Disadvantages of a Private Limited Company (LTD)

- Decision making takes longer with many owners - Business affairs are not private - Complicated setup due to regulations

Features of a Public Limited Company (PLC)

- Owned by shareholders - Board of Directors elected by shareholders - Shares sold publicly through the stock market - Aim to dominate the market and increase market share

Advantages of a Public Limited Company (PLC)

- Shareholders have limited liability - Large capital raised through public sale of shares - Easier to borrow finance due to size and reputation - Can dominate the market

Disadvantages of a Public Limited Company (PLC)

- Dividends shared with many shareholders - Control can be lost as anyone can buy shares - Annual accounts must be published - Costly and complicated setup

Limited Liability definition

Shareholders cannot be personally pursued for the debts of the business

A business model allowing businesses to pay to own a branch of a well-known, existing business.

The main original business owner in a franchise.

The owner of the original branch in a franchise.

Advantages for Franchiser

1. Low risk growth as the franchisee invests most capital. 2. Receives royalties, a percentage of franchisee profits.

Disadvantages for Franchiser

1. Reputation can be damaged by one poor franchise. 2. Only receives a share of profits.

Advantages for Franchisee

1. Well-known business with a large customer base. 2. Industry training and knowledge provided. 3. Benefits from national advertisements.

Disadvantages for Franchisee

1. Must pay royalties each year. 2. High initial start-up fees. 3. Limited decision-making power.

Definition of a multinational

A multinational is a business that has operations in more than one country, including worldwide retail outlets or production facilities.

Head office location of most multinationals

Most multinationals have their head office based in the home country.

Reasons for establishing MNCs

- Increase market share - Secure cheaper premises and labor - Minimize tax payments - Take advantage of government grants - Save on transportation costs - Avoid trade barriers - Enable global product sales

Advantages of multinationals

- Lower wages and raw material costs in host countries - Avoidance of home country legislation - Government grants - Avoidance of quotas and tariffs

Disadvantages of multinationals

- Language barriers - Cultural difficulties - Exchange rate issues - Time differences

Barriers to success for multinationals in new markets

- New laws and regulations - Varying cultural demands for products - Different working practices - Language barriers - Need for different product ranges - Poor decision-making due to cultural differences

Disadvantages of MNCs for host countries

- Strong influence on host governments - Exploitation of labor in low-wage countries - Use of non-renewable resources - Forcing local firms out of business - Profits returning to parent company - Easy closure of subsidiaries causing job losses

Voluntary Clubs/Organisations

These are clubs run by volunteers to provide activities for citizens, such as local sports clubs. They are often called 'Associations' and funded by membership fees.

Charities cater to groups where government funding is inadequate. They range widely, from Cancer Research to the Dogs Trust.

Social enterprises trade to tackle social problems and improve community life. They reinvest profits into their business or community and focus on making a difference.

Features of Social Enterprises

- Make money by selling goods/services. - Reinvest profits into the business/community. - Aim to generate income through sales, not donations. - Set up to make a difference.

The main aim for a private sector business is to have more income than costs, maximizing profit.

Objective of maximizing profit in private sector businesses

To provide a service for the public which will help them in their daily lives.

Objective of providing a service in private sector businesses

Ensuring that customers are satisfied with what they have received.

Objective of customer satisfaction in private sector businesses

Involves coming up with new ideas to provide existing products/services or new ones altogether.

Objective of enterprise in private sector businesses

Being socially responsible means taking care of the local environment, such as recycling or investing in local schemes.

Objective of social responsibility in private sector businesses

Aiming to increase market share and/or become the market leader by increasing the number of customers.

Objective of increasing market share in private sector businesses

Expanding to gain access to more customers.

Objective of growth in private sector businesses

Taking care of the local environment, such as recycling or investing in local schemes.

Objective of social responsibility in public sector businesses

Services like schools, hospitals, and police are run by the government to ensure access to good quality services.

Objective of providing an essential service in public sector businesses

Ensuring taxpayer money is spent wisely by the government.

Objective of making good use of taxpayer money in public sector businesses

Public sector businesses must plan how to spend their allocated budget carefully.

Objective of keeping to a budget in public sector businesses

Social Responsibility in Third Sector Businesses

Being socially responsible means taking care of the local environment, such as recycling or investing in local schemes designed to improve the surrounding area.

Objective of Supporting a Specific Cause

Third sector businesses aim to help a cause important to them by providing money or other valuable resources.

Importance of Increasing Donations

Charities rely on donations to keep running. They need continual donations, whether money or other resources.

Role of Volunteers in Charities

Charities need volunteers to help run the business efficiently, ensuring donations reach the right place.

Corporate Social Responsibility (CSR)

CSR is crucial in modern business, ensuring companies are ethical and socially responsible to maintain customers and market share.

Examples of CSR Policies

- Using raw materials from sustainable sources - Commitment to recycling - Reducing carbon footprint - Treating suppliers ethically - Developing employee skills - Local community partnerships - Donating to good causes.

CSR Concepts and Practices

CSR involves sustainable practices, ethical treatment, and community engagement.

Advantages of growth: Reduces the risk of failure

Bigger businesses with more products or branches can spread the risk of failure.

Advantages of growth: Increases profits

More products to sell or more stores to sell them in will equal more sales and more profits.

HBM - Understanding Business Flashcards

Student preview

95 questions

Show all answers

1.

FLASHCARD QUESTION

Front

Public Sector

Back

Owned and controlled by the government, e.g., NHS, Public Schools, Police. Aims to provide essential public services and is funded by taxpayers.

2.

FLASHCARD QUESTION

Front

Private Sector

Back

All businesses aim to make a profit. Owned and controlled by private individuals, e.g., Sole Traders, Partnerships, Private Limited Companies.

3.

FLASHCARD QUESTION

Front

Third Sector

Back

All businesses aim to help a specific cause, e.g., charities and social enterprises.

4.

FLASHCARD QUESTION

Front

Private sector businesses are financed by whom?

Back

Private individuals

5.

FLASHCARD QUESTION

Front

Types of private sector organizations

Back

- Private Limited Companies (LTD) - Public Limited Companies (PLC) - Multinationals - Franchise

6.

FLASHCARD QUESTION

Front

Features of a Private Limited Company (LTD)

Back

- Owned by shareholders - Minimum of 1 shareholder - Shares sold privately - Board of Directors elected by shareholders - Profits shared among shareholders

7.

FLASHCARD QUESTION

Front

Advantages of a Private Limited Company (LTD)

Back

- Shareholders have limited liability - Large sums of capital invested through selling shares - Shares cannot be freely traded, reducing takeover risk

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