Chapter 2.docx

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University of Calgary
Management Information Systems
MGIS 317
Ronald Schlenker

Chapter 2: business structure Primary sector of business Firms engaged in farming, fishing, oil extraction and all other industries that extract natural resources so that they can be used and processed by other firms. Secondary sector of business activity Firms that manufacture and process products from natural resources, including computers, brewing, baking, clothes making and construction. Tertiary sector of business activity firms that provide services to consumers and other businesses, such as retailing, transport, insurance, banking, hotels, tourism and telecommunications. Changes in business activity The importance if each sector in an economy changes constantly. Industrialisation is the terms used to describe the growing importance of the secondary sector manufacturing industries in developing countries. In simple terms: it is the movement of the secondary sector of business activity, to the tertiary, or the best example being of catching fishes to exporting them. Benefits - Total national output increases and this raises average standard of living - Increasing output of goods which leads to lower imports and higher exports - Expanding manufacturing businesses create more jobs - Value is added to the countries’ output of new material Problems - Social problems such as encouraging people to move from the country to the town - Increase of country´s imports costs Private sector & public sector The private sector comprises businesses owned and controlled by individuals or groups of individuals The public sector comprises organisations accountable to and controlled by central or local government. Mixes economy Economic resources are owned and controlled by both private and public sectors Free market economy Economic resources owned largely by the private sector with very little state intervention Command economy Economic resources owned, planned and controlled by the state. Sole trader This is a business in which one person provides the permanent finance and, in return, has a full control of the business and is able to keep all profits for himself. Advantages of a sole trader - Easy to set up - Owner has complete control - Owner keeps all profit - Able to choose times and patterns of working - Able to establish close personal relationship with staff and customers. - Business can be based on the interests skills of owners Disadvantages of sole trader - Unlimited liability: all of owner´s assets are potentially at risk - Intense competition from bigger firms - Owner is unable to specialise in areas of the business that are most interesting - Difficult to raise additional capital - Long hours often necessary to make business payments - Lack of continuity Partnership A business formed by two or more people to carry on a business together, with shared capital investment and usually, shared responsibly Advantages of partnerships - Partners might specialise in different areas of business management - Shared decision-making - Additional capital injected by each partner - Business losses shared between the partners - Greater privacy and fewer legal formalities to make the business Disadvantages of partnerships - Unlimited liability for all partners - Profit is shared - No continuity and the partnership will have to be reformed in the event of the death of one to the partners - All partners bounds by decisions of any of them - Not possible to raise capital from selling shares Private limited company A small to medium sized business is owned by shareholders are often members of the same family. This company cannot sell shares to the general public Shares A certificate confirming part ownership of a company and entitling the shareholder owner to dividends and certain shareholder rights Shareholder A person or institution owning shares in a limited company Advantages of private limited companies - Shareholders have limited liability - Separate legal personality. - Continuity after a shareholder’s death - Original owner is still often able to retain control - Able to raise capital from sell of shares to family, friends and employees - Greater status that unincorporated business Disadvantages of private limited companies - Various legal formalities - Capital cannot be raised by selling shares to the general public - Quite difficult to sell shares - accounts must be sent to companies house to deal with financial accounts and affairs Public limited company It is a limited company, often a large business, with the legal right to sell shares to the general public- share prices are quoted on the national stock exchange. The biggest example is BP (British petroleum) Advantages of pub
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