TASK 4 Draft –

BUSINESS
CATEGORIES
To understand business categories some things need to be known first.

A business is when an organization sells goods and services to make a profit. However, not all businesses have
the same aim. These aims include;

Financial aims.
• Survival- this aim is mainly for newly established businesses and small businesses where competition is high.
• Profit- after one or two years of establishment, businesses aim to make profits from revenue.
• Market share is the percentage of a particular market that a business occupies. Businesses will aim to have a
larger market share thus more revenue will be earned and the aim of making profits will be fulfilled.
• Financial security- it refers to the amount of cash a business has in order to pay off all expenses incurred and
have enough left for survival in the following years and operate smoothly.

Non-financial aims.
• Personal satisfaction- this is when the entrepreneur is satisfied with how the business is running. Sometimes
some businesses don’t expand due to the owner being satisfied with what they have achieved.
Businesses are classified into two major categories;

1. Private sector- These are businesses owned and run by individuals with the main aim of making profits.

2. Public sector- These are businesses owned by the government with the aim of providing services to the
citizens of the nation

This can further be categorized into four sectors. These are;

• Primary- this is where the extraction of raw materials from the Earth. These raw materials can be sold directly in
the market (e.g. vegetables and fruits) or sent to the next sector for further processing (e.g. minerals). Some of the
business activities in this sector include mining, agriculture, fishing, etc.
• Secondary- this sector consists of processing raw materials, manufacturing, assembling and construction. Some
of the business activities in this sector include car assembling, textiles, etc.
• Tertiary- this sector focuses mainly on providing services to customers by trading commodities to the consumers.
Some of these services include accommodations, tourism, etc.
• Quaternary - Includes enterprises engaging in intellectual activities and occupations. Companies within this
sector are using information and technology to innovate and improve processes and services, leading to improved
economic development. Some of the business activities include education, research and development, etc.
For establishing a business, legal procedures need to be followed. Entrepreneurs need to consider which type of business they would like
to run after taking a look at the requirements needed to start the particular type of business and knowing the benefits and disadvantages
of each.

These types of businesses include;

• A sole proprietorship - is a business owned and operated by one person. 

• Partnership - A business owned and managed by a minimum of 2 and a maximum of 20 partners. Partners must work under the
Partnership Act of 1890. All profits are shared through a partnership agreement. Each partner is responsible for
income tax. 
• Companies- This is a business incorporated under another legal entity. Companies must operate by the Companies Act of 1989. Profits
are paid out as dividends to shareholders after payment of corporate tax. The account will be made public and/ or submitted to the
Companies House.

There are two types of companies:

a. A public limited company is a company with seven or more shareholders and no upper limit. Shareholders have unlimited liability.

b. A private limited company has a minimum of 2 shareholders and a maximum of 50 shareholders. Shareholders have limited
liability. Mostly formed by friends and family.  

• Cooperatives - This group comes together and pools resources to accomplish a common target. The profits obtained are dividends and
are distributed among the members. 
Advantages and disadvantages of the business categories
Advantages
Sole proprietorship • Less capital is required to set up.
• Profits are enjoyed by the proprietor.
• Trade secrets are protected.
• Quick decision-making because no consultation is required.
• We have direct contact with our customers.
• Owners are independent.  
Partnership • Losses and liabilities are shared.
• Sharing duties and responsibilities leads to more
outstanding contributions.
• Capital can be raised by partners, the business can quickly
grow.
• The right decision is made because there is consultation
between partners.  
Companies • There are restrictions on the transfer of shares, so companies
cannot be acquired. (Private)
• Shareholders have unlimited liability.
• Funding sources are unlimited as there is no maximum number
of shareholders.
・ Since it is operated by a professional manager, it is easy to
make a profit.
• Shares are freely transferable.  • Since there are no restrictions on the transfer of shares, the company
Disadvantages
• The owner bears the losses
• Long working hours.
• Wrong decisions are made due to a lack of advice.
• Due to limited resources, the business cannot be expanded.
• Has unlimited liability (owner is responsible for all liabilities) 
• If one partner works harder than the other, the reward for that effort
is shared equally with the other partner.
• Decisions are slowed down because consultation takes place.
• When one of the partners makes a mistake, the others suffer.
• Persistent disagreements between partners can lead to the
dissolution of the partnership.  
• Shareholders' liability is limited. (Private)
• Shares are not freely transferable. (Private)
• Limited funding sources due to the limited number of shareholders.
(Private)
• Requires a large amount of capital.
• Many legal requirements to get started.
• Selling stock is expensive.
can be taken over.
• The government requires the disclosure of financial records, so they
are non-confidential.