What is business? 1.2.1

Business Forms

  • Sole traders, private/public limited companies, private/public sector organisations, non-profit organisations e.g. charities/mutuals

Sole Trader- individual owns/runs their own business, registered as self-employed w/ HMRC (Her Majesty's Revenue & Customs). 

Legally req to keep a record of all income/expenses & at end of year fill self assessment tax return for HMRC, profits made by sole trader= income and taxable through income tax

Unlimited Liability- personally responsible for all debts run up by business, home and all assets may be used to pay off any debts/unable to pay

Benefits- Cheap/easy to set up, all profits go to sole trader, autonomy in decision, private financial records, high motivation as success of business/motivation is same

Disadvantages- Unilimited liability, limited capital for investment, little specialist skills/buy specialists, difficult to cover when ill/employ people.

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Limited Companies

Companies must deliver to C.H each year a true/fair set of accounts along w/ an annual return. Must be registered (incorporated) at Companies House & send to the Registrar of Companies:

  • A Memorandum of Association- name,registered office & what company will do
  • Articles of Association- rules for running the company
  • Form 10- details of directors & company secretary
  • Form 12- declaring they will comply w/ company law

Public Limited Companies: have Plc. after name, shares can be sold to the public via stock exchange, open to more public scrutiny, risk of hostile takeovers i.e. obtain 51% of shares 

Private Limited Companies: have Ltd. after name, owned by shareholders known to company, can only sell shares on to other shareholders i.e. cannot sell them openly to stock exchange (shares are often sold at a discount to real value bc shareholders either sell at the price that they offer or do not sell at all)

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Private/Public Limited Companies

Advantages: limited liability, separate legal identity, more flexible than a Plc, financial records remain relatively private, more capital raised through shares sale

Disadvantages: more complex to set up (inc legal requirements), loss of control as shareholders have voting rights, unable to sell shares to public, lack of privacy (financial performance access to view), more complex to set up (inc legal requirements, ongoing admin costs), risk of hostile takeovers

PRIVATE SECTOR: sector of economy owned & controlled by individuals/groups of indiv than govt. 

  • Sole traders
  • Private/public Limited companies

PUBLIC SECTOR: sector of economy that is owned & controlled by govt

  • State education
  • NHS
  • other services: police, army, navy & air force
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Non-Profit Organisations

  • Objective to do good for society & any surplus made is put back into achieving that goal e.g. social enterprises/charities
  • Mutuals: organisations that operate for the wellbeing of their members e.g. customers,employees,suppliers/producers

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Issues w/ diff business forms: unlimited & limited liability, ordinary share capital (external source of finance available to companies, investment given to a business in return for share of the profit & voting right, dividend not fixed so doesn't have to be paid), market capitalisation (value of all shares issued by a plc, gives indication to market, incl potential investors, of size of business), divdends (% of profit paid to shareholders as a reward for their investment)

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Shareholders: investors part owners of a company, liability limited to amount invested/promised, receive dividends in return for their investment, invited to AGM proportional voting right, INVEST: short term gains i.e. receipt of dividends, long term gains i.e. inc in share price

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Effects

Significance of share price changes: indication of managers' performance, influences stakeholders,incl consumers, suppliers & employees, perceptions of business performance, can effect ability to raise finance from other sources, will be watched carefuly by competitors & other businesss (hostile takeover chance), affects consumer confidence in the economy as whole

Mission & objectives: prime aim depends upon business form e.g. S.T: profit satisfice to achieve a work life balance where as Plc. may have pressure to maximise shareholders' returns, non-profit: achieving social goals over financial ones

Decisions: S.T: does not have to consult others & can make autonomous/quick decisions.       A Ltd. quickly consult w/ shareholders as they are known to the business whereas a Plc. may have a slow reply before decision can be reached. Non-profit: consult members (many & difficult to coordinate e.g. all consumers)

Performance measured: financial,employee engagement, environmental record, quality etc. S.T: judge themselves on performance but not scrutunised as Plc. may be

Ownership will affect ability to employ specialist staff, access to finance, ability to maintain a competitive advantage & embrace new technology= infl business performance.

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