1.2 Flashcards
Public sector
owned and controlled by the government
usually don’t aim to make profit
Private sector
organisations owned and controlled by individuals/group of individuals. Includes gov education, police, health care, …
aim to make profit
Examples of for-profit organisations
- sole trader
- partnerships
- cooperations/companies
Sole trader
for-profit business owned by a single individual. In unincorporated, owner has the same legal identity as the business
advantages and disadvantages of sole trader
Advantages:
- Easy to setup
- lower startup costs
- keep all profit
- make all decisions
- privacy
Disadvantages:
- unlimited liability (however can prevent from making careless decisions)
- Lack of finance
- High workload
Partnerships
For profit business owned by two or more individuals
Advantages and disadvantages of partnerships
Advantages:
- financial support
- shared workload and expertise
Disadvantages:
- unlimited liability
- Decision making conflicts
- share profit
Silent partner
A partner that contributes funds and receives some benefits from profits but does not contribute in running of the business
Deed of partnership
contract which outlines how the partnership will be managed
Unlimited liability
Owner does not have separation from the business and is responsible for the debts of the firm. Can lose their own belongings if unable to repay debts.
Corporations/companies
For profit organisation owned by shareholders who enjoy limited liability. Board of directors are elected by shareholders to run the company on their behalf.
Private limited Companies: cant raise capital from general public
Public Limited companies: can sell shares in public, but must release financial documents in public as well
Shareholder
individual/other business that have invested money to provide capital for a company
Flotation and IPO
Flotation: when a business first sells its shares to the public, in a process called initial public offering (IPO)
Advantages and disadvantages of being a company (incorporated)
Advantages
- Can raise finance by selling shares
- limited liability
- economies of scale (e.g. easier to borrow)
Disadvantages:
- Diseconomies of scale (e.g. communication issues)
- ownership diluted
- public limited company must release financial information
- attracts greater media coverage (if negative then can tarnish brand image)
Cooperative
For profit organisation owned by its members who come together to work towards a common interest. Run democratically
Advantages and disadvantages of cooperatives
Advantages:
- democratic = motivated + better decisions
- public support
- can help raise finance
- can help pool resources together
Disadvantages:
- Cant raise finance via stock exchange
- inefficient as managers and employees normally have low pay
- don’t have control over decisions
Microfinance providers
Make financial services available to usually unemployed or low-income earners who would otherwise struggle to gain external finance
Advantages and disadvantages of microfinance providers
Advantages
- creates jobs
- helps ppl in poverty
Disadvantages:
- unethical to make profit from poor
- only provide limited finance
Public private partnerships
When public sector works together with the private sector to jointly provide certain goods and services.
Advantages and disadvantages of PPP
Advantages:
- gov can benefit from expertise of private sector
- private partner can provide financing
Disadvantages:
- expensive to setup
non-profit social enterprises
- profit not main goal
- surplus revenue used to achieve goals rather than in dividends
NGOs
- private sector, aim to benefit others in society/environment
- operational NGOs: involved in relief-based community projects, established from a given objective
- Advocacy NGOs: take aggressive approach to promote/defend a cause
Charities
- provide voluntary support to benefit the public, don’t aim for profit
- surplus revenue reinvested to charity
Advantages and disadvantages of charity
Advantages:
- social benefits for community
- tax advantages
- limited liability
- public recognition and trust (easier to get donations)
- grants
- can focus on mission rather than profit
Disadvantages:
- lack of profit (demotivating)
- limited sources of finance (donations)
