Unit 1

Understanding different business forms.

One business form is a sole trader, by which is an unlimited liability business owned and run by one person; this means that the owner makes the decisions, they're liable for any debt and their accounts arent published. Similiar to a sole trader is a partnership, this is the same concept but with two owners instead of one, and again can prove extremely risky if you don't trust the person you're partnered with. You also have private limited companies which are usually small businesses run by a family or a small group, the company is funded by shares however isn't floated on the stock market and has a share capital of less than £50,000 - the opposite of a private limited company is public limited companies.  An example of a company that has been privatised (gone from private to public) is TimpsonsThey have a share capital of over £50,000 and atleast two shareholders and directors, and although floating is costly they can float on the stockmarket which too like any other business can be at risk of a hostile takeover if directors aren't careful. In addition to this, there are also private sector organisations and public sector organisations. Private Sector Organisations are owned and run by private individuals rather than the government and their aim is mainly to make profit, eg. apple. Whereas a Public Sector Organisation is government owned and they have different obligations and pressures, eg. NHSAlongside this, there is also Co-Operatives and Not-for-Profit Organisations. Co-operatives can be worker owned, workers can earn bonuses of 20% of their salary in shares, eg. john lewis. Subsequently, Not-for-Profit organisations are organisations such as charities. Charities main aims are usually to help people, therefor they are not liabile for any debts and also significant tax benefits.

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Understanding the nature and purpose of a business

  • Businesses are equally created by both the entreprenuer and the customers; entreprenuers convince people to want their product/service and customers then create profit and help them expand. People set up businesses for many reasons, some examples of this could be; to be your own boss, there is a gap in the market or you're not satisfied with what's on the market, for the independant wealth or they have a talent or skill you want to grow. Common business objectives are usually profit maximisation and profit optimisation, growth and survival, and cash flow. People set up objectives in order to motivate their staff as well as giving a direction to the business and measuring their success. Profit can be measured in a number of ways such as through fixed costs, variable costs, semi-variable costs and revenue. 
  • Businesses usually have a mission statement in order to make their product or service sound better, and they basically state the overall purpose of the business. In order to achieve the mission statement, they have objectives, these are goals set out to obtain the MS and are usually achieved by having a strategic approach
  • In order to fulfil the MS, there are also corporate aims, objectives and strategies in place. Corporate Aims are the long term targets a plans to fulfil the MS, and similarly again these are followed up by Corporate Objectives and Corporate Strategies to achieve the CA.
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Shareholders and the Stock Exchange

The Stock Exchange is an organised market that deals with stocks and shares that you can buy all over the world. A share is a percentage of the business usually owned by shareholders, who's main concern is to have an extra piece of income (dividends) and to have power within the business. Companys benefit from selling shares as they raise funds for expansion. Although, share prices can be affected by factors such as; the state of he economy, performance of the company, competition within the market, proposed takeovers and reputation and rumours. If there is a fall in shares, it may deter the company from issueing more shares to raise revenue; fall in share price = vulnerable to takeover. 

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External Factors affecting a business

Market Conditions:

  • Gross Domestic Product - The total value of goods produced and services provided in a country during one year.
  • Huge pressure on work forces - redundancy or wage cuts.
  • Squeez on income - people like to confidently spend.

Changes in Household income:

  • changes in actual income of breadwinner.
  • number of people in the household - split bills between them.
  • Government taxation and benefits.

Demographic Factors:

  • Population size
  • Age - elederly population increasing.
  • Gender - some products favouritised by genders.
  • Ethnicity
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