BUSINESS STRUCTURE 2

What is the difference between private-sector and public-sector organization?

• Private-sectors organizations are owned and controlled by individuals, while public-sector organization are owned and controlled by the government.

• They have different aim: private-sector organizations usually work towards profit, and public-sector organization would want to provide essential service to the community and meet break-even point at the least.

• All is correct.

State 3 differences between a sole trader and a private limited company.

• Sole trader has unlimited liability while a private limited company has limited liability.

• A private limited company can continue in the event of the death of a shareholder whereas the sole trader will have to close down the business.

• For sole trader, the owner keeps all the profit, but the profit has to be shared amongst shareholders for a private limited company.

• All is correct.

Who owns and who controls a public limited company? Explain why this distinction might lead to conflict.

• Shareholders are the owners of a public limited company, but they appoint a board of directors who control and make decisions of the business.

• This distinction might lead to conflict because owners and directors might have different objectives.

• For example, the owners want to use profit to take over another business whereas the directors want to use that profit to invest back into the firm.

• All is correct.

State 2 benefits and 2 risks for a business of engaging in a joint venture.

• The benefits of engaging in a joint venture are that costs and risks are shared between the 2 businesses, and the 2 businesses have different strengths so they can support each other.

• The risks of joint venture are it might end due to the difference of culture or management style, and if one business fails it could affect both.

• All is correct.

Why might the directors of a public limited company decide to convert the business back into a private limited company by buying a majority of the shares?

• This is because they want to overcome the divorce between ownership and control.

• The shareholders who hold majority of the company's shares want to gain control of the business instead of letting the board of directors decide.

• All is true.

Explain 3 advantages to your own country from increased industrialization.

• Firstly, price of products will decrease. This is because businesses will start to apply machineries into their production process so the output increases, hence reducing the costs from economies of scale.

• Secondly, more factories are built to manufacture products, hence creating jobs. This increases people's disposable income which enables them to spend more on services.

• Thirdly, people's income will increase as jobs required more skills. As job requirements increase, the need for education will rise, thus forcing the education system in the country to improve. With better jobs, people will gain more income and increase living standard.

• All is correct.

Explain how legal identity and continuity help business and companies to operate effectively.

• 'Legal identity' is a company legally recognised as having an identity separate from that of it's owners.

• Legal identity/personality help businesses operate efficiently because they protect the company from collapsing due to a lack of an owner/director.

• All is correct.

How does limited liability make it easier for companies to raise finance?

• Limited liability makes it easier for companies to raise finances because people can buy shares of the business and become shareholders.

• Limited liability can't raise finance.

Using examples of a sole trader and a public limited company, explain how the relationship between ownership and control differs in these two types of organisations.

• Sole trader business - single owner has complete control.

• Public limited company - the shareholders own the company, but the board of directors controls the company.

• Sole traders have unlimited liability while limited companies have the benefit of limited liability.

• All is correct.

Using examples of partnership and a public limited company, explain how the legal structure of a business affects in ability to raise finance.

• Partnership - additional capital is injected by each partner, but it is not possible to raise capital from selling shares.

• Public limited company - offer shares to the public to buy in order to raise capital.

• All is correct.