Business Structure

ECONOMIC SECTORS

Business can be categorized in three

broad categories or stages.
Primary Sector- It is the first stage of
production. All those businesses which
are related with extraction of raw
material from Earth such as mining,
fishing, farming, and quarrying are
known as primary sector businesses.
Raw materials that are extracted are
send to the secondary sector.
Secondary Sector- They convert raw
materials into finished or semi-finished
goods. All businesses which manufacture
and process the raw materials which can be
used by the end consumers are known as
secondary sector businesses. These include
building, construction, compute assembly,
shoes factories, textile factories etc.
Tertiary Sector- All the businesses which
provide services and assist both the primary
and secondary sector businesses can be
classified as tertiary sector businesses.
These include transportation, insurance,
hospitals, educational institutes, showrooms
etc.
The private sector or Capitalism

•The private sector consists of all privately owner,

for-profit businesses in the economy.
•The private sector tends to make up a larger share
of the economy in free market, capitalist based
societies.
•Examples of capitalist countries include:
Hong Kong
•Singapore
•New Zealand
•Switzerland
•Australia
The Public sector or Socialism
• The public sector is a part of the economy that comprises all
organizations that are owned and operated by the
government.
• This includes everything from schools and hospitals to roads
and bridges.
• The main purpose of the public sector is to provide services
that are considered essential for the well-being of society.
• These services are typically provided free of charge or at a
subsidized rate.
•Examples of socialist countries include : Soviet
Union
•Cuba
•China
•Venezuela
Mixed Economy
• A mixed economic system is a system that combines
aspects of both capitalism and socialism.
• A mixed economic system protects private property and
allows a level of economic freedom in the use of capital,
but also allows for governments to interfere in economic
activities in order to achieve social aims.
•Examples: Iceland, Sweden, France, The United
Kingdom, The United States,
Russia, India, South Korea.
DIFFERENCES BETWEEN PRIVATE AND PUBLIC SECTOR

•Private Sector-

Examples of business found in the private sector

include:

• Sole trader

• Partnership

• Private Limited Companies

• Public Limited Companies

SOLE TRADER
•Refers to a business in which one person provides
permanent finance and, in return, has full control of the
business and is able to keep all of the profits. It is owned
by one person. However, the owner may employ other
people. Examples are hair salons, bus operators, grocery
stores, etc.
• Ownership: owned by one person
• Legal status: The business is not a recognised as a
legal entity. It is referred to as an unincorporated
business
• Liability: The owner of the business is subject to
unlimited liability. If the business fails the owner may
lose personal possessions (personal property)
• Continuity: The business come to an end when the
•Advantages:
• easy to form- less capital and legal requirements
• owner has direct control of the business- makes
decisions that best suit their conditions
• all profits go to the owner
• has personal contact with both customers and
employees

•Disadvantages:
• unlimited liability
• difficult to raise capital
• limited management expertise
• difficulty in attracting qualified employees
• lack of continuity when the owner dies
PARTNERSHIP
•Refers to a business owned by at least two but not more than twenty
people. The partners agree to carry on business together, with shared
capital investment and, usually, shared responsibilities.
• Ownership: owned by at least two to a maximum of twenty partners
• Legal status: The business is not a recognised as a legal entity. It is
referred to as an unincorporated business. However, it is possible to
now establish an incorporated partnership.
• Liability: The partners suffer from unlimited liability. If the business
fails the owner may lose personal possessions (personal property)
• Continuity: The business come to an end when the key partner dies
•To enter into a partnership, partners can have a verbal agreement or
otherwise write a
•Partnership Deed/Agreement which is a document
setting out some of the following details:
• amount of capital contributed by each member
• salaries/wages to be paid to each member
• rights and obligations of the partners

•Advantages:
• more capital available
• diversity of skills and expertise
• quality decisions are made
• personal contact with employees and clients
• risk is spread over a number of people
•Disadvantages:
• disagreements may easily create conflicts
within the business
• all partners responsible for the acts of each
other
• lack of continuity when the key partner
dies or become insane
• profit/loss sharing ratio not necessarily
equal
• the partnership often faces intense
competition from large firms
• the owner, by taking on a partner, will lose
control of the business
LIMITED COMPANIES

•These are businesses where a number of

owner(shareholder) gather in their resources to do a
common business and to share the profits and losses
proportionally. E.g Reliance industries, Infosys, TCS
•In a limited company, the debts of the company are
separate from those of the shareholders. As a result,
should the company experience financial distress
because of normal business activity, the personal assets
of shareholders will not be at risk of being seized by
creditors.
•Ownership in the limited company can be easily
transferred, and many of these companies have been
•General features of limited companies:
• separate legal entity
• shareholders have limited liability
• owners are called shareholders- they buy
shares; it is a certificate confirming part
ownership of a company and it entitles the
shareholder the right to dividends
• shareholders receive dividends as payments
• the Board of Directors manages the affairs of
the company
• the company is governed by Memorandum
and Articles of Association
• shareholders hold Annual General Meetings
(AGMs)
1.PRIVATE LIMITED COMPANIES
2.Refers to a small to medium-sized business that is owned by
shareholders who are often member of the same family. This
company cannot sell shares to the general public. They have two
but not more than fifty shareholders. The right to transfer shares
is limited. The business should submit financial statements and
auditors reports to the Registrar of Companies.
1.Formation: There are complex legal formalities. Two
documents should be drafted by the founders of the
company and these documents include the memorandum
and articles of association
2.Ownership: owned by at least two to a maximum of fifty
shareholder
3.Management and Control: it managed and control by the
board of directors
4.Legal status: The business is recognised at law as a legal
person. It is referred to as an incorporated business
5.Liability: The shareholders enjoy limited liability. If the
1.Advantages:
1.shareholders have limited liabilities
2.more capital can be raised
3.greater status than an unincorporated
business
4.easy to transform into public limited
companies
5.do not have to publish annual accounts in the
1.Disadvantages:
press easy to form (up to six months)
1.not
2.has to fill complex tax forms
3.cannot raise capital through the stock
exchange
4.quite difficult for the shareholders to
sell shares
•Franchise; the right or license granted to an individual or group to market a
company's goods or services in a particular territory. E.g Subway, Domino’s
•
Advantages:

fewer chances of the new business failing since the name of an established brand and
product are being used
•advice and training is offered by the franchiser
•national advertising is being paid for by the franchiser
•the supplies used in the franchise are obtained from quality checked suppliers
•franchiser agrees not to open another branch in the local area
Disadvantages:
•share of profits or revenue have to be paid to the franchiser each year
•the initial franchise fee can be expensive to pay
•local promotion still have to be paid for by the franchisee
•no choice of supplies or suppliers to be used
•there are strict rules over pricing and layout of the outlet reduces the franchisee's
control over their own business
Joint Ventures; A joint venture is a business entity created by two or more
parties, generally characterized by shared ownership, shared returns and risks,
and shared governance. E.g Vistara is a joint venture of Tata Sons Private Limited
and Singapore Airlines Limited (SIA)

Advantages:
•the costs and risks of a new business venture are shared - this is a major consideration
when the cost of developing new products is rising rapidly
•different companies might have different strengths and experiences and they therefore
fit well together
•they might have their major markets in different countries and they could exploit these
with the new product more effectively than if they both decided to 'go it alone.’

Disadvantages
•styles of management and culture might be so different that the two teams do not blend
well together
•errors and mistakes might lead to one blaming the other for mistakes
Holding Companies; Holding companies, which are sometimes called "parent
companies," control the assets of other companies, known as subsidiaries. They
hold financial control of these businesses.E.g Tata Sons (the holding company
for the Tata Group) and Bajaj Holdings (the holding company for the Bajaj Group).
Advantages:
•the holding company eliminates any competition due to centralised control over the
subsidiary companies so it earns maximum profits
•the subsidiary company does not lose its identity under this system therefore it is still a
separate business
•when the goodwill of the holding company is established in the market, it also
establishes the goodwill of the subsidiary company before the public
Disadvantages:
•A holding company tries to create a monopoly over the market which may be against
the public's interest. This may ruin the image of the company.
•it is expensive to maintain the control of large numbers of subsidiary companies
•the holding company may try to exploit the subsidiary company (for example: the
subsidiary company is forced to buy goods at a high price from the holding company and
sell their produce at low prices).
Public Corporations; A public corporation or statutory corporation is
formed by a special act by the parliament or state legislature. The act
specifies the rules and regulations as well as the powers and functions of
the employees. It is funded by the Government. It is a separate legal entity.
Example: Life Insurance Corporation of India.

Advantages:
•managed with social objectives rather than solely with profit objectives
•loss-making services might still be kept operating if the social benefit is great
enough
•finance raised is mainly from the government
Disadvantages:
•tendency towards inefficiency due to the lack of strict profit targets
•subsidies from government can also encourage inefficiencies
•the government may interfere in business decisions for political reasons, for
example by opening a new branch in a certain area to gain popularity.