Chapter 1



Unit 6Adding value: Involves processing raw materials in a way that heightens their appeal to the consumer and increases their economic value. For example, milk can be processed to produce higher value products like yoghurt and cheese and wood can be manufactured into furniture. Annual General Meeting (AGM): By law, any company which has two or more shareholders must hold a meeting of its shareholders once a year. This provides shareholders with an opportunity to get feedback about the way in which the company has been run and also to influence the future operation of the business. Many not-for-profit organisations such as clubs also hold AGMs for their members. Agribusiness: A term used to describe a broad range of agriculture related activities which includes not only farming but also the processing and marketing of farm produce. Glanbia and Kerry group PLC are examples of Irish companies which operate in the agribusiness sector.Area Partnership Companies (APCs): Area Partnership Companies have been established mostly in disadvantaged urban areas and are seen as an attempt to tackle unemployment, poverty and social exclusion in their area. This is achieved through the provision of funding, mentoring and training to assist community based enterprises.Articles of Association: This document sets out the internal rules governing the formation and operation of a company. Each company will set out the articles to suit their own needs, but key issues will include procedures for electing directors or for conducting company meetings.Authorised share capital: The maximum amount of shares available for issue by a limited company. This limit is set out in the Memorandum of Association.Balanced budget: Reflects a situation where planned income matches planned expenditure. This balanced position enables the government is to finance all its needs from its own resources.Black economy: One which exists alongside the official or legitimate economy but is not regulated, rewarded or taxed in any official way. It usually involves cash transactions and income and profit are not disclosed to the regulatory authorities.Board of directors: When a company has a large number of shareholders, it is impossible for them all to be involved in the day-to-day management of that business and they normally elect a Board of Directors to carry out this function on their behalf. The Board of Directors are the senior managers in a limited company and are responsible for devising and implementing its strategic plans. The directors hold regular board meetings at which strategic goals are set and plans are made for their implementation.Budget deficit: Occurs when the government plans to spend more money than it will receive in income. By running a budget deficit, the government can stimulate economic activity since it is putting more money into the economy than it is taking out.Budget surplus: Occurs when planned income is greater than planned expenditure. When a budget is in surplus, the government is taking more money out of the economy than it is putting in and this will tend to reduce the level of economic activity. Capital: Can have several different meanings in a business context. In financial terms, capital refers to the money invested into a business by its owners (shareholders). In an economic sense, capital refers to anything made by people and used to produce other goods and services. Examples include machinery, vehicles, roads and telecommunications networks. Capital expenditure refers to once-off or long-term spending made by a government or business, often on buildings, machinery or infrastructure. The economic benefit of capital expenditure will be derived over a long period of time.Capital budget: On the spending side it includes investments in road building and communications infrastructure as well as the construction of schools and hospitals. Capital income is mainly received from the sale of state assets or companies. The capital budget is very important for the longer term development of an economy as it provides the infrastructure needed by households and businesses.Capital intensive: A job or industry which relies heavily on machinery to carry out work. Many jobs in the primary and secondary sectors are capital intensive as they increasingly rely on machinery to carry out work which in the past had been carried out by people.Celtic Tiger: The name given to the Irish economy during a period of rapid economic growth (1995-2007). The economy expanded at an average rate of 9.4% between 1995 and 2000 before continuing to grow at an average rate of 5.5% until 2008 when it fell into recession. Average wealth in the economy doubled from 1994 to 2006.Centrally planned economy: Centrally planned or command economies are totally regulated by government intervention. They are synonymous with communist governments where all wealth and factors of production are owned by the state. As there is no private sector, the government provides all goods, services and employment.Certificate of Incorporation: A document, issued by the Companies Registration Office, which gives effect to a new company and gives it a separate legal identity from its owners. It is sometimes referred to as the ‘birth cert of a company’.Chief Executive Officer (CEO): An alternative title for the Managing Director. This member of the board of directors is responsible for the day-to-day implementation of its policy decisions.Cluster effect: The location of several companies (usually operating in the same industry) in close geographical proximity to each other. For example, Ireland is host to 13 of the top 15 global pharmaceutical companies and seven of the top 10 in ICT. The presence of some TNCs in Ireland is often enough to draw others to locate here. Clusters tend to promote innovation, increase productivity and encourage new business. For the TNCs involved these can have the same cost minimising effects as economies of scale. Other examples of this cluster effect worldwide include Silicone Valley (ICT) and Hollywood (film production). Code of ethics: A set of guidelines to assist decision-making and ensure a moral viewpoint is considered. Ethics is about moral rules, and ethical business practice should involve choosing a course of action which is legal, decent and honest.Coillte: The commercial state company that owns more than half of all forests in Ireland. It employs 1100 people and generates income mainly from commercial forestry and renewable energy. Community development: Involves local people doing something to improve the quality of life in their community. It requires that they show some initiative and resourcefulness in order to provide much-needed services or facilities within their locality. Companies Registration Office (CRO): The place where the names of limited companies are registered in Ireland. This office also issues Certificates of Incorporation which allow a company to begin trading.Co-operatives: A co-op involves a group of people working together to achieve shared goals. This type of business is owned by members or shareholders who usually have a common bond and operate the business for their mutual benefit.Cost of living increase: A wage increase that seeks to compensate workers for a loss of purchasing power due to price inflation. For example, employees who see the cost of living increase by three per cent are likely to seek a three per cent pay increase in order to preserve the real value (or purchasing power) of their income.County Enterprise Boards (CEB): A nationwide network of 35 City and County Enterprise Boards provide local support for commercial ‘micro enterprises’. All CEBs offer a range of services designed to promote and support local entrepreneurship. Theses services include advice, business mentoring and the provision of capital and innovation grants. Each CEB seeks to meet the needs of their own geographic area.Current expenditure: The current budget has a short-term focus and deals with day-to-day income and expenditure. The vast majority of government income is received from taxation, but other sources include profits from semi-state companies. Current expenditure enables the government to utilise the infrastructure it has provided and to deliver goods and services to all sections of society. The payment of public sector wages and expenditure on social welfare make up a very large part of current expenditure.Decoupling: A process of separation whereby farmers in the EU receive a single farm payment which is no longer linked to annual farm output or productivity. Deed of Partnership: A legal agreement signed by partners when setting up a business or admitting new partners. It sets out the amount of capital invested by each partner; the voting rights of partners; the rules for admitting new partners as well as the basis upon which profits and losses will be shared. Deflation: Occurs when prices of good and services in the economy suffer a sustained decrease.Demand management: An economic policy whereby the government intervenes in an economy and tries to control the level of demand for goods and services in order to avoid a recession. By altering the balance between taxation and government spending, the state can influence the level of business activity in an economy. Increased government spending coupled with lower taxes will tend to stimulate a flagging economy by raising demand for goods and services. Conversely, higher taxes and spending cuts will reduce the level of demand in the economy. Dividend: The share of company profits received by shareholders.Economic boom: This is a term used to describe a sustained period of rapid economic growth. During a boom businesses experience very strong demand for good and services and employment levels should increase. Economic depression: When a recession is very severe and continues for a sustained period of time it is referred to as a depression. A depression is characterised by large increases in unemployment, and a fall in the availability of credit. As buyers dry up, businesses will cut back on production and many are forced to close. Depressions often affect several economies at the same time and some governments may default on sovereign debt during an economic depression.Economic growth: When the amount of goods and services produced in the economy increases from one year to the next. It is measured by comparing the levels of Gross National Product (GNP) over a number of years. Economic recession: A recession represents a general slowdown in the level of economic activity. During a recession GNP, aggregate demand, investment spending, household incomes, business profits and inflation all fall. Bankruptcies and unemployment rates will inevitably rise as the economic cycle contracts.Economic variables: Those elements of the economy which are subject to change. The main economic variables include inflation, interest rates, taxation, unemployment and exchange rates. Enterprise Ireland: The government agency responsible for the development of indigenous Irish businesses, and its client companies, account for almost 300,000 jobs (direct and indirect) in the Irish economy.Environmental audits: Detailed independent studies of the impact of business operations on the environment. The audit will examine all aspects of the firm’s operations and make recommendations to analyse negative environmental impact. Environmental Impact Assessment: A requirement for all new industrial proposals. A detailed examination of its impact on the environment must be submitted in advance of the project being given permission to proceed.Environmental Protection Agency (EPA): An independent state-sponsored body which seeks to ensure that development is sustainable. The Agency has responsibilities for a wide range of licensing, enforcement, monitoring and assessment activities associated with environmental protection. The EPA can prosecute firms who pollute excessively.Exchange rates: An exchange rate is really just the price of one currency in terms of another currency. For example €1 = stg?0.67 means that it will cost €1 to purchase 67p sterling.Factors of production: Land, labour, capital and enterprise. These four basic resources are combined to produce all goods and services in an economy. Feasibility study: A detailed analysis of a proposed new business venture in order to establish its commercial viability.Financial cost: The amount of money spent on particular goods and services, for example €800,000 to build a new school. Fiscal policy: Deals with taxation and spending. Each year the government introduces a national budget this represents its fiscal policy for the year ahead. Foreign Direct Investment (FDI): Occurs when a company from one country makes a physical investment into building a factory in another country. As businesses have become increasingly globalised this investment has started to take many forms including a direct acquisition of a foreign firm, construction of a facility, or investment in a joint venture or strategic alliance with a local firm.Form A1: A document that needs to be completed when setting up a limited company. It contains details of the company name, its registered office, details of secretary and directors, their consent to acting as such, the subscribers and details of their shares. It also includes a statutory declaration that the requirements of the Companies Acts have been complied with.Free Market Economy: In a free market system factors of production are owned by the private sector and there is no state involvement. Businesses are privately owned and entrepreneurs are motivated by profit. Goods, services and resources are allocated purely by the forces of supply and demand. Government bonds: These are sold to investors whenever the government needs to raise money. These bonds are very similar to debentures in that the money is guaranteed to be repaid at a specific future date and carries a fixed rate of interest. Government bonds are generally sold to institutional investors including banks, investment and pension funds. Green taxes: Levies or charges imposed on businesses to offset the social costs associated with industrial pollution (e.g. plastic bag levy, carbon tax etc).Gross National Product (GNP): A measure of economic wellbeing calculated by adding the value of all goods and services produced by all Irish businesses in one year. Hello money: A payment made by a small business to a large retailer in return for shelf space in their supermarket. It is currently illegal in Ireland and represents an example of unethical business practice.IDA Ireland: The Industrial Development Agency plays a very significant role in attracting TNCs to Ireland.Indigenous industry: Indigenous Irish companies are those which are Irish owned irrespective of whether they carry out their business in this country or abroad.Inflation: A sustained increase in the price of goods and services in an economy. It is measured on an annual basis by the Consumer Price Index (CPI).Interest rates: The cost of borrowing money. These rates are used to calculate the amount of money a borrower must pay the lender for the use of their funds.Issued share capital: The amount of share capital that has been issued by a limited company at any particular time.Labour intensive: A job or industry which relies heavily on human effort or labour to carry out its work. Many jobs in the service sector are labour intensive as they require people to carry out the work.Leader Programme: An EU-backed initiative that aims to promote and assist enterprise in rural areas. Leader companies are not-for-profit organisations that aim to support small rural business and to strengthen facilities and services for rural communities. There are currently 36 Leader companies in Ireland.Limited liability: Should a company fail, the shareholders’ liability for business debts is limited to the amount of share capital contributed by them. The personal assets of directors or shareholders cannot be seized to pay off company debts.Live register: The number of people who physically ‘sign on’ to an unemployment register and claim social welfare payments. Managing Director (MD): A member of the board of directors with responsibility for the day-to-day implementation of its policy decisions. An alternative title for the Managing Director is a Chief Executive Officer (CEO).Market capitalisation: The overall valuation placed on a company. It is calculated by multiplying the number of issued shares by their current market price.Memorandum of Association: A document which provides members of the public with important information about a limited company. The Memorandum of Association states the company name as well as setting out the objectives of the company. The Memorandum of Association also establishes the share structure of the company and states that the liability of shareholders is limited.Micro enterprises: A small business with less than 10 employees.Mixed economy: A mixed economic system combines some elements of both free market and centrally planned models and recognises that there are benefits and flaws in each of those systems. Most countries (including Ireland) operate using this mixed system and have both a public sector and a private sector. This means that while private industry is encouraged, it is also regulated and supported by government intervention. Monetary policy: A government policy which seeks to influence the level of economic activity by altering the supply of money available. An expansionary monetary policy will increase the available supply of money and result in lower interest rates for borrowers.Multiplier effect: Sometimes even a modest level of investment into an economy can permeate through the economy and result in a much greater economic benefit. This is because a portion of the income received by businesses is passed on to their employees and suppliers, who in turn spend this money in other businesses. As this spending continues throughout the economy it magnifies the effect of the initial investment.National Development Plan (NDP): A strategic plan that sets out the government’s capital spending priorities for a five year period.Nationalisation: When the state takes control of a business or assets which were previously in private ownership. Nationalisation usually occurs when the state wishes to gain control over valuable natural resources or when a strategically important private business suffers a financial collapse.Non renewable resources: Resources which cannot be replaced once consumed. They are generally built up over a long period of time. Examples of natural resources in this category include peat bogs, coal and natural gas.Opportunity cost: This cost is measured in terms of alternatives foregone. This means that a decision to spend money on a new school removes the chance (or opportunity) of spending that money on a hospital, another school or a homeless shelter. Each of these buildings which cannot now be built represents the opportunity cost of building the school.Partnership: A business ownership model that allows for between two and 20 owners, thereby providing greater access to capital and skills needed by a business.Peak oil: The point in time when we are extracting the greatest possible quantity of oil (per day, or per year) that it will ever be possible to extract. Once this day arrives the world will have reached its maximum production capacity and the rate of extraction will enter into a terminal decline.Pobal: The government agency that seeks to manage and support a range of community-based programmes. It distributes funding on behalf of the government and seeks to achieve an integrated approach from the various community development organisations.Primary (extractive) industry: Also called primary sector industries, these consist of natural resource based industries which extract wealth from the land. Farming, fisheries, mining and forestry are all examples of extractive industries in Ireland.Private costs: Costs to a specific company of its industrial activity. Some businesses attempt to increase their profit levels by reducing private costs. This might be achieved by lowering staff wages or cutting corners when it comes to safety issues and pollution control. Private Limited Company: A private limited company is a legal form of business organisation which allows for a maximum of 99 owners, called shareholders. Privatisation: Involves the sale of state companies or public assets into private ownership. It is usually achieved through the sale of shares. Recent examples of privatisation in Ireland include the sales of Aer Lingus, Eircom and Irish Life.Profit repatriation: Most of the profits earned by non-Irish TNCs are returned to their parent country and are not re-invested into the Irish economy.Public Limited Company (PLC): A company whose shares are bought and sold on the stock exchange. A minimum of seven shareholders are required to set up a PLC and a trading certificate must be issued by the Companies Registration Office before the company is permitted to begin trading.Public Private Partnerships (PPP): A joint venture between the government and a private sector organisation. Under a contractual agreement a private sector firm will design, build and operate an infrastructural project on behalf of the state. Recent examples include motorways, schools and water treatment plants. Most of these projects are financed by the exchequer, though some are part-funded by private investment and user charges. The contract may allow the private operator to collect these user charges for a set number of years (usually 20+) after which ownership of the infrastructure reverts to the state.Public Service Obligation (PSO): Some non-commercial bodies are justified by the provision of essential public services, which private commercial businesses would not be willing to provide at a loss. These loss-making enterprises are supported because the government sees the availability of public services such as rural transport and post office networks as a socially desirable goal. Quarterly National Household Survey (QNHS): A regular survey of 39,000 households in the Republic of Ireland. The survey sets out to establish the number of people who are currently unemployed, but who are actively seeking work.Regional policies: Strategic plans implemented by the government which seek to promote industry in a particular region of the country or try to offset economic inequality between different regions.Registrar of Friendly Societies: The registration body for co-operatives in Ireland.Renewable resources: Resources that are capable of being regenerated or re-used. Arable farmland, forests and energy generated from wind, wave or solar power are all examples of renewable natural resources. Rural Environment Protection Scheme (REPS): A programme designed to improve environmental standards on farms. Under this scheme farmers who conduct their farm activities in an environmentally friendly manner are rewarded. Secondary sector industries: Businesses in this sector add value to the raw materials from primary sector industries in order to make finished goods. Examples include the manufacturing and construction industries.Single Member Limited Company: In keeping with EU regulations it is possible for an individual to set up a Limited Company which has just one shareholder. A single member company is required to have a minimum of two directors and a secretary. The formation procedure for this type of company is the same as for a Private Limited Company.Small and Medium (sized) Enterprises (SMEs): These are businesses that employ less than 250 people. There are currently over 150,000 SMEs in Ireland.Social costs: The costs to society of industrial activity. They include pollution, congestion, and illness as well as clean-up costs. Sole trader: This is a business which is owned by one person. This type of ownership model is particularly common in the retail and services sectors which are dominated by small independent operators. Examples include butchers, barbers, hairdressers, plumbers and publicans.Statutory meeting: The first shareholder meeting held by a newly established company prior to the commencement of trading. At this meeting the Memorandum and Articles of Association are formally presented, share certificates are issued to all shareholders, company directors and auditors are appointed and permission is granted to open a bank account in the company name.Stock exchange: A specialist market where investors can buy and sell shares in Public Limited Companies. It is also called the stock market. This may leave a company vulnerable to fluctuations in its share price and overall valuation Subsidy: A payment made by the government to a supplier or consumer of specific goods and services. The intention of the subsidy is to promote the availability of important goods and services by reducing their cost or selling price.Subvention: A payment made by the government to some non-commercial bodies so as to offset the cost of providing essential public services at a loss. Sustainable Development: Means that industrial growth or advancement must not undermine the natural resources of the planet because these resources are necessary for future development. The removal of fishing quotas would increase short-term investment and employment in the fishing industry. Within a few years, however, fish stock would be decimated from overfishing and some species may be on the verge of extinction. In these circumstances it would be impossible for anyone to make a living from the industry, so this type of development is not sustainable. Tax avoidance: Where a business to minimises its tax liability by availing of provisions set out in tax legislation. Tax avoidance is legal and may involve reinvestment of business profits into a project which attracts lower levels of taxation. Tax evasion: A deliberate and illegal attempt to escape one’s tax obligations. Putting money into an offshore bank account or failing to declare receipts for income tax or VAT purposes are examples of tax evasion.Tertiary (services) industry: As the name suggests it is not involved in the provision of finished goods, but aims to provide a range of services to both businesses and consumers. Examples include financial services, medical services, transport services, government services, communication services and leisure services. The tertiary or services sector is the largest and fastest growing sector in the Irish economy.Trading certificate: A document which must be issued by the Companies Registration Office before a Public Limited Company is permitted to begin trading.Transnational company (TNC): A company which has business operations in several countries at a time. They are also called multinational companies (MNCs). The ability of these companies to transcend national borders enables them to locate parts of their business operations in economies which best meet their needs and maximise their profitability. Examples of transnational companies operating in Ireland include Coca cola, Intel, Microsoft and Google.Ultra vires: A Latin phrase meaning ‘beyond powers’. It refers to a situation where the directors of a company engage in unauthorised business activity. If the directors choose to act in this way, they may become personally liable for any losses which arise.Unlimited liability: Where an individual’s liability for business debts is not just limited to the amount of capital they have invested in the business. In situations where the business debts are greater than the value of the saleable assets, the investor may have to sell or forfeit personal assets in order to pay business debts. Whistleblower: Aterm used to describe a stakeholder (usually an employee) who publicly discloses unethical business practice. ................
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