Summary Of Cambridge IGCSE Business Studies
Chapter 4
Types of business organization
The private Sector
: is a business owned by people individuals. It mainly aims to get profit.
private sector
Sole trader 2.partnership 3. Limited 4. franchisee 5. joint
companies Venture
Private limited comp.
Public limited comp.
1. Sole trader
: is a business owned and run by one person. Ex: hairdresser, grocery.
Adv. Dis.
1. It is easy to set up. Unlimited liability.
He is his own boss. He controls No one shares responsibilities.
2.
and takes decisions.
He has freedom to choose his Small capital.
3.
own holidays and working hours.
He has direct contact with No economies of scales.
4.
customers.
5. He keeps all the profit. No separate Legal Identity.
6. He keeps his secrets. may not have business skills.
7. He can use his own skill. Owners work very long hours.
8. It needs small amount of capital may not be able to raise funds.
Limited liability: is when shareholders' debts are limited to the
money invested in the business. They will not lose their own savings
and houses.
Start-up capital: the finance needed when first setting up a business.
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Mr. Hamada Bekhit Tel: +965 66612643 Kuwait
Summary Of Cambridge IGCSE Business Studies
2.partnership
: is a business owned by from 2 to 20 shareholders.
Adv. Dis.
1. More capital unlimited liability
2. Partners share responsibilities No separate legal identity.
3. Partners are motivated If Partners disagree, the business will
(encouraged) be closed or delay decisions.
4. Partners share losses. If one partner is dishonest or inefficient
business will lose a lot of money.
5. Still easy to set up. Partners are 20 only.
6. More ideas. No continuity
Deed of partnership: is a document sets out the rights of each partner.
Unincorporated business: is a business that doesn’t have a separate legal
identity and unlimited liability.
4. limited Companies
Feature of limited companies
- legal document (Article of Association – Memorandum of Association)
- Shareholders invest their capital by buying shares.
- Shareholders have limited liability.
- the business continues even if one or more shareholders die.
- the company can raise finance by selling shares.
- profit is shared between shareholders through dividends.
- shareholders vote on major decisions.
- End of the year financial statement must be submitted to the gov. and
shareholders and available to the public.
Private limited company.
: is a business owned by more than 20 partners.
Adv. Dis.
1. More capital A lot of legal regulation
2. Limited liability. No partner can leave or join business
without permission of others.
3. Separate legal identity. Less secret accounts.
4. Owners still can keep Cannot offer its shares to public.
control over the business.
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Mr. Hamada Bekhit Tel: +965 66612643 Kuwait
Summary Of Cambridge IGCSE Business Studies
Public limited comp.
: is a very large business owned by shareholders.
Adv. Dis.
Limited liability. A lot of legal regulations (official papers).
Separate legal identity. (incorporated Difficult to be controlled and managed.
business)
Very large capital. Selling shares is expensive.
Shareholders can buy and sell shares Owners lose control, when the original
without permission of others. owners hold less than 51% of shares.
is always at risk of take over.
Definitions.
Incorporated businesses : are companies that have separate legal status from
their owners and limited liability. Ex : private and public limited companies.
Shareholders : are owners of limited company. They buy shares which
represents part ownership of a company.
AGM (Annual General Meeting) : is a meeting where shareholders attend and
vote on the Board of Directors for the coming year. It is a legal requirement
for all limited companies.
Dividends : is part of profit given to shareholders. Dividens are the
return to shareholders for investing in the company.
Difference between public and private limited company:
Private limited company Public limited company
Owners Few Large number
Size Relatively small Very large
Sales of shares Only sold privately Offered to the public
by the company not to the public
Sales of shares Difficult to sell Quick and easy to sell
by shareholders without permission
Control One shareholder can control AGM controls
if he owns 51% of the shares. Ownership and control is
separate.
Raising additional Difficult Easy
capital
Borrowing finance Difficult Can raise very large amount
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Mr. Hamada Bekhit Tel: +965 66612643 Kuwait
Summary Of Cambridge IGCSE Business Studies
5. Joint Venture
: when two businesses join in a project, share capital, materials, experience,
risk, costs, profit,…….
+ share costs. - share profit.
+ reduce risk. - disagreement might occur.
4. Franchisee
Franchising : is a business sells its brand name to a franchisee. The franchisee
buys the license to operate the business for the franchisor.
e.g. Toyota & Al Sayer ….
To Franchisor To Franchisee
Franchisee buys license. Secure business.
fast expansion. Franchisor pays for adverting
Franchisee manages the and supplies.
Adv
branch. Franchisor trains staff.
All products sold must Banks are willing to lend
be bought from the franchisor. franchisee.
Less independence.
Poor management of franchisee Unable to make decisions in
Dis leads to bad reputation. local market.
Share profit. License fee must be paid.
The public Sector: (public corporation)
: is a business owned and run by the gov. It has social objectives.
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Mr. Hamada Bekhit Tel: +965 66612643 Kuwait
Summary Of Cambridge IGCSE Business Studies
Chapter 5
Business objectives
Business objectives
: are the aims or targets that a business works towards.
Characteristics of effective objectives:
Objectives need to be SMART:
1. Specific: 4. Realistic and relevant:
2. Measurable: 5. Time specific:
3. Achievable and agreed :
Business objectives
1. Profit. 3. survival. 5.Corporate Social Responsibility
2. growth. 4. Market share
Benefits of setting business objectives:
goal to be achieved. ● measure of success.
giving sense of purpose and direction to the business.
help decision making and planning.
1- profit :
profit : is the total income of a business. Revenue minus the total cost.
Why profit is important?
1. reward for risk taking. 2. source of finance :
3. indicator of success 4. necessary for survival
5. buy raw materials.
3-Growth:
: expand the size of the business to make it bigger by opening new branches.
Why expansion is important:
1. more profit 7.enjoy economies of scale.
2. spread risk. . 8.improve reputation.
3. open new markets. 9. attract more consumers
4. obtain more market share. Disadvantages
5. able to compete in world markets. - need more staff
6. lower unit costs - difficult to control
- low morale
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Summary Of Cambridge IGCSE Business Studies
4- Survival:
: continue in bad situations (recession).
5-Corporate Social Responsibility
Many businesses care about the social, ethical, and environmental issues (they
don’t pollute the environment, cut trees, harm consumers….) because if they
ignore their social responsibility they will face bad publicity and legal actions.
This can affect their reputation, sales, revenue and profit.
Corporate social responsibility has become an important for a business as a
result of :
- the pressure groups
- the media
- the trade unions
- the gov. and laws
Social enterprise:
: is a business with social objectives that reinvest its profit back in the
business to benefit society.
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Mr. Hamada Bekhit Tel: +965 66612643 Kuwait
Summary Of Cambridge IGCSE Business Studies
Stakeholder
: is any person or group has direct interest within the business and affected by
its decisions.
Groups of Stakeholders:
Internal Stakeholders
1. Owners:
They are risk takers. Their aim is to get profit.
2. Workers:
Their aim is to get:
●Job Security. ● regular payment. ●Job Satisfaction.
● contract
3. Managers :
Their aim is to get:
●Job Security. ● regular payment.
●Job Satisfaction. ● contract ● Expansion
External stakeholders
4. Customers :
: to get cheap, safe, well-designed, and valuable products with high quality.
5. Government:
Governments want businesses creating jobs to people, pay taxes, follow
laws and stop pollution.
6. Community:
Businesses should give useful products or services, jobs for local
population of the community.
7. Banks:
The business be able to pay the money back to the bank with the interest.
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