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1.2 Industry by Mind Map: 1.2 Industry

1. Limited liability

1.1. Potential loss from share holder

1.1.1. If company fails, the amount invested in the company is lost instead of the shareholders' wealth

2. Mixed economy = economies owned and controlled by public and private

2.1. Private

2.1.1. Economies closest to free market systems have more private businesses

2.1.2. Owned & operated by individuals or groups

2.1.3. Most have profit as an objective

2.2. Public

2.2.1. Goods & services for citizens

2.2.1.1. Ensuring essential goods & services, most free

2.2.1.2. Prevent private monopolies from controlling supplies

2.2.1.3. Employment maintainance

2.2.1.4. Maintaining environmental standards

2.2.2. Privatisation = sale of public sectors to private organizations = profit making

2.2.3. Central planning command economy (planned & controlled by state) have more public businesses

2.2.4. Advantages/Disadvantages

2.2.4.1. +

2.2.4.1.1. Loss - making services might be kept operating if social benefit is enough

2.2.4.1.2. Has social objectives

2.2.4.1.3. Finance is raised from government = no limitations from banks

2.2.4.2. --

2.2.4.2.1. Subsides from the government encourages inefficiency

2.2.4.2.2. Government may interfere in decisions for political reasons

2.2.4.2.3. Inefficiency due to lack of strict profit targets

3. Important goods & services are provided by state run organizations

3.1. Health & education services

3.2. Defence & law and order

4. Ownership of companies

4.1. shares = shareholders

4.1.1. = owning more than 50%

4.1.1.1. = complete control

4.1.1.1.1. If company fails = no claim against shareholders

4.2. People can provide finance to expand companies

4.3. The risk of a failing company to pay debts is transferred to creditors

4.3.1. = interested creditors while being limited

4.4. Legal personality

4.4.1. A legal company has a separate identity from owners

5. Profit-based private sector businesses

5.1. Partnership

5.1.1. business formed by 2+ people

5.1.1.1. = shared capital, responsibilities and investment

5.1.2. Have to choose partners carefully

5.1.2.1. DEED OF PARTNERSHIP

5.1.2.1.1. = agreement on issues like voting rights, distribution of profits & management roles

5.1.3. +

5.1.3.1. Partners specialize in variety of areas

5.1.3.2. Shared losses

5.1.3.3. Additional capital by parters

5.1.3.4. Shared decision making

5.1.3.5. + privacy & -- legal formalities

5.1.4. --

5.1.4.1. Partners bound by one of their decisions

5.1.4.2. Unlimited liability for all partners

5.1.4.3. Shared profits

5.1.4.4. No continuity even from loss of one partner

5.1.4.5. Not possible to raise capital from shares

5.2. Limited companies

5.2.1. Private limited companies

5.2.1.1. Continuity

5.2.1.1.1. death of an owner wouldn't lead to break up

5.2.1.2. Limited / Ltd. = private company

5.2.1.2.1. shares will be owned by original sole trader, relatives, friends, employees...

5.2.1.3. Protection that comes from forming a company is substancial

5.2.1.4. Small firms

5.2.1.4.1. Gained protection when owners create private limited companies

5.2.1.5. +

5.2.1.5.1. Shareholders have limited liability

5.2.1.5.2. Separate legal personality

5.2.1.5.3. Continuity even at the death of a share holder

5.2.1.5.4. Greater status than an unincorporated business

5.2.1.5.5. Original owner can still retain control

5.2.1.5.6. Able to raise capital from shares sale to family, friends...

5.2.1.6. --

5.2.1.6.1. End of year accounts must be sent to the public

5.2.1.6.2. Legal formalities while establishing the company

5.2.1.6.3. Capital can't be raised by sales of shares to general public

5.2.1.6.4. Quite difficult for share holders to sell shares

5.2.2. Public limited companies

5.2.2.1. plc. or Inc.

5.2.2.1.1. Common form of legal organization for large business.

5.2.2.2. +

5.2.2.2.1. Limited liability

5.2.2.2.2. Separate legal identity

5.2.2.2.3. Access to substantial capital sources

5.2.2.2.4. Buying and selling of shares, encourages investment

5.2.2.2.5. Continuity

5.2.2.3. --

5.2.2.3.1. Legal requirements concerning disclosure of information to shareholders

5.2.2.3.2. Cost of business consultants when creating a plc

5.2.2.3.3. Directors influenced by short-term objectives of major investors

5.2.2.3.4. Share prices subject to fluctuation

5.2.2.3.5. Legal formalities in formation

5.2.2.3.6. Risk of takeover due to the availability of the shares

5.3. Sole traders (most common business)

5.3.1. One person provides permanent finance & has full control while keeping profits

5.3.2. Likely very small

5.3.3. Unlimited liability

5.3.3.1. The owner's personal possessions will be used to pay debts

5.3.3.1.1. = discourage potential entrepreneurs

5.3.4. Involves finance for expansion

5.3.4.1. = remain small, to remain a sole trader he is dependent of his savings

5.3.5. Construction, retailing, hairdressing, car services, catering

5.3.6. +

5.3.6.1. Easy to set up, no legal formalities

5.3.6.2. Owner has complete control

5.3.6.3. Owner keeps profits

5.3.6.4. Able to choose patterns of work

5.3.6.5. Establish close relationships with staff and customers

5.3.6.6. Business can be based on interests or skills

5.3.7. --

5.3.7.1. Unlimited liability

5.3.7.2. Owner unable to specialize in an area

5.3.7.3. Faces intense competition

5.3.7.4. Long hours to make business pay

5.3.7.5. Hard additional capital raising

5.3.7.6. Lack of continuity without separate legal statues