Question

Company Z is a private limited company in the secondary sector of the economy. It

manufactures components used in the computer industry. They employ 80 production workers
and ten 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 workers' trade union thinks that their members should get a big pay rise. The
directors of Company Z are considering each of these options. Over the past two years the
company's profits have increased by 15% each year.
a Identify any two of Company Z's stakeholders.

b What is meant by 'secondary sector"?

c Identify and explain two features of a private limited company.

d Identify and explain two ways the objectives of a private sector business like Company Z are different from public sector organisations.

e Do you think the directors should use the profits to reward shareholders or to reward workers? Justify your answer. ​

Answer 1

a. Two stakeholders of Company Z could be its shareholders and employees (represented by the trade union).

b. The secondary sector refers to the part of the economy that is involved in the production of finished goods, typically using raw materials obtained from the primary sector.

c. Two features of a private limited company are limited liability and a restriction on the transfer of shares. Limited liability means that the owners/shareholders are only liable for the company's debts up to the amount they have invested, and their personal assets are not at risk. The restriction on the transfer of shares means that shares in the company cannot be freely bought or sold without the agreement of the other shareholders.

d. Private sector businesses like Company Z are primarily driven by profit and the pursuit of self-interest, while public sector organizations are typically driven by the objective of providing a public service or meeting a specific social need. Private sector businesses are also typically subject to less government regulation and intervention than public sector organizations.

e. This is a subjective question and there is no right or wrong answer. The directors of Company Z will need to consider a range of factors, including the impact on the company's long-term sustainability, the expectations of its shareholders and employees, and the wider social and economic implications of their decision. Ultimately, the directors will need to strike a balance between the different interests of stakeholders, including the shareholders and employees.