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Chapter 2: Business Structure
Definition
Primary Sector Business: The activities which are based directly on the natural resources is known as
primary sector.

Ex: agriculture, fishing, oil extraction

Secondary sector Business : The secondary sector refers to the sector that includes all those activities
that convert natural or primary products into other forms of products through manufacturing or
processing.

Tertiary Sector Business: The tertiary sector includes industries that supply the materials made by the
secondary industries to the consumers. Ex; Banking, Hotels, Tourism.

Quaternary Sector Business : The quaternary sector consists of those industries providing information
services, such as computing, ICT, consultancy and R&D.

Private Limited Company :A private limited company is an organization owned by shareholders who
have each invested a sum into the business.

Initial public offering(IPO) : It is an offer to the public to buy shares in a public limited company.

Public limited company: Public limited company is a company that is able to trade its shares to the
public on stock exchange and can be bought and sold by the public.

Public Sector : organizations accountable to and controlled by the government.

Private sector : Organisations owned and controlled by individuals or a group of individuals.

Mixed economy : Economic resources are owned and controlled by both private and public sectors.

Free- market economy : Economic resources are owned largely by the private sectors with very little by
the state intervention.

Command economy : Economic resources are owned, planned and controlled by the state.

Public Corporation : A business owned and controlled by the state

Sole trader: A sole trader is a self-employed person who owns and runs their own business as an
individual with unlimited liabilities.

Unlimited liability : Business owners have full legal responsibility for the debts of the business.
Partnership: A partnership is a formal arrangement by two or more parties to manage and operate a
business and share its profits.

Share: A share is an indivisible unit of capital, expressing the ownership relationship between the
company and the shareholder.

Shareholder: A person or institution owning shares in a limited company.

Limited liability : Limited liability is a type of legal structure for an organization where a corporate loss
will not exceed the amount invested in a partnership or limited liability company (LLC).

Franchise: A franchise is a business that gives the right to another person or business to sell goods or
services using its name.

Franchiser: A franchiser is a person who sells the right to open stores and sell products or services using
its brand, expertise, and intellectual property.

Franchisee: A franchisee is a business owner who is licensed to operate a branded outlet of a retail
chain.

Joint ventures: In a joint venture, two or more companies agree to work together. They may form a
separate, co-owned company as a vehicle to do so, but the venturers themselves will retain separate
unless there is a formal merger.

Social enterprise: A social enterprise is an operator in the social economy whose main objective is to
have a social impact rather than make a profit for their owners or shareholders.

Benefits of industrialization :

# Growth of industries leads to increase in production of goods and services which are available to
people at cheaper rates.

# It reduces dependence on other countries and improves economy.

# It results in rising the standard of living.

# It creates new job opportunities helping in the removal of unemployment.

# Govt will earn more revenue in the form of taxes

Disadvantages of limitation:

# The working conditions declined during industrialization.

# Living conditions around the new factories were not always better.

# It created the foundation for global warming and climate change.

# Imports of Raw materials and components are often needed which can increase country's import
costs.

Consequences of deindustrialization :
# Rising structural unemployment

# Reduced tax potential in the manufacturing sector

#Increasing income inequality

# Reduced environmental degradation in the domestic economy

# More diverse job opportunities ( ex; secondary and tertiary sectors)

Advantages of public Corporation :

#Economies of scale

#Easier planning and coordination

#Autonomous set-up

#Protection of public interest

#Quicker decisions

#Raising funds through private sourcing

Disadvantages of public sectors:

#Difficult to manage

#Risk of producing #inefficient products

#Financial burden

#Political interference

#Misuse of power

#Consumer interests ignored

#Expensive to maintain and operate

#Anti-social activities, i.e., charging too much for a product

Advantages of a partnership include that:

#Two heads (or more) are better than one

# Business is easy to establish and start-up

#more capital is available for the business

# having greater borrowing capacity

# Sharing Decision

#business losses are shared

# there is greater privacy and fewer legal formalities

Disadvantages of partnership :

# the liability of the partners for the debts of the business is unlimited

#each partner is ‘jointly and severally’ liable for the partnership’s debts;

#each partner is liable for their share of the partnership debts as well as being liable for all the debts

#there is a risk of disagreements and friction among partners and management

#each partner is an agent of the partnership and is liable for actions by other partners

# if partners join or leave, he will probably have to value all the partnership assets and this can be costly.

Advantages of private limited company:

# Reduced risk of personal liability

# Higher business profile

# Easier access to growth funds

# Protected business name

# Separated legal personalities

# The original owner is still often able to retain control

# Greater status

Disadvantages of private limited company:

# Slightly complexed legal formalities

# Capital can not be raised by the sale of shares to general public

#Higher set-up costs

#Greater administrative burden

Advantages of public limited company :

# Limited liability

# separate legal identity

# Raising capital through public issue of shares

# Widening the shareholder base and spreading risk

# Growth and expansion opportunities

# Prestigious profile and confidence

# Transferability of shares

Disadvantages of public limited share:

# More regulatory requirements( trading certificate, two directors, pre-emption rights and dividends)

# Higher levels of transparency required

# Ownership and control issues

# share prices are subject to fluctuation and sometime go beyond a business's control

# More vulnerable to takeovers

Legal formalities/ Documents required in setting up a company

A memorandum of Association : It includes company name, the address of the head office, the
maximum share capital and the aims of the business

Articles of Association :

It includes internal working and control of the business, the names of directors and the procedure to be
followed at meetings.

Cooperative:

A jointly owned business operated by members for their mutual benefits, to produce or distribute goods
or services. Profits are shared equally and all members have one vote at meetings.

Advantages:

# Buying in bulk

# Working together to solve problems

# better motivation for all members to work hard as they will benefit from shared profits

Disadvantages :

# poor management skills

# capital shortages because the sale of shares to non- members is not allowed

# slow decision making

Advantages of franchises:

# Low risk of being failure

#Advice and training are offered by the franchiser

# The franchiser pays for national advertising

# Supplies are obtained from established and quality- checked suppliers

# The franchiser agrees not to open another branch in the local area

Disadvantages of franchises :

# profit sharing

# Expensive franchise license fees

# Local promotion may still have to be paid

# unable to choose suppliers

# less control over the business

Advantages of Joint ventures:

#Increased Resources and Capacity

#Economies of Scale

# Innovation

# Gaining Access to New Markets and Distribution Networks

# Brand Exposure

# Access to Technology

Disadvantages of Joint venture:

#Clash of Culture

#Trade disclosure

# Conflict of Control

# Lack of Coordination

Advantages of changing the form of business ownership:

# access to more finance

# gaining legal identity

# protecting owner capital through limited liability

Disadvantages of changing the form of business ownership:

# Legal cost and formalities

# Loss of control and ownership by the original owner

# profit shared

# difficulty in decision making