1.2 - Types of Business Entities Flashcards
public sector
encompasses businesses that are owned and controlled by the government
owned by government to ensure:
* everybody has access to it (essentials)
* they can control the price
* protect country from outside dangers (army/military)
private sector
encompasses businesses that are owned and run by private individuals
(commonly run for profit)
what is nationalization/privatization
nationalization:
* when a government takes control of a private sector business
privatization:
* when a business owned by the government is moved into the private sector
what is a sole trader?
a sole trader is an individual who creates and runs a business, taking all the financial risk and keeping all of the profit
- can hire employees
- unincorporated & unlimited liability
what does it take to be a successful sole trader?
- be willing to work on your own
- confidence to make own decisions
- understand all aspects of the business
sole trader - advantages/disadvantages
advantages
* make decisions alone (motivation)
* keep all profits
* setting up is easy
* decision making is quick - react to market
disadvantages
* may be less start-up capital
* may be a lot of work (stress etc.)
* unincorporated, unlimited liability
partnership definition
when 2 or more individuals come together to set up and run a business enterprise - risk is shared and profits are shared
what is a deed of partnership?
what does it state?
a legal document which a partnership is based on
usually states:
* Legal requirements
* Business name and other formalities
* Funding from each partner
* Distribution of profits
* Salary of the partners
* Dismissal of partners
partnership - advantages/disadvantages
advantages
* share resources - start-up capital
* shared ideas
* shared responsibility
* can cover if one is sick
disadvantages
* may lead to miscommunications/misunderstanding
* unincorporated - unlimited liability
* share profits
what are shareholders?
what are some traits of sole traders?
persons or organisations that own a part of a company (a share)
* a share: a certificate that confirms a part ownership of a given business
* every shareholder is entitled to dividends
* Every shareholder is entitled to participate and vote in an annual general meeting (AGM)
what is limited liability?
why is it important?
a company is responsible for the mnoeythat is owed by the personal possessions of the owner are safe
- essential because without it investors are far less likely to buy shares - risk to personal possessions
what is a company?
a business organisation which has its own legal identity, limited liability
why do individuals become shareholders in companies?
if the business is successful - the values of shares should increase
profits should be shared out to shareholders (called dividends)
unlimited liability definition
in the case of bankruptcy - the owners are completely liable for the debts of the business and could potentially lose more than originially invested (personal assets)
privately held companies definition
- companies owned by shareholders
- owners can restrict who shares are sold to
- owners of shares can not advertise their shares for sale - only sell privately
- incorporated +limited liability
(often owned by families so that other individuals can not get involved)
publicly held company definition
a business which publicly sells shares on the stock market
* shareholders can sell their shares to anybody
* are allowed to advertise shares in media (publically)
privately held company - pros/cons
pros
* limited liability
* finance can be raised through selling stocks
* specialist managers can be hired to each department
* finances of the business remain private
cons
cons
* profits shared with all owners
* shares can not be sold to public - not with approval of all shareholders (less attractive to shareholders)
* legal costs of incorporation and becoming a company
publically held company definition and traits
a company whose stocks are sold on the open market and stock exchange
* incorporated and limited liability
* going public requires an IPO - initial public offering
publicly held company - pros/cons
pros
* limited liability
* can raise large amounts of capital through selling shares
* easy for people to trade shares - more of an attractive investment
* specialist managers can behired in each department
cons
* high legal costs for going public
* finances are made public
* ownership of company may be split across indiviauls who prioritise profits rather than growth of business
what is a for-profit social enterprise
a business that makes revenue and profit, while considering their social and environmental impacts
(exists in both public and private sector)
private/public sector for profit social enterprises - what do they do with their money?
private sector for-profit social enterprise
* some of profit is used to benefit society rather than be paid out to owners
public sector for-profit social enterprise
* make a profit to avoid losses
* raise tax money through profits for other sectors of the economy
cooperative
* definition
* what different types are there?
- a form of for-profit social enterprise
- a business that is owned and run by its members for the common benefit of its members
- decisions made democratically by members
Producer Cooperatives
* producers come together to demand better prices/deals
Employee Cooperatives
* employees get together to run their own business
(eg. a school run by teachers)
Consumer Cooperatives
* consumers get together to demand better prices/deals
for-profit social enterprises - pros/cons
pros
* benefit society while also generating profit
* self sustaining - they generate their own profits
* motivational for employees - benefitting the environment
cons
* investors need patience (return on investment may come slow and lower than other businesses)
* greenwashing - actually looking out for cause or just doing it for brand image?
* growth can divert company to other objectives
non for-profit social enterprises definition
* how is it funded?
a business that is not run for profits, rather its goal is to benefit society and the environment
funded through:
* donations
* selling goods or services (eg. merch)
Types of non for-profit social enterprises
non-governmental organisations (NGOs)
* a business that is not run for profits, rather for a cause, which is not affiliated with the government
Charities
* a trust, company or incorporated association establishes for charitable purposes only
how can charities earn money?
- donations
- fundraising events
- selling merch (products)
- membership fees
- sponsorships/partnerships
