ Loss-making services can be *kept operating* with government funding.

✅ Finance raised from government

What are the *disadvantages* of *public corporations*?

❌ Can be *inefficient* due to lack of profit targets

❌ Subsidies may also *decrease efficiency*

❌ Government may *interfere for political reasons* (i.e. opening new branches in certain areas to gain popularity)

Unlimited liability

Business owners who have *full legal responsibility* for the debts of the business.

Limited liability

The only loss a shareholder has if the business fails is the *amount invested* in the company.

Divorce of ownership and control

When the *owners* (i.e. shareholders) and those who *manage* the business have conflicting objectives.

Unincorporated business

A business that does *not* have a *separate legal identity* from its owners. The owners have *unlimited liability* for business debts.

—> Sole-traders

—> Partnerships

Incorporated business

A business that has a *separate legal identity* from its shareholders (Plc, Ltd, franchiser, etc.). The owners have *limited liability* for the business debts.

Memorandum of Association (MOA)

Document outlining company's:

- Name

- Objectives

- Address of headquarters

- Maximum share capital (shares sold to investors).

Articles of Association (AOA)

Document that contains the *rules + regulations* governing the *internal management* of a company.

(e.g Name of directors, procedures to be followed at meetings etc.)

Sole Trader

A business which has *one owner* who provides *permanent finance*, has *full control* and is able to *keep all the profits*. The owner has *unlimited liability*.

What are the *advantages* of being a *sole trader*?

✅ Complete control

✅ Closer relationship w/ staff

✅ Keep all the profits

✅ Can choose time and patterns of working

What are the *disadvantages* of being a *sole trader*?

❌ Unlimited liability

❌ Intense competition w/ larger firms

❌ Owner needs to be multi-skilled

❌ Long hours and hard work

❌ Lack of continuity

Partnership

A business formed by *2+ people*, with shared *capital investments* and shared *responsibility*. They have *unlimited liability*.

What are the *advantages* of being a *partnership*?

✅ Partners may have complimentary skills

✅ Additional capital can be raised

✅ Losses are shared

✅ Greater privacy and fewer legalities

What are the *disadvantages* of being a partnership?

❌ Unlimited liability

❌ Shared decision making

❌ Shared profits

❌ Continuity issues if there is death

❌ Disagreements may occur

Deed of Partnership

A written legal agreement between people in a partnership. It includes:

- Decision making

- Profit sharing

- Salaries

- Time-off

- Roles of each partner.

Limited Liability Partnership (LLP)

A partnership in which some or all partners have limited liabilities.

Private Limited Company (Ltd)

A small to medium sized business with *shareholders* and *limited liability* that *cannot sell shares to the general public*. Its shareholders are typically members of the same family.

Examples of Private Limited Companies (Ltd) (optional):

- Huawei Technologies Co. Ltd

- The LEGO Group (Denmark)

- Timpson Ltd (UK)

What are the *advantages* of changing from a sole trader / partnership to a *private limited company*? (name 3)

✅ *Limited liability* reduces personal financial risk for owners.

✅ *Continuity* (if there is death)

✅ Easier to *raise finance* through private share issues.

✅ More *stable structure* that can attract investors

What are the *disadvantages* of changing from a sole trader / partnership to a *private limited company*? (name 3)

❌ *Time-consuming* administrative work + legal obligations

❌ *Higher costs* to set-up than sole traders / partnerships

❌ Potential *loss of full control* as shareholders may influence decisions

❌ More *complex operational rules* than unincorporated businesses.

❌ Annual *financial reporting* and *auditing* are required.

❌ Difficult for shareholders to *sell shares*

Public Limited Company (Plc)

A limited company, often large, with the *rights to sell shares* to the general public. Shares are quoted on the *national stock exchange*.

Examples of Public Limited Companies (Plc) (optional):

- Toyota Motor Corporation (Japan)

- PepsiCo, Inc. (USA)

- Deliveroo plc (UK)

What are the *advantages* of changing from a private limited company to a *public limited company*? (name 3)

✅ Access to *significant amounts of capital* through the sell of shares publicly

✅ Enhanced *brand awareness* + *market presence* with customers, suppliers, and investors

✅ Increased ability to attract *top-quality management*

What are the *disadvantages* of changing from a private limited company to a *public limited company*?

❌ Greater regulatory requirements which are *time-consuming*

❌ *Higher costs* to set up

❌ Risk of losing control due to *hostile takeover*

❌ *Poor decision-making* as directors may be influenced by *short-term aims of shareholders* rather than long-term strategic planning

Cooperative

A *jointly owned* business operated by members for their *mutual benefit*, to produce or distribute goods / services.

What are the *advantages* of a cooperative?

✅ All members can contribute to responsibilities

✅ All members have a vote

✅ Profits are shared equally or reinvested for their benefit

What are the *disadvantages* of a cooperative?

❌ Decision-making can be *time-consuming*

❌ When a member leaves their share is relinquished and they receive *no further benefits*

❌ *Disagreements can occur* when members have differing objectives

Corporate Social Responsibility (CSR)

When businesses consider the *interests of society* by taking responsibility for the impact of their decisions on *customers, employees, communities*, and the *environment*.

Pressure Group

Organisations created by people with a common interest or aim, who put *pressure on businesses + governments* to change policies so that an objective is reached.

Social Enterprise

A business that has the primary purpose of creating *social / environmental impacts*, in addition to generating profits.

What are the *advantages* of a social enterprise?

✅ *Good reputation* —> attracts highly-qualified employees and encourages customer loyalty

✅ For-profit rivals encouraged to *improve* business practices to compete

✅ Deserving causes receive much-needed *financial support*

What are the *disadvantages* of a social enterprise?

❌ Can face *media scrutiny* so they must behave responsibly at all times

❌ *Limited profits for reinvestment*

❌ *Slow-decision making* as stakeholders must be consulted

Franchising

A business format in which an *individual (franchisee)* buys the rights to operate an existing business model from the *franchisor*.

Franchisee

A person or a business that *buys the rights* to operate the franchise.

Franchisor

A person or business that *sells the rights* to open stores and sell products or services, using the brand name and brand identity.

What are the *advantages* of a franchise?

✅ *Reduced risk* due to established *brand name* + *proven business model*

✅ *Training* + *support* provided by franchisor

✅ *Equipment* and *supplies* are provided by trusted suppliers

✅ Franchisees have an *exclusive area* to sell to (as the franchisor will not create any more franchises in that area)

What are the *disadvantages* of a franchise?

❌ A *large fixed sum* must be paid to purchase the franchise

❌ *Franchise fees* + *ongoing royalties* must be paid to the franchisor

❌ Have little say in *how the business is run*

❌ Possibly *lower profits* due to fees + restrictions

Joint venture

When two businesses join together to form a separate business entity for a *limited period of time* and achieve a *shared objective*, such as entry into a new market.

What are the *advantages* of a joint venture?

1. *Shared costs & risks*

—> Cost of the new project is shared between two businesses.

2. *Access to new markets*

—> Local partner may have a better understanding of *local culture, laws and consumer preferences*.

3. *Shared expertise and skills*

—> Each business brings different strengths (e.g. technology, brand reputation, distribution networks).

4. *Access to resources and technology*

—> Firms gain access to *capital, machinery, patents, or advanced technology* they do not own.

5. *Economies of scale*

—> Joint purchasing + production can reduce *average costs*.

What are the *disadvantages* of a joint venture?

1. *Conflict between partners*

—> The two businesses may have *different objectives, cultures, or management styles*.

2. *Loss of control*

—> Decisions usually have to be *shared*.

3. *Profit sharing*

—> Profits must be *shared between partners*.

4. *Risk of losing confidential information*

—> Firms may need to share *trade secrets, technology, or business strategies*.

—> A partner could later become a competitor using this knowledge.