Justify your answer.

2 Company Z is a private limited company in the secondary sector of the economy. It manufactures components used in the computer industry. It employs 80 production workers and 10 management and administrative staff. The company has just made record profits. The shareholders are very pleased because they expect to receive high dividends as their share of profits. The employees' trade union thinks that its members should get a big pay rise. The directors of Company are considering each of these options.

Over the past two years the company's profits have increased by 15\% each year.
a Define 'private limited company'.
b Define 'secondary sector'.
c Identify four of Company Z's stakeholders.
d Explain two ways the objectives of a private sector business like Company $Z$ are different from those of public sector organisations.
e Do you think the directors should use the profits to reward shareholders or to reward employees? Justify your answer.
Total available marks 4

Question

Justify your answer.

2 Company Z is a private limited company in the secondary sector of the economy. It manufactures components used in the computer industry. It employs 80 production workers and 10 management and administrative staff. The company has just made record profits. The shareholders are very pleased because they expect to receive high dividends as their share of profits. The employees' trade union thinks that its members should get a big pay rise. The directors of Company are considering each of these options.

Over the past two years the company's profits have increased by 15\% each year.
a Define 'private limited company'.
b Define 'secondary sector'.
c Identify four of Company Z's stakeholders.
d Explain two ways the objectives of a private sector business like Company $Z$ are different from those of public sector organisations.
e Do you think the directors should use the profits to reward shareholders or to reward employees? Justify your answer.
Total available marks 4

Accepted Answer

To address the question regarding Company Z, let's break it down step by step: a. **Define 'private limited company':** A private limited company (Ltd) is a type of business entity that is privately owned and limits the liability of its shareholders. This means that the shareholders are only liable for the company's debts up to the amount they invested. Shares of a private limited company cannot be traded publicly on the stock exchange, and ownership is typically restricted to a small group of individuals. b. **Define 'secondary sector':** The secondary sector of the economy involves the manufacturing and construction industries. It includes businesses that process raw materials from the primary sector into finished goods. In the case of Company Z, it manufactures components used in the computer industry, which places it firmly in the secondary sector. c. **Identify four of Company Z's stakeholders:** 1. Shareholders - They invest in the company and expect dividends from profits. 2. Employees - The production workers and management staff who contribute to the company's operations. 3. Trade Union - Represents the employees' interests, advocating for better pay and working conditions. 4. Customers - Individuals or businesses that purchase the components manufactured by Company Z. d. **Explain two ways the objectives of a private sector business like Company Z are different from those of public sector organizations:** 1. Profit Maximization: Private sector businesses primarily aim to maximize profits for their shareholders, while public sector organizations focus on providing services to the public and may prioritize social welfare over profit. 2. Accountability: Private companies are accountable to their shareholders and must operate efficiently to ensure returns on investment. In contrast, public sector organizations are accountable to the government and the public, often facing different performance metrics that emphasize service delivery rather than profit. e. **Do you think the directors should use the profits to reward shareholders or to reward employees? Justify your answer:** This decision depends on various factors, including the company's long-term strategy and the current economic environment. If the company has made record profits and is in a strong financial position, rewarding employees with a pay rise could enhance morale and productivity, leading to further growth. On the other hand, rewarding shareholders with dividends could attract more investment and support the company's stock value. A balanced approach might be to allocate a portion of the profits to both shareholders and employees, ensuring that both parties feel valued and motivated. This structured response should help you understand the key concepts related to Company Z and its stakeholders.

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