Business Structures and Economic Sectors Explained

• Survival: Survival May Be the Most Important Objective. At the Beginning, Businesses Often Lack Experience and Resources, so the Objective Is to Survive the First 12 Months.
• Personal Satisfaction: Owners Set up a Business Because They Think They Will Be Happier and More Satisfied in Their Work Environment than When Working for an Employer. For example, a Person Who Likes Sport Might Become a Personal Trainer.

Sole Trader

Is the Simplest Form of Business Organisation. It Has One Owner but Can Employ Anyone. Some Advantages Are: the Owners Keep All Profits, It Is Simple to Set up with No Legal Requirements, and They Are Independent. However, Some Disadvantages Are Unlimited Liability, Long Hours and Hard Work, and Maybe Too Much Responsibility.

Partnership

Exists Between 2 and 20 People Who Own a Business Together. The Owners Will Share Responsibility for Running the Business, Which Is an Advantage. However, They Also Share Profits, Which Is a Disadvantage. Another Disadvantage Is That They Have Unlimited Liability. One Advantage Is That Partners Can Specialise in Their Area of Expertise.

Franchise

Franchisor – One Way of Running a Business Is to Buy a Franchise. This Is for People Which Doesn’t Have Their Own Business Idea.

• Advantage of Franchise: Back-up Support.
• Advantage of Franchisor: Cheaper Method of Growth.
• Disadvantage of Franchise: Profit Is Shared with the Franchisor.
• Disadvantage of Franchisor: May Damage Reputation.

Private Limited Companies

Their Business Ends in Ltd or Limited. Shares Can’t Be Traded on the Stock Market. They Are Often Family Businesses, and the Directors Tend to Be Shareholders.

• Advantage: Shareholders Have Limited Liability; More Capital Can Be Raised.
• Disadvantages: Costs Time to Set up; Profits Are Shared.

Public Limited Companies

Tend to Be Larger than Private Limited Companies. Their Shares Can Be Bought and Sold by the Public on the Stock Exchange.

• Advantages: Shareholders Have Limited Liability; Shares Can Be Bought and Sold Easily.
• Disadvantages: Setting up Costs Can Be Expensive; Outsiders Can Take Control by Buying Shares.

Multinationals

Are Large Businesses with Significant Production or Service Operations in at Least 2 Countries, like McDonald’s and Coca-Cola.

• Features: High Qualified and Experienced Professional Executives and Managers.
• Features: Powerful Advertising and Market Capability.
• Features: High Influence Both Economically and Politically.

• State Owned: The Government Owns Public Corporations. This Means That the Government Appoints the People Who Run the Organisations.
• Created by Law: Public Corporations Are Created by an Act of Parliament.
• Incorporation: Public Corporations Are Incorporated Businesses; They Have Separate Legal Identity.

• Save Jobs: In Some Cases, Businesses Have Been Taken into Public Ownership to Save Jobs. A Government Might Take Control of a Failing Private Sector Business If It Employs a Very Large Number of People. It Might Be Preferable for a Business to Carry on Trading Even Though It’s Losing Money to Prevent Unemployment.
• Serve Unprofitable Regions: In Some Markets, the Private Sector Would Not Deliver Important Services to Unprofitable Regions, like Providing Electricity to a Remote Farm Far Away from the Main Power Lines.

• Cost to Government: A Number of Public Corporations Make Losses; These Losses Have to Be Met by the Taxpayer. For Example, If You Lose 10,000 Dollars and It Gets Bigger and More Frequent, Taxpayers Might Object to the Financial Burden.
• Inefficiency: Public Corporations Are Often Criticised for Their Low Productivity and Inefficiency. For Example, Rail Providers Are Often Criticised for Their Poor Reliability and Regular Lateness of Trains.

• Size: Many Businesses Are Sole Traders or Partnerships. Public Limited Companies Are Much Larger with Thousands of Employees and Huge Turnovers.
• The Need for Finance: This Is One of the Main Reasons Why Owners Change the Legal Status for Their Businesses; Often, It Is the Only Way to Get More Money.
• Limited Liability: Owners Can Protect Their Own Personal Financial Position If the Business Is a Limited Company. Sole Traders and Partners Have Unlimited Liability; Because of This, They Could Be Forced to Use Their Own Money to Meet Business Debts.

Primary Sector

Involves Extracting Raw Materials.

• Agriculture: Most Important Activity.
• Fishing.
• Forestry.
• Mining and Quarrying.

Secondary Sector

In This Sector, They Convert Raw Materials into Finished or Semi-finished Goods, like Metalworking, Car Production, and Textile Production.

Tertiary Sector

They Are Services, for Example, Transport, Financial Services, and Household Services.

Proximity to Labour

Businesses Which Need a Large Number of Co-workers May Consider Locating in Countries Where Labour Is Very Cheap. Labour Skills Aren’t Evenly Distributed Throughout a Country. If a Firm Needs a Particular Type of Skilled Labour, Certain Locations May Be More Suitable than Others.

Proximity to the Market

Businesses That Make Large or Heavy Products May Be Located near Their Customers to Keep Costs Down. Also, Many Service Providers Have to Locate Their Premises Close to Their Market As Many Services Are Sold Directly to Customers.