1.2 Types of Business Entities

Question 1

Private sector

Answer 1

• Organisations owned and controlled by the private
  individuals and businesses rather than the
  government
• Differ in size can be small or big.
• Main aim is to earn profit for its owners.

Question 2

Public sector

Answer 2

Organisations under the ownership and control of the government.
- typically essential goods and services that would be unprovided/insufficiently provided by the private sector.
- e.g. health care, education, essential goods, and emergency services.

Question 3

Reasons for Public sector business

Answer 3

• equal access to basic services
• avoid wasteful competition as govt can achieve economies of scale in the provision of certain services.
• protect citizens
• Create employment opportunities
• stabilise economy

Question 4

Sole Traders

Answer 4

individual who runs own business. held entirely responsible for success.
- Unincorporated, owner is same legal entity as business itself, no legal difference between his/her possessions or business.

Question 5

ST pros and cons

Answer 5

Pros
- few legal formalities
- profit taking (owner takes all profit)
- more control (own boss)
- personalised service
- Privacy (no financial records need to be public)
- Quicker decision making

Cons
- Unlimited liability
- limited source of finance
- high risks
- workload and stress (boss must manage all four functions)
- limited economies of scale
- lack of continuity if owner is ill or dies

Question 6

Partnerships

Answer 6

For-profit business owned by two or more (20) persons
- financed mainly through personal funds
- unincorporated
- sign DEED OF PARTNERSHIP to share profit equally.
—> amount of finance contributed to each partner, roles and obligations and responsibilities of each partner, conditions for introducing new partners, clauses/procedures for withdrawal of partnership.

Question 7

Partnerships Pros/Cons

Answer 7

Pros
- Financial strength
- Specialisation and division of labour
- Financial privacy
- Cost effectiveness

Cons
- Unlimited liability
- A lack of continuity
- prolonged decision making
- lack of harmony

Question 8

Companies

Answer 8

Businesses owned by shareholders or other businesses that have invested money to provide share capital for a company or corporation.
- Incorporated has its own legal rights and duties
- Board of directors responsible for the running of the company, held accountable to shareholders.

Question 9

Privately own companies

Answer 9

limited liability companies that cannot raise share capital to the general public via the Stock Exchange. Shares are sold to private family members and friends. Shares cannot be bought or sold without prior agreement from the BOD so that the directors can maintain overall control of the company.

Question 10

Ltd companies Pros and Cons

Answer 10

Pros
- raising finance- companies can raise large amounts of capital by selling shares.
- limited liability
- continuity
- Economies of Scale
- productivity
- Tax benefits

Cons
- Communication problems
- Bureaucracy
- Compliance cost with legal regulations
- Disclosure of information
- loss of control

Question 11

Publicly held companies PLC

Answer 11

• Can advertise and sell shares to general public.
• IPO (Initial public offering) makes the plc listed on the public stock exchange, flotation helps to genearate additional sources of finance for the company.

Question 12

For-Profit Social enterprises

Answer 12

Social enterprises are revenue-generating business with social objectives at core of operations.
Strive to maintain surplus (instead of profit) for social gain rather than personal gain.

Question 13

Pros of FPSE

Answer 13

• can use financial surplus to benefit others in society beyond personal rewards for shareholders and owners
• create employment opportunities (economic/ social landscape improved)
• transparent, clean corporate conscience

Question 14

Private Sector Companies (FPSE)

Answer 14

• Use ethical business practices to achieve their social aims related to the needs of local communities and societies.
• produce goods and services in the same way as for-profit commercial organisations
• Three broad aims aligned to the triple bottom line.
  —>Economic aims- earn surplus and reinvest
  —> provide benefits to people in society
  —> Environmental aims

Question 15

Public Sector Companies (FPSE)

Answer 15

State owned enterprises run in a commerical way.
Formed by govt, through legal means and regulated as they participate in commercial business activities for financial gains.