1.2 Types of Businesses Flashcards
privately held companies
shares not sold to wider public or traded on stock exchange
- owned and controlled by private individuals
advantages of privately held companies
- control and ownership shared between a small group
- greater access to finance
- limited liability
- private financial records
disadvantages of privately held companies
- profits shared between many shareholders
- lengthier decision-making
- privacy (no external experts analysing)
- expensive
- time-consuming
public sector firms
owned and controlled by government and funded through taxation
privatisation
when public sector firms are sold to the private sector
partially privatised
partially privately owned and partially publicly owned
advantages of publicly held companies
- finances: capital can be raised by selling shares to the public
- risks shared among large group
- continuity
- limited liability
disadvantages of publicly held companies
- profits shared between many
- high costs
- loss of control
- public financial records
social enterprise
social or environmental purpose at core
for-profit social enterprises
- profit and revenue making
- integrates social/environmental impact into business model
- any legal form
- distribute value of business
- most profit reinvested, rest to shareholders
private sector for-profit social enterprises
produces goods and services typically sold for a price
- in private sector
public sector for-profit social enterprises
produces goods and services provided by public sector
- bid for contracts with governments
cooperatives
- business owned by its members
- run by common interest
- limited liability
benefits of for-profit social enterprises
- positive impact on the world
- economically sustainable
- increasing number of customers
challenges of for-profit social enterprises
- funding: investors wait longer to see returns (patient capital) + lower returns than commercial enterprises
- credibility
- measuring impact is hard
- managing complex supply chains (all areas must be aligned with business’s values)
- remaining true to purpose
private sector
- owned and controlled by private individuals
- decisions taken by owners
- provide goods and services at market price
features of private sector
- private ownership and control
- little or no government involvement
- profits earned by owners
- largely privately funded
how private sector helps economy
- creates employment
- helps growth/ development of economy
- wide variety of goods and services
public sector
created, owned and controlled by government
- provides essential goods and services
- these services are underprovided by private sector as they aren’t as lucrative
- funded by taxation money
features of public sector
- owned and controlled by government
- provides essential goods/services
- financed by government by taxes and public funds
- answerable to public for decisions
sole traders
individual who owns and runs a business alone
advantages of sole traders
- easy to set up
- all profits go to sole trader
- fast decision-making
- personal service
- private financial records
disadvantages of sole traders
- unlimited liability
- difficult to finance
- high risk of failure
- high workload
- lack of continuity
- possible higher taxes
partnerships
creation of a business by 2 or more individuals (partners)
- governed by partnership agreements
what is in partnership agreement
- how much each invests
- sharing of profits and losses by each
- roles and responsibilities of each
- rules around accepting new partners or terminating
advantages of partnerships
- easy to set up
- greater access to finance
- greater efficiency
- private financial records
disadvantages of partnerships
- unlimited liability
- lengthier decision-making
- legal and financial responsibility
- lack of continuity
non-profit social enterprises
- improves social or environmental outcomes
- may receive funding through grants and donations (or additional revenue-making activities)
- any surplus must be reinvested by law
evaluation of non-profit social enterprises
- limited liability
- must reinvest all surplus
- don’t pay tax
- rely on volunteers, reducing costs
- receive grants/ donations
- funding issues
- intense competition for funding
- limited employee salaries (hard to retain and recruit talent)
non-governmental organisations (NGOs)
- sub-category of non-profit social enterprises
- not controlled by government (but may receive government funding)
