Business structure and types of ownership

• Primary — extracting natural resources: farming, fishing, mining, forestry, oil and gas.
• Secondary — manufacturing and construction: turning raw materials into products.
• Tertiary — providing services: retail, banking, transport, tourism, education.
• Quaternary — knowledge-based activity: research and development, ICT, consultancy, information services. Often described as a subset of the tertiary sector.

As economies develop, employment and output shift from primary to secondary and then to tertiary and quaternary — deindustrialisation in the later stage — because rising incomes are spent increasingly on services, and manufacturing moves to lower-cost countries. The consequences for businesses: new markets in services, a demand for different skills, and decline in traditional industries.

The public sector is owned and controlled by the state — central or local government — and usually aims to provide a service (healthcare, education, public transport) rather than to make a profit. The private sector is owned by individuals and investors, and most of its businesses aim for profit.

With unlimited liability, the owner is personally responsible for all the business’s debts: if it fails, their house and savings can be taken. With limited liability, owners can lose only what they invested — the business is a separate legal entity from its owners (it is incorporated). Limited liability is what makes investors willing to buy shares in businesses they do not run.

• Franchise — the franchisee buys the right to trade under the franchisor’s name, using its products and methods, for a fee and a share of revenue (royalty). The franchisee gets a proven brand and support at lower risk; the franchisor expands quickly using the franchisee’s capital. The franchisee loses independence and pays royalties; the franchisor risks its brand on someone else’s management.
• Co-operative — owned and controlled by its members (workers, customers or producers), with shared decision-making and profits shared among members. Motivating and fair, but decisions can be slow and raising finance hard.
• Joint venture — two or more businesses create a new business for a shared project, sharing costs, risks and profits.
• Social enterprise — a business with social or environmental aims that reinvests most of its profit in them. It trades to fund its purpose; its advantages include customer and employee goodwill, its challenge is balancing the mission against the need to stay profitable.

The common case-study decision is converting to a company — sole trader to private limited, or private limited to public limited:

• For: limited liability; much more finance from selling shares; continuity beyond the founders; status with suppliers and lenders.
• Against: the cost of conversion and of publishing accounts; loss of control as new shareholders take a say (and, for a plc, the risk of a hostile takeover); pressure for short-term profit and dividends; loss of privacy.

The judgement turns on why the business wants to change — usually finance for growth — and how much the owners value control. A family business that prizes independence may be better borrowing than floating.

On the 36 AS papers Quanta holds, 24 question parts test business structure, on 18 of the papers (5 on Paper 1, 19 on Paper 2). The command words they open with:

• Identify × 11
• Explain × 6
• Define × 3
• Analyse × 3
• Evaluate × 1

By tariff — each size has its own technique:

• 11 × 1-mark, 3 × 2-mark, 6 × 3-markShort-answer questions (2, 3 and 5 marks) →
• 3 × 8-mark8-mark 'analyse' questions →
• 1 × 12-mark12-mark 'evaluate' questions →

Terms candidates have been asked to define or explain on this topic:

public sector ×4 · quaternary sector · primary sector · quaternary sector of the economy · limited liability

1. 1.Public limited company placed in the public sector

   A plc is private sector — owned by shareholders. “Public” refers to its shares being sold to the public.

2. 2.Private limited companies said to sell shares on the stock market

   Only a plc does. A private limited company sells shares privately, with the agreement of existing shareholders.

3. 3.Limited liability described as “the business has limited debts”

   It is the owners’ loss that is limited, to the amount they invested.

4. 4.Quaternary sector treated as manufacturing

   Quaternary is knowledge-based: R&D, ICT, consultancy, information services.