1.2 Flashcards
private sector
businesses owned and run by private individuals and organizations
aim to earn a profit for their owners
e.g. sole trader, partnership, private held company, public held company, social enterprise, MNC
public sector
organizations controlled by a regional and/or national government
provide essential goods and services
e.g. Education and Health care services
sole trader
owned by a single person (owner of business)
advantages:
* owner receives all of the profits
* owner has complete control of the business
* can claim tax concessions by using part of their home for business purposes
* enjoys privacy as it only needs to publish its financial accounts to the tax authorities
disadvantages:
* workload for a sole trader can be extremely high
* unlimited liability
* lack of continuity in the operations
* access to external finance is difficult
partnership
owned by two or more people
ordinary partnership, the maximum number of partners is usually capped at twenty owners
owners of a partnership are called partners
Deed of Partnership (contract between partners)
1. responsibilities
2. profit distribution
advantages:
* enjoys privacy as it only needs to publish its financial accounts to the tax authorities
* share the burden of their workload and responsibilities
* raise far more finance e.g. silent partners
disadvantages:
* conflict between the partners
* profits must be shared
* unlimited liability except silent partners
* no continuity (death of partner)
privately held company
owned by shareholders
Features of privately held companies:
* The shares cannot be advertised for sale nor sold via a stock exchange
* shares typically owned by family, relatives, and friends
* there is a legal divorce (separation) of ownership and control
* Owners have limited liability
* the number of shareholders may be limited
advantages:
* Shareholders have limited liability
* enjoy continuity
* more finance can be raised than sole trader and partnership
disadvantages:
* can only sell their shares to family, friends
* more expensive to operate than a sole trader or partnership
* can become a target for a takeover
Publicly held companies
Features of publicly held companies:
* owned by shareholders
* shares can be bought and sold by the general public
* can be bought and sold via a stock exchange
* publish their final accounts each year
* initial public offering (IPO)
advantages:
* Additional finance can be raised through shares
* easy to borrow money from bank loans
* limited liability
* economies of scale
* enjoy continuity
disadvantages:
* lack of privacy ( publish Annual Report and Final Accounts)
* potential threat of takeover (rival company will make a takeover bid)
* diseconomies of scale (high average costs of production)
for-profit social enterprise
not charity
uses commercial business practices in order to achieve social goals
focus on meeting social goals
- private sector company
- public sector company
- cooperatives
non-profit social enterprise
non-governmental organisation (NGO)
for-profit enterprise vs charity
for-profit social enterprises need to earn a profit in order to survive.
traditional charities rely on donations as their main source of finance.
private sector company (social enterprise)
sama macam for-profit business private held company tapi for-profit social enterprise ada social objectives and use ethical practices to achieve these goals
- earn revenues and profit in socially responsible ways
- uses surplus to benefit the society/environment
microfinance provider
offer a financial service to those without a job or on very low incomes to start business
advantages of microfinance provider:
* help people get out of poverty
* can create benefits for community such as improved healthcare
disadvantages:
* provides finance on a small scale
* incur interest charges, can be rather expensive for small business
* some people thought it is unethical as they earn money form low income individuals
public sector company (social enterprise)
operate in a commercial-like way (selling goods and/or services) but are owned and/or controlled by government authorities
can be owned wholly or partially by government
there is case like public-private partnerships (PPP) sbb public sector tak mampu nak provide finances to operate an enterprise;private sector bagi fund
e.g. housing associations (sime darby buat rumah untuk orang tak mampu under projek kerajaan) or public transport providers (mrt under kerajaan tapi ada private company yang terlibat)
advantages:
* create secure employment opportunities (kerja kerajaan)
* reduce the debt burden of the economy
disadvantages:
* sbb nak tanggung social enterprise punya pasal, kerajaan abaikan benda lagu penting such as road maintenance
* expensive to operate, mrt tu RM 31 Bil (high risk business)
cooperatives
koperasi (acc f5)
owned and managed by their members
e.g. employee cooperative
features of cooperatives:
* profits are shared amongst members
* limited liability organisation
* all members have equal rights of voting
advantages:
* not difficult or expensive to set up
* tax exempt
* continuity
disadvantages:
* as it is a non-profit organisation, it is difficult to attarct investors
* very limited sources of finance (all sources of finance come from its members)
non-profit social enterprise
- operate in a commercial-like way
- must earn a financial surplus
- surplus are completely reinvested back in the social enterprise and/or the community
- do not distribute any profits or financial surplus to their owners or shareholders
advantages:
* exempt from paying corporate and profits taxes
* give benefits for local communities
disadvantages:
* wages and remuneration of workers are often lower than in commercial
non governmental organisation
non-profit social enterprise that operates in the private sector of the economy
usually funded by:
* government grants or donation
* international organisation
* charitable organisation
