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Unit 1.1Unit 1.1What do businesses do?What do businesses do?

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Needs and WantsNeeds and Wants

Needs – clothes, Needs – clothes, food, water and food, water and sheltershelter

Wants – CD’s, cars, Wants – CD’s, cars, mobile phones etcmobile phones etc

Businesses exist to Businesses exist to satisfy consumer satisfy consumer wants.wants.

Wants are Wants are unlimited. unlimited.

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Goods and ServicesGoods and Services Every product that you can see or Every product that you can see or

touch is a good and all other touch is a good and all other products are services.products are services.

Goods are Goods are tangibletangible, which means , which means they can be seen and handled.they can be seen and handled.

Services are Services are intangibleintangible, which , which means they cannot be seen and means they cannot be seen and handled.handled.

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Durable and Non-Durable Durable and Non-Durable Goods/ServicesGoods/Services

Goods and services can be Goods and services can be durabledurable (long-lasting) or (long-lasting) or non-durablenon-durable (used (used up quite quickly)up quite quickly)

A cinema is an example of a A cinema is an example of a non-non-durabledurable service: it provides service: it provides entertainment in the form of a film entertainment in the form of a film for about 2-3 hours on average. for about 2-3 hours on average.

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Consumer Goods & Capital Consumer Goods & Capital GoodsGoods

Consumer goods are Consumer goods are soldsold to people to people (ie consumers) rather than to other (ie consumers) rather than to other businesses.businesses.

Capital goods are used by businesses Capital goods are used by businesses to to makemake consumer goods and other consumer goods and other capital goods.capital goods.

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Business SizesBusiness Sizes

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Features of Small Features of Small BusinessesBusinesses

Owned and often run by one person. Owned and often run by one person. Known as a Sole Trader.Known as a Sole Trader.

Owned and run by between 2 and 20 Owned and run by between 2 and 20 people. This is a Partnership.people. This is a Partnership.

Tend to sell goods and services locally.Tend to sell goods and services locally. Employ less than 50 people.Employ less than 50 people. Eg Dan Dan the Hotdog man at Eg Dan Dan the Hotdog man at

Safeway. Safeway.

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Features of Medium-sized Features of Medium-sized businessesbusinesses

Owned and run by a group of people Owned and run by a group of people (eg partners, shareholders or (eg partners, shareholders or directors).directors).

Can sell goods and services locally Can sell goods and services locally and/or nationally and/or nationally

Employ between 50 and 250 people.Employ between 50 and 250 people. Eg Patterson’s Shortbread FactoryEg Patterson’s Shortbread Factory

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Features of Large Features of Large BusinessesBusinesses

Owned by a large number of people Owned by a large number of people (shareholders) and run by people (shareholders) and run by people appointed by them (directors)appointed by them (directors)

Produce and/or sell goods and Produce and/or sell goods and services in several locations – often services in several locations – often in several countries.in several countries.

Employ more than 250 people – Employ more than 250 people – sometimes hundreds of thousands.sometimes hundreds of thousands.

Eg Coca Cola, Mars, Cadbury.Eg Coca Cola, Mars, Cadbury.

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The variety of businesses:The variety of businesses:

PublicPublicPrivate Private

VoluntaryVoluntary

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Private SectorPrivate Sector

These businesses are driven by the profit These businesses are driven by the profit motive, to make money in order for people motive, to make money in order for people to be better off or to make the business to be better off or to make the business better off, and to provide goods and better off, and to provide goods and services. Examples include:services. Examples include:

Sole TraderSole Trader PartnershipPartnership Private Limited CompanyPrivate Limited Company Public Limited CompanyPublic Limited Company FranchiseFranchise

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Public SectorPublic Sector

These businesses have the purpose of These businesses have the purpose of providing mostly essential goods and providing mostly essential goods and services for the community of the services for the community of the country. Examples include:country. Examples include:

Central governmentCentral government Local government eg schools and Local government eg schools and

hospitalshospitals Public corporationsPublic corporations These services are all paid for by taxes.These services are all paid for by taxes.

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Voluntary SectorVoluntary Sector

These businesses are driven by the These businesses are driven by the need to care for parts of the need to care for parts of the community at home and abroad by community at home and abroad by providing goods and services. providing goods and services. Examples include:Examples include:

Charities Charities Youth Clubs etcYouth Clubs etc These organisations rely on money These organisations rely on money

from donations and gifts.from donations and gifts.

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Types of Business Types of Business OwnershipOwnership

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Sole TraderSole Trader Individuals own the largest number Individuals own the largest number

of businesses. Some work alone, and of businesses. Some work alone, and some employ a few people. Over half some employ a few people. Over half of them provide services.of them provide services.

Examples of Sole Traders; plumber, Examples of Sole Traders; plumber, electrician, butcher, corner shop, electrician, butcher, corner shop, paper shop, garage etc.paper shop, garage etc.

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Advantages of a Sole TraderAdvantages of a Sole Trader

The owner has total controlThe owner has total control Easy to beginEasy to begin Requires little moneyRequires little money Owner keeps any profitOwner keeps any profit Owner gets great job satisfactionOwner gets great job satisfaction

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Disadvantages of Sole TradersDisadvantages of Sole Traders

Unlimited LiabilityUnlimited Liability Difficult to raise financeDifficult to raise finance All responsibility lies with ownerAll responsibility lies with owner Failure rate is highFailure rate is high

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PartnershipPartnership

Any number of people from two to Any number of people from two to twenty, can form a partnership.twenty, can form a partnership.

This type of organisation is common This type of organisation is common to doctors, dentists and accountants.to doctors, dentists and accountants.

Any business run for profit by these Any business run for profit by these people is legally a partnership.people is legally a partnership.

Examples of a Partnership: Lawyer, Examples of a Partnership: Lawyer, Dentist, Doctor, Architect.Dentist, Doctor, Architect.

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Advantages of a PartnershipAdvantages of a Partnership

Able to specialiseAble to specialise Do not have total responsibilityDo not have total responsibility More ideasMore ideas More start up capitalMore start up capital Can borrow more easilyCan borrow more easily

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Disadvantages of a Sole TraderDisadvantages of a Sole Trader

Unlimited LiabilityUnlimited Liability Risk of conflict (over share of profits, Risk of conflict (over share of profits,

control of business etc)control of business etc)

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Limited CompaniesLimited Companies

There are 2 types of limited company There are 2 types of limited company – –

Private Limited Company (Ltd)Private Limited Company (Ltd) Public Limited Company (PLC)Public Limited Company (PLC) Limited companies are more Limited companies are more

expensive to set up but carry less expensive to set up but carry less financial risk for the owner.financial risk for the owner.

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Limited Companies have 5 important differences Limited Companies have 5 important differences compared to sole traders and partnerships:compared to sole traders and partnerships:

The business is The business is incorporatedincorporated – has a – has a separate separate legal identitylegal identity from the owner. from the owner.

It has It has limited liabilitylimited liability so the owners only risk so the owners only risk losing the money they invest in the business – losing the money they invest in the business – no matter how big its debts are.no matter how big its debts are.

It must have a It must have a Memorandum of Association.Memorandum of Association. This This tells the world tells the world whowho the business is and the business is and wherewhere it it is based.is based.

It must also have an It must also have an Article of AssociationArticle of Association. This . This sets out how the business will be run.sets out how the business will be run.It is owned by It is owned by shareholdersshareholders. The . The more sharesmore shares you own, the you own, the more controlmore control you get. you get.

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Private Limited Companies – Private Limited Companies – Ownership is restrictedOwnership is restricted

PrivatePrivate means that shares can only be means that shares can only be sold if sold if all the shareholdersall the shareholders agree. agree.

Private limited companies have Private limited companies have LtdLtd. after . after their name.their name.

Directors and employees run the business.Directors and employees run the business. Owned by shareholders – usually friends Owned by shareholders – usually friends

and family own the shares.and family own the shares. Shareholders put money into the business Shareholders put money into the business

and receive a Share Certificate in return. and receive a Share Certificate in return. They then receive a share of the profits They then receive a share of the profits ((dividendsdividends).).

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Advantages of Private Limited Advantages of Private Limited CompaniesCompanies

Limited Liability – you can’t lose Limited Liability – you can’t lose more than you invest!more than you invest!

Easier to raise financeEasier to raise finance Company is a legal entity separate Company is a legal entity separate

from its ownerfrom its owner Being Being incorporatedincorporated, the company can , the company can

continue trading after a shareholder continue trading after a shareholder dies – unlike partnerships.dies – unlike partnerships.

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Disadvantages of Ltd Disadvantages of Ltd CompaniesCompanies

More expensive to set up due to all More expensive to set up due to all the legal work involvedthe legal work involved

Company is Company is legally obligedlegally obliged to to publish publish its financial accountsits financial accounts every year. every year.

Examples; taxi firms, builders, etc.Examples; taxi firms, builders, etc.

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Public Limited Company – Anyone can buy Public Limited Company – Anyone can buy

sharesshares

PublicPublic means that means that anyoneanyone can buy can buy shares in the company – if they can shares in the company – if they can find someone who wants to sell find someone who wants to sell them. them.

Public Limited Companies have Public Limited Companies have PLCPLC after their name.after their name.

Firms generally become PLCs when Firms generally become PLCs when they wish to they wish to expandexpand..

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Advantages of PLCsAdvantages of PLCs

Much more capital can be raised by a Much more capital can be raised by a PLC than by any other type of PLC than by any other type of businessbusiness

Easier to expand business by selling Easier to expand business by selling shares to raise the financeshares to raise the finance

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Disadvantages of a PLCDisadvantages of a PLC

Each shareholder has Each shareholder has very little sayvery little say in how the company is run – unless in how the company is run – unless they own a lot of shares.they own a lot of shares.

It’s easier for someone to buy It’s easier for someone to buy enough shares to take over the enough shares to take over the company – if they think they can company – if they think they can make make more profitmore profit..