Higher Business
Management –
Understanding Business
2026 | Study Guide,
Practice Questions,
Answers, Rationales &
Exam Review | Complete
Ethics Study Guide
Updated 2026 Questions and Answers
100% Verified Exam Prep and Comprehensive
Rationales
Included
,Primary sector Consists of businesses that are involved in the extraction and exploitation of natural
resources
Secondary sector Consists of businesses 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 later
Tertiary sector Consists of businesses and organisations that are involved in providing services
rather than goods
Quaternary sector Consists of businesses providing information and knowledge-based support
services, such as ICT, consultancy and research and development services
Private sector - Consists of businesses that aim primarily to maximise profits and that are owned
by private individuals
- Includes all profit-making businesses from small local businesses to multinational
companies
Public sector Consists of government-owned organisations and agencies which aim to provide a
service to society
Third sector - Consists of organisations that have been set up to provide goods or services to
benefit others
- Includes charities, voluntary organisations, social enterprises and democratic
enterprises
Private limited companies - Owned by shareholders, who have one or more shares in the business
- Shareholders have limited liability
- Shares are sold privately to investors whom the business knows
- Aim to maximise profits, grow and increase market share
- Controlled by a Board of Directors who are managed by a managing director
- Have to produce documents called the Memorandum of Association and Articles of
Association
Limited liability The owners' personal possessions are not at risk if the business gets into debt, as
they only lose their investment in the company
Advantages of a private limited company - Shareholders have limited liability
- Capital can be raised by selling shares
- They do not have to disclose most of the information that public limited companies
have to provide
- Ownership is not lost to outsiders as all shareholders are known
Disadvantages of a private limited company - Profits have to be split with shareholders by issuing dividends
- Legal process required to set up the company
- 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 must be shared with the
Companies House and are therefore made publicly available
- Larger companies are more difficult to manage effectively
Public limited companies - Owned by shareholder who have limited liability
- Must have a minimum of £50,000 share capital (usually a large company)
- Controlled by a Board of Directors
- Can sell their shares publicly through the stock market
- They aim to dominate the market, increase market share and market value
, Advantages of public limited companies - Shareholders have limited liability
- Large amounts of finance can easily be raised through the public sale of shares
- Banks are very willing to lend PLCs money due to their size and reputation, as
they are seen as less risky
- Organisation has financial stability, enabling it to develop and expand
Disadvantages of public limited companies - Dividends are shared with many shareholders
- Control of the business can be lost as anyone can buy shares on the stock market
- Annual accounts have to be published
- Setting up a PLC is costly and complicated
- Employees can feel alienated from those at the top
- They can grow so large that they cannot be managed effectively
- Decision making can be slow due to its size
Franchise A business run by one firm under the name another
Franchiser - Original business that gives franchisees licenses to sell goods or services under
their brand name
- Aims to grow, increase market share and maximise profits
Franchisee Owner of each individual branch of the franchise
Examples of franchises - McDonald's
- Subway
- Papa John's
- Red Driving School
- KFC
- Burger King
- Hertz
- Kumon
- Hard Rock Cafe
- Hilton Hotels
Advantages for the franchiser - Low risk form of growth as the franchisee invests the majority of the capital
- Receives a percentage of all franchisee's profits each year
- Risk is shared between the franchiser and franchisee
Disadvantages for the franchiser - Reputation of the whole franchise can be tarnished by one poor franchise
- Reliant on the franchisee to make it a success
- Only a share of profits is received rather than all profits
Advantages for the franchisee - The franchise is a well-known business with an existing customer base, so the risk
of business failure is reduced
- Industry knowledge, administration and training is provided by the franchiser
- National advertising is carried out by the franchiser
Management –
Understanding Business
2026 | Study Guide,
Practice Questions,
Answers, Rationales &
Exam Review | Complete
Ethics Study Guide
Updated 2026 Questions and Answers
100% Verified Exam Prep and Comprehensive
Rationales
Included
,Primary sector Consists of businesses that are involved in the extraction and exploitation of natural
resources
Secondary sector Consists of businesses 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 later
Tertiary sector Consists of businesses and organisations that are involved in providing services
rather than goods
Quaternary sector Consists of businesses providing information and knowledge-based support
services, such as ICT, consultancy and research and development services
Private sector - Consists of businesses that aim primarily to maximise profits and that are owned
by private individuals
- Includes all profit-making businesses from small local businesses to multinational
companies
Public sector Consists of government-owned organisations and agencies which aim to provide a
service to society
Third sector - Consists of organisations that have been set up to provide goods or services to
benefit others
- Includes charities, voluntary organisations, social enterprises and democratic
enterprises
Private limited companies - Owned by shareholders, who have one or more shares in the business
- Shareholders have limited liability
- Shares are sold privately to investors whom the business knows
- Aim to maximise profits, grow and increase market share
- Controlled by a Board of Directors who are managed by a managing director
- Have to produce documents called the Memorandum of Association and Articles of
Association
Limited liability The owners' personal possessions are not at risk if the business gets into debt, as
they only lose their investment in the company
Advantages of a private limited company - Shareholders have limited liability
- Capital can be raised by selling shares
- They do not have to disclose most of the information that public limited companies
have to provide
- Ownership is not lost to outsiders as all shareholders are known
Disadvantages of a private limited company - Profits have to be split with shareholders by issuing dividends
- Legal process required to set up the company
- 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 must be shared with the
Companies House and are therefore made publicly available
- Larger companies are more difficult to manage effectively
Public limited companies - Owned by shareholder who have limited liability
- Must have a minimum of £50,000 share capital (usually a large company)
- Controlled by a Board of Directors
- Can sell their shares publicly through the stock market
- They aim to dominate the market, increase market share and market value
, Advantages of public limited companies - Shareholders have limited liability
- Large amounts of finance can easily be raised through the public sale of shares
- Banks are very willing to lend PLCs money due to their size and reputation, as
they are seen as less risky
- Organisation has financial stability, enabling it to develop and expand
Disadvantages of public limited companies - Dividends are shared with many shareholders
- Control of the business can be lost as anyone can buy shares on the stock market
- Annual accounts have to be published
- Setting up a PLC is costly and complicated
- Employees can feel alienated from those at the top
- They can grow so large that they cannot be managed effectively
- Decision making can be slow due to its size
Franchise A business run by one firm under the name another
Franchiser - Original business that gives franchisees licenses to sell goods or services under
their brand name
- Aims to grow, increase market share and maximise profits
Franchisee Owner of each individual branch of the franchise
Examples of franchises - McDonald's
- Subway
- Papa John's
- Red Driving School
- KFC
- Burger King
- Hertz
- Kumon
- Hard Rock Cafe
- Hilton Hotels
Advantages for the franchiser - Low risk form of growth as the franchisee invests the majority of the capital
- Receives a percentage of all franchisee's profits each year
- Risk is shared between the franchiser and franchisee
Disadvantages for the franchiser - Reputation of the whole franchise can be tarnished by one poor franchise
- Reliant on the franchisee to make it a success
- Only a share of profits is received rather than all profits
Advantages for the franchisee - The franchise is a well-known business with an existing customer base, so the risk
of business failure is reduced
- Industry knowledge, administration and training is provided by the franchiser
- National advertising is carried out by the franchiser
