3.5 - Firms
3.5.1 - Classification of firms
Classification of firms
● Some firms quickly go out of business, however, some of them grow to
become large firms of MultiNational Corporations (MNCs)
● An industry is a collection of firms producing the same product
○ E.g car industry, banking industry
● A firm can have a number of plants
○ A production of unit or workplace such as a factory, farm, office,
branch (e.g Foxconn Plant)
● Firms are distinguished according to:
○ What type of industry they operate in
○ Whether they are privately owned, financed and controlled in the
private sector, state-owned enterprises or in the public sector
○ Their size of scale of production
● Relative size of the primary, secondary and tertiary sectors are measured by:
○ The number and size of firms
○ Amount of resources they employ
○ Amount they produce
4 stages of production
● As a country grows over time their industrial sector will change
○ E.g - HK went from fishing village (primary) → manufacturing
(secondary) → services (tertiary) → STEAM (quaternary)
1) Primary sector
● They are involved in the extraction of raw materials from under or
above the land
● Includes industries such as agriculture, coal mining, forestry
2) Secondary sector
● They are involved in combining raw materials to produce finished
goods and services
● Capital goods → consumer goods
○ Capital goods are goods used in the production process
○ Consumer goods are the final manufactured goods
● Includes industries like manufacturing, construction, building, textiles,
3) Tertiary sector
● They are involved in selling or providing these finished goods and
services to the public
● Includes industries like teaching, transportation, retailing, entertainment
, 4) Quaternary sector
● Newly recognised
● Sub-section of tertiary sector
● Involves those working in providing information services
● Includes service industries - research & development, processing and
transmission of data
● E.g Manager of restaurant - collects data, IT companies like
Google/Facebook
Ownership of firms
● Mixed economic sector: most firms are in the financed or controlled by the
private sector with some firms in the public sector
● Public sector: organisations owned by the government
○ E.g Ocean Park, HK Jockey Club
● Private sector: Organisations owned by individuals
○ E.g Parknshop, Wellcome
Types of firm or business organisations in the private sector
Legal form Ownership Control Main sources of finance Distribution of profits (or
surplus)
Sole trader One person Owner = main Owner’s personal savings Receives profits but also
decision maker responsible for any
business debts
Joint-stock One or more Shareholders Financed by sale of Any profit belongs to the
or limited shareholders appoint one or shares to shareholders shareholders, but the
company more directors shareholders are not liable
Private Ltd. company can to repay any company
only sell shares to private debt
individuals
Public Ltd. company can
sell shares publicly
through stock exchange
Cooperative By its Members appoint From membership fees Members receive any
members a board of and drawing on reserves surplus revenue that is not
members added to reserves
Charity Registered by Run by a board of Gift and donations from Do not aim to make a
a private trustees public and organisations profit, any surplus profit is
individual or deducted after costs and
another the rest is reinvested to
organisation fund the services it
3.5.1 - Classification of firms
Classification of firms
● Some firms quickly go out of business, however, some of them grow to
become large firms of MultiNational Corporations (MNCs)
● An industry is a collection of firms producing the same product
○ E.g car industry, banking industry
● A firm can have a number of plants
○ A production of unit or workplace such as a factory, farm, office,
branch (e.g Foxconn Plant)
● Firms are distinguished according to:
○ What type of industry they operate in
○ Whether they are privately owned, financed and controlled in the
private sector, state-owned enterprises or in the public sector
○ Their size of scale of production
● Relative size of the primary, secondary and tertiary sectors are measured by:
○ The number and size of firms
○ Amount of resources they employ
○ Amount they produce
4 stages of production
● As a country grows over time their industrial sector will change
○ E.g - HK went from fishing village (primary) → manufacturing
(secondary) → services (tertiary) → STEAM (quaternary)
1) Primary sector
● They are involved in the extraction of raw materials from under or
above the land
● Includes industries such as agriculture, coal mining, forestry
2) Secondary sector
● They are involved in combining raw materials to produce finished
goods and services
● Capital goods → consumer goods
○ Capital goods are goods used in the production process
○ Consumer goods are the final manufactured goods
● Includes industries like manufacturing, construction, building, textiles,
3) Tertiary sector
● They are involved in selling or providing these finished goods and
services to the public
● Includes industries like teaching, transportation, retailing, entertainment
, 4) Quaternary sector
● Newly recognised
● Sub-section of tertiary sector
● Involves those working in providing information services
● Includes service industries - research & development, processing and
transmission of data
● E.g Manager of restaurant - collects data, IT companies like
Google/Facebook
Ownership of firms
● Mixed economic sector: most firms are in the financed or controlled by the
private sector with some firms in the public sector
● Public sector: organisations owned by the government
○ E.g Ocean Park, HK Jockey Club
● Private sector: Organisations owned by individuals
○ E.g Parknshop, Wellcome
Types of firm or business organisations in the private sector
Legal form Ownership Control Main sources of finance Distribution of profits (or
surplus)
Sole trader One person Owner = main Owner’s personal savings Receives profits but also
decision maker responsible for any
business debts
Joint-stock One or more Shareholders Financed by sale of Any profit belongs to the
or limited shareholders appoint one or shares to shareholders shareholders, but the
company more directors shareholders are not liable
Private Ltd. company can to repay any company
only sell shares to private debt
individuals
Public Ltd. company can
sell shares publicly
through stock exchange
Cooperative By its Members appoint From membership fees Members receive any
members a board of and drawing on reserves surplus revenue that is not
members added to reserves
Charity Registered by Run by a board of Gift and donations from Do not aim to make a
a private trustees public and organisations profit, any surplus profit is
individual or deducted after costs and
another the rest is reinvested to
organisation fund the services it
