1.2 Types of Business Entities Flashcards
Public sector
Firms who are owned and controlled by the government
run by government because:
everyone has access to those services at a fair price
the country can be made safe
Private Sector
Firms who are owned and controlled by the people, rather than the government
usually run in order to make profits
Sole trader
an individual who owns and controls the business
they take all the risk but in return keep all the profit
can hire employees
unincorporated and have unlimited liability
Partnership
2 or more people combine to form a business enterprise. they may combine finances, run the business together, share the risk and profit
partners usually:
share startup capital
share profit
share responsibilities
deed of partnership
legal document
might include:
how much each partner puts in
how much the profit is distributed
how much each partner will be paid
how a partner may leave
unlimited liability
if company goes bankrupt, the owner(s) are liable for the debts of the company and can lose more than the original amount they invested
their personal possessions can be used to pay off the debts of the company
unincorporated
owner is same legal entity as company
pros and cons of sole trader
pros:
easy to set up - few legal formalities
full control - more motivating
owner keeps all profits
close contact to the market
Cons:
unlimited liability
owner is responsible for all areas - workload and stress
less start-up capital so hard to expand
pros and cons of partnership
Pros:
each partner may share the work and specialize
more capital allows expansion
more input in decision making
Cons:
unlimited liability
decision making - more time, less control and disagreement
profits are shared
main difference from businesses and companies
- legal personality - incorporated
company and owners are different legal entities - business vs company - limited liability
if the business goes bankrupt, owners can only lose their initial investment in the company - owned by shareholders - share
certificate confirming part ownership of a company
entitled to dividends and voting at Annual General Meeting
board of directors, elected by shareholders, will run the company - continuity
ownership is passed down through inheritance - legalities
many rules and legal requirements in order to become and be a company
privately held companies
incorporated, limited liability, owned by shareholders
shares cannot be sold cus its not on the stock market - shares can only be sold with agreement of others
small to medium- sized company
publicly held companies
incorporated, limited liability, owned by shareholders
to go public = private to publicly held company
IPO - initial public offering = stock market flotation
will sell a % of the company to raise finance
ownership is split across people who are often not linked to the company
is listed on the stock market
Pros and cons of privately held companies
Pros:
limited liability
can raise more finance than sole traders/partnerships
can hire specialist managers in each department
finances are still private
Cons:
profits are shared with all owners
cannot sell shares to general public, making shares less attractive to investors
legal requirements of being a company
pros and cons of publicly held companies
Pros:
limited liability
raise large amounts of capital
easy for shareholders to trade shares, making shares more attractive
can hire specialist managers in each department
Cons:
costly legal requirements of going public
lack of financial privacy - everyone can look at your finances
short termism of shareholders - they will demand profits and dividends
social enterprise
a business that makes revenue and profits but also has a social or environmental objective as apart of its business model
objectives - make profit, benefit society
Private sector For-profit social enterprises
similar to to other private sector businesses they make profit
Differences:
some of the profit is used to benefit society rather than paid out to the owners
they try to run their business in socially responsible ways.
public sector for-profit social enterprises
Government owned and run businesses that are run similar to private sector businesses
they aim to:
make profit (or avoid large losses)
raise tax money through profits
provide essential goods and services
examples are:
electricity companies and motorway tolls
cooperative
for profit social enterprises owned and controlled by its member and run for the common benefit of its members
decisions can be voted on by members democratically
producer cooperative
e.g. farmers - can negotiate better prices on buying inputs (e.g. fertilizers) and selling price
consumers cooperative
owned by consumers and managed democratically and that aims at fulfilling the needs and aspirations of its members
e.g. farmers - credit agricole
employee cooperative
A school owned by the teachers
edeka is a cooperative founded in 1898 as the E.d.K
types of for-profit social enterprises
Cooperative
Producer Cooperative
Consumer Cooperative
Employee cooperative
Pros and cons of for-profit social enterprises
Pros:
Benefit society and generate profit
are self-sustaining - don’t need to depend on taxpayer money or donations
motivation for employees
Cons:
funding - investors may need to be patient and may receive lower returns on their investment
greenwashing - is the business genuinely a social enterprise or merely using environmental goals as greenwashing
growth can pose challenges
as the business grows it may become more difficult to stick to your core beliefs
Non-profit social enterprises
businesses that are not run for the purpose of making profit but to benefit society
their funding can come from donations and selling goods and services
Non-governmental organization (NGO)
business with a social mission which operates outside of government control
