1.2 Types of Businesses

Question 1

privately held companies

Answer 1

shares not sold to wider public or traded on stock exchange
- owned and controlled by private individuals

Question 1

advantages of privately held companies

Answer 1

• control and ownership shared between a small group
• greater access to finance
• limited liability
• private financial records

Question 1

disadvantages of privately held companies

Answer 1

• profits shared between many shareholders
• lengthier decision-making
• privacy (no external experts analysing)
• expensive
• time-consuming

Question 2

public sector firms

Answer 2

owned and controlled by government and funded through taxation

Question 3

privatisation

Answer 3

when public sector firms are sold to the private sector

Question 4

partially privatised

Answer 4

partially privately owned and partially publicly owned

Question 5

advantages of publicly held companies

Answer 5

• finances: capital can be raised by selling shares to the public
• risks shared among large group
• continuity
• limited liability

Question 6

disadvantages of publicly held companies

Answer 6

• profits shared between many
• high costs
• loss of control
• public financial records

Question 7

social enterprise

Answer 7

social or environmental purpose at core

Question 8

for-profit social enterprises

Answer 8

• profit and revenue making
• integrates social/environmental impact into business model
• any legal form
• distribute value of business
• most profit reinvested, rest to shareholders

Question 9

private sector for-profit social enterprises

Answer 9

produces goods and services typically sold for a price
- in private sector

Question 10

public sector for-profit social enterprises

Answer 10

produces goods and services provided by public sector
- bid for contracts with governments

Question 11

cooperatives

Answer 11

• business owned by its members
• run by common interest
• limited liability

Question 12

benefits of for-profit social enterprises

Answer 12

• positive impact on the world
• economically sustainable
• increasing number of customers

Question 13

challenges of for-profit social enterprises

Answer 13

• 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

Question 14

private sector

Answer 14

• owned and controlled by private individuals
• decisions taken by owners
• provide goods and services at market price

Question 15

features of private sector

Answer 15

• private ownership and control
• little or no government involvement
• profits earned by owners
• largely privately funded

Question 16

how private sector helps economy

Answer 16

• creates employment
• helps growth/ development of economy
• wide variety of goods and services

Question 17

public sector

Answer 17

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

Question 18

features of public sector

Answer 18

• owned and controlled by government
• provides essential goods/services
• financed by government by taxes and public funds
• answerable to public for decisions

Question 19

sole traders

Answer 19

individual who owns and runs a business alone

Question 20

advantages of sole traders

Answer 20

• easy to set up
• all profits go to sole trader
• fast decision-making
• personal service
• private financial records

Question 21

disadvantages of sole traders

Answer 21

• unlimited liability
• difficult to finance
• high risk of failure
• high workload
• lack of continuity
• possible higher taxes

Question 22

partnerships

Answer 22

creation of a business by 2 or more individuals (partners)
- governed by partnership agreements

Question 23

what is in partnership agreement

Answer 23

• how much each invests
• sharing of profits and losses by each
• roles and responsibilities of each
• rules around accepting new partners or terminating

Question 24

advantages of partnerships

Answer 24

• easy to set up
• greater access to finance
• greater efficiency
• private financial records

Question 25

disadvantages of partnerships

Answer 25

• unlimited liability
• lengthier decision-making
• legal and financial responsibility
• lack of continuity

Question 26

non-profit social enterprises

Answer 26

• improves social or environmental outcomes
• may receive funding through grants and donations (or additional revenue-making activities)
• any surplus must be reinvested by law

Question 27

evaluation of non-profit social enterprises

Answer 27

• 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)

Question 28

non-governmental organisations (NGOs)

Answer 28

• sub-category of non-profit social enterprises
• not controlled by government (but may receive government funding)