Higher Business Management - Understanding Business Study Guide
Primary sector - -Consists of businesses that share
are involved in the extraction and exploitation of - Controlled by a Board of Directors who are
natural resources managed by a managing director
- Have to produce documents called the
Memorandum of Association and Articles of
Secondary sector - -Consists of businesses Association
that are involved in manufacturing and construction,
by taking the natural resources provided by the
primary sector and turning them into goods to be sold Limited liability - -The owners' personal
later possessions are not at risk if the business gets into
debt, as they only lose their investment in the
company
Tertiary sector - -Consists of businesses and
organisations that are involved in providing services
rather than goods Advantages of a private limited company - --
Shareholders have limited liability
- Capital can be raised by selling shares
Quaternary sector - -Consists of businesses - They do not have to disclose most of the information
providing information and knowledge-based support that public limited companies have to provide
services, such as ICT, consultancy and research and - Ownership is not lost to outsiders as all
development services shareholders are known
Private sector - Disadvantages of a private limited company -
-- Consists of businesses that --
Profits have to be split with shareholders by issuing
aim primarily to maximise profits and that are owned
by private individuals dividends
- Includes all profit-making businesses from small- Legal process required to set up the company
local businesses to multinational companies - Shares cannot be sold publicly on the Stock
Exchange, so there is a limited source of capital
available
- Financial accounts can't be kept private as they
Public sector - -Consists of government-owned
must be shared with the Companies House and are
organisations and agencies which aim to provide a
therefore made publicly available
service to society
- Larger companies are more difficult to manage
effectively
Third sector - -- Consists of organisations that
have been set up to provide goods or services to
Public limited companies - -- Owned by
benefit others
shareholder who have limited liability
- Includes charities, voluntary organisations, social
- Must have a minimum of £50,000 share capital
enterprises and democratic enterprises
(usually a large company)
- Controlled by a Board of Directors
- Can sell their shares publicly through the stock
Private limited companies - -- Owned by market
shareholders, who have one or more shares in the - They aim to dominate the market, increase market
business share and market value
- Shareholders have limited liability
- Shares are sold privately to investors whom the
business knows
Advantages of public limited companies - --
- Aim to maximise profits, grow and increase market
Shareholders have limited liability
,Higher Business Management - Understanding Business Study Guide
- Large amounts of finance can easily be raised capital
through the public sale of shares - Receives a percentage of all franchisee's profits
- Banks are very willing to lend PLCs money due to each year
their size and reputation, as they are seen as less - Risk is shared between the franchiser and
risky franchisee
- Organisation has financial stability, enabling it to
develop and expand
Disadvantages for the franchiser - -- Reputation
of the whole franchise can be tarnished by one poor
Disadvantages of public limited companies - -- franchise
Dividends are shared with many shareholders - Reliant on the franchisee to make it a success
- Control of the business can be lost as anyone can - Only a share of profits is received rather than all
buy shares on the stock market profits
- Annual accounts have to be published
- Setting up a PLC is costly and complicated
- Employees can feel alienated from those at the top Advantages for the franchisee - -- The
- They can grow so large that they cannot be franchise is a well-known business with an existing
managed effectively customer base, so the risk of business failure is
- Decision making can be slow due to its size reduced
- Industry knowledge, administration and training is
provided by the franchiser
Franchise - -A business run by one firm under - National advertising is carried out by the franchiser
the name another
Disadvantages for the franchisee - -- Very little
Franchiser - -- Original business that gives autonomy over decisions as the franchiser decides
franchisees licenses to sell goods or services under on products, store layout, uniforms etc
their brand name - Royalties have to be paid each year, so not all of
- Aims to grow, increase market share and maximise the profits can be kept
profits - High initial start-up fees
- The franchiser can decided not to renew the
franchise
Franchisee - -Owner of each individual branch
of the franchise
Multinational - -A business (usually a limited
company) that has operations in more than one
Examples of franchises - -- McDonald's country, with a head office based in their home
- Subway country
- Papa John's
- Red Driving School
- KFC Advantages of multinationals - -- Wages and
- Burger King raw material costs are often lower in the foreign
- Hertz countries they operate in
- Kumon - Can avoid legislation in their home country
- Hard Rock Cafe - They can take advantage of grants issued by
- Hilton Hotels governments to locate in their countries
- They can avoid certain quotas and tariffs issued by
their own governments
Advantages for the franchiser - -- Low risk form
of growth as the franchisee invests the majority of the
, Higher Business Management - Understanding Business Study Guide
Quotas - -Limits on the number of imports and - Decision making surrounding these organisations is
exports carried out by elected councillors, whilst the day-to-
day running of the organisations involves managers
and council employees
Tariffs - -Taxes on imports and exports - Financed by taxation collected by central
government, local council tax and local business
rates
- Aim to provide a quality service, stick to their budget
Disadvantages of multinationals - -- Language
and not overspend
barriers can slow down communication
- Cultural differences can affect production (e.g.
siestas in Spain)
- Exchange rates can affect purchasing and paying Charities - -- Set up to raise money to benefit
expenses in different countries others
- Time differences can hinder communication - Raise finance through donations, sponsorship,
between head office and branches located elsewhere fundraising events and trading arms (e.g. a retail
in the world outlet such as an Oxfam shop)
- Any profits they make from trading arms are given
to their cause rather than kept by the owners
Central government organisations - -- Usually - Not owned by one individual
- Set up by a trust, which is controlled by a board of
national services that would be difficult to rely on the
trustees
private sector to provide
- Outlets and departments of the charity are often run
- Examples include defence provided by the armed
by paid managers who are assisted by volunteers
forces, healthcare provided by the NHS and transport
- Can have a variety of aims related to their cause
infrastructure through the road network
(e.g. the SSPCA aims to improve animal welfare in
- Paid for through taxation
Scotland)
- Control of policy surrounding the organisations is
held by elected politicians
- Individual departments are controlled by civil
servants Advantages of charities - -- Exempt from
- Aim to provide a quality service paying some taxes, such as VAT anf corporation tax
- Low wage costs as volunteers work for free
- Private companies are often willing to donate and
sponsor charities for good PR
Nationalised companies - -- Private sector
businesses that have been bought in part or in full by
the government
- e.g. the UK Government bought shares in the Royal Disadvantages of charities - -- It can be difficult
Bank of Scotland during the recession to stop it going for them to compete with the large marketing budgets
bust of private sector organisations
- They rely heavily on volunteers who may leave for
paid work elsewhere
Privatised companies - -- Public sector
organisations sold to the private sector
- e.g. the Royal Mail was floated on the stock market Voluntary organisations - -- Aim to provide a
in 2013 service for their members and the local community
- Examples include local sports clubs (e.g. golf clubs
or youth football teams)
- Finance is raised through membership subscriptions
Local government organisations - -- Used to
and fees
provide essential services to the public, such as
- Controlled and run by an elected committee and
schools, refuse collection and street lighting, free of
helped by volunteers
charge
Primary sector - -Consists of businesses that share
are involved in the extraction and exploitation of - Controlled by a Board of Directors who are
natural resources managed by a managing director
- Have to produce documents called the
Memorandum of Association and Articles of
Secondary sector - -Consists of businesses Association
that are involved in manufacturing and construction,
by taking the natural resources provided by the
primary sector and turning them into goods to be sold Limited liability - -The owners' personal
later possessions are not at risk if the business gets into
debt, as they only lose their investment in the
company
Tertiary sector - -Consists of businesses and
organisations that are involved in providing services
rather than goods Advantages of a private limited company - --
Shareholders have limited liability
- Capital can be raised by selling shares
Quaternary sector - -Consists of businesses - They do not have to disclose most of the information
providing information and knowledge-based support that public limited companies have to provide
services, such as ICT, consultancy and research and - Ownership is not lost to outsiders as all
development services shareholders are known
Private sector - Disadvantages of a private limited company -
-- Consists of businesses that --
Profits have to be split with shareholders by issuing
aim primarily to maximise profits and that are owned
by private individuals dividends
- Includes all profit-making businesses from small- Legal process required to set up the company
local businesses to multinational companies - Shares cannot be sold publicly on the Stock
Exchange, so there is a limited source of capital
available
- Financial accounts can't be kept private as they
Public sector - -Consists of government-owned
must be shared with the Companies House and are
organisations and agencies which aim to provide a
therefore made publicly available
service to society
- Larger companies are more difficult to manage
effectively
Third sector - -- Consists of organisations that
have been set up to provide goods or services to
Public limited companies - -- Owned by
benefit others
shareholder who have limited liability
- Includes charities, voluntary organisations, social
- Must have a minimum of £50,000 share capital
enterprises and democratic enterprises
(usually a large company)
- Controlled by a Board of Directors
- Can sell their shares publicly through the stock
Private limited companies - -- Owned by market
shareholders, who have one or more shares in the - They aim to dominate the market, increase market
business share and market value
- Shareholders have limited liability
- Shares are sold privately to investors whom the
business knows
Advantages of public limited companies - --
- Aim to maximise profits, grow and increase market
Shareholders have limited liability
,Higher Business Management - Understanding Business Study Guide
- Large amounts of finance can easily be raised capital
through the public sale of shares - Receives a percentage of all franchisee's profits
- Banks are very willing to lend PLCs money due to each year
their size and reputation, as they are seen as less - Risk is shared between the franchiser and
risky franchisee
- Organisation has financial stability, enabling it to
develop and expand
Disadvantages for the franchiser - -- Reputation
of the whole franchise can be tarnished by one poor
Disadvantages of public limited companies - -- franchise
Dividends are shared with many shareholders - Reliant on the franchisee to make it a success
- Control of the business can be lost as anyone can - Only a share of profits is received rather than all
buy shares on the stock market profits
- Annual accounts have to be published
- Setting up a PLC is costly and complicated
- Employees can feel alienated from those at the top Advantages for the franchisee - -- The
- They can grow so large that they cannot be franchise is a well-known business with an existing
managed effectively customer base, so the risk of business failure is
- Decision making can be slow due to its size reduced
- Industry knowledge, administration and training is
provided by the franchiser
Franchise - -A business run by one firm under - National advertising is carried out by the franchiser
the name another
Disadvantages for the franchisee - -- Very little
Franchiser - -- Original business that gives autonomy over decisions as the franchiser decides
franchisees licenses to sell goods or services under on products, store layout, uniforms etc
their brand name - Royalties have to be paid each year, so not all of
- Aims to grow, increase market share and maximise the profits can be kept
profits - High initial start-up fees
- The franchiser can decided not to renew the
franchise
Franchisee - -Owner of each individual branch
of the franchise
Multinational - -A business (usually a limited
company) that has operations in more than one
Examples of franchises - -- McDonald's country, with a head office based in their home
- Subway country
- Papa John's
- Red Driving School
- KFC Advantages of multinationals - -- Wages and
- Burger King raw material costs are often lower in the foreign
- Hertz countries they operate in
- Kumon - Can avoid legislation in their home country
- Hard Rock Cafe - They can take advantage of grants issued by
- Hilton Hotels governments to locate in their countries
- They can avoid certain quotas and tariffs issued by
their own governments
Advantages for the franchiser - -- Low risk form
of growth as the franchisee invests the majority of the
, Higher Business Management - Understanding Business Study Guide
Quotas - -Limits on the number of imports and - Decision making surrounding these organisations is
exports carried out by elected councillors, whilst the day-to-
day running of the organisations involves managers
and council employees
Tariffs - -Taxes on imports and exports - Financed by taxation collected by central
government, local council tax and local business
rates
- Aim to provide a quality service, stick to their budget
Disadvantages of multinationals - -- Language
and not overspend
barriers can slow down communication
- Cultural differences can affect production (e.g.
siestas in Spain)
- Exchange rates can affect purchasing and paying Charities - -- Set up to raise money to benefit
expenses in different countries others
- Time differences can hinder communication - Raise finance through donations, sponsorship,
between head office and branches located elsewhere fundraising events and trading arms (e.g. a retail
in the world outlet such as an Oxfam shop)
- Any profits they make from trading arms are given
to their cause rather than kept by the owners
Central government organisations - -- Usually - Not owned by one individual
- Set up by a trust, which is controlled by a board of
national services that would be difficult to rely on the
trustees
private sector to provide
- Outlets and departments of the charity are often run
- Examples include defence provided by the armed
by paid managers who are assisted by volunteers
forces, healthcare provided by the NHS and transport
- Can have a variety of aims related to their cause
infrastructure through the road network
(e.g. the SSPCA aims to improve animal welfare in
- Paid for through taxation
Scotland)
- Control of policy surrounding the organisations is
held by elected politicians
- Individual departments are controlled by civil
servants Advantages of charities - -- Exempt from
- Aim to provide a quality service paying some taxes, such as VAT anf corporation tax
- Low wage costs as volunteers work for free
- Private companies are often willing to donate and
sponsor charities for good PR
Nationalised companies - -- Private sector
businesses that have been bought in part or in full by
the government
- e.g. the UK Government bought shares in the Royal Disadvantages of charities - -- It can be difficult
Bank of Scotland during the recession to stop it going for them to compete with the large marketing budgets
bust of private sector organisations
- They rely heavily on volunteers who may leave for
paid work elsewhere
Privatised companies - -- Public sector
organisations sold to the private sector
- e.g. the Royal Mail was floated on the stock market Voluntary organisations - -- Aim to provide a
in 2013 service for their members and the local community
- Examples include local sports clubs (e.g. golf clubs
or youth football teams)
- Finance is raised through membership subscriptions
Local government organisations - -- Used to
and fees
provide essential services to the public, such as
- Controlled and run by an elected committee and
schools, refuse collection and street lighting, free of
helped by volunteers
charge
