1.2 Types of organisations Flashcards
Private sector
goal is to make profit and is owned, financed and run by private individuals
Public sector
goods and services provided by the government local authority
Reasons for public sector business activity
- ensures that everyone has access to basic services
- avoid wasteful competition as the government is able to achieve huge economies of scale in the provision of certain services
- protect citizens and businesses through institutions
- create employment
- stabilise the economy
What is a sole trader?
a self-employed person who runs and controls the business and is the sole person held responsible for its success or failure
Name the advantages and disadvantages of a sole trader.
Ads:
- Quick and easy to set up
- Makes all the decisions
- Has complete control
- Keeps the profit
Disads:
- Unlimited liability
- May not be able to raise funds to expand the business
- Maybe have to work long hours
- Difficult to compete with larger rival firms
- May not have the business skills to run a business
What is a ‘partnership’?
a type of private sector business owned by 2-20 people (known as partners); they share the responsibilities and burdens of running and owning the business
What does the ‘deed of partnership’ include?
- the amount of finance contributed by each partner
- the roles, obligations and responsibilities of each partner
- how profits or losses will be shared among the partners
- conditions for introducing new partners
- clauses for the withdrawal of a partner
- procedures for ending the partnership
Name the advantages and disadvantages of a partnership.
Ads:
- Easy to set up a deed of partnership
- Partners invest in the business so greater access to funds
- Shared decision making
- Shared management and workload
Disads:
- Unlimited liability
- Share the profits
- Business ceases to exist if one partner leaves
- Decisions binding on all partners
- Difficult to raise finance
What are private limited companies?
a business owned by shareholders with limited liability but whose shares cannot be bought by or sold to the general public
What are the features of private limited companies?
- Usually a very small number of shareholders
- Fairly small
- Can only be sold privately
- Often difficult to raise finance
- Limited liability
- Profit belongs to shareholders
- Legal documents must be completed when setting up the business
- Continues even if one or more shareholders die
- Vote on major decisions
What are public limited companies
an incorporated business that allows the general public to buy and sell shares in the company via a stock exchange; all shareholders have limited liability
Before companies can begin, what two documents must be submitted to the appropriate authorities?
Memorandum of Association
Articles of Association (Articles of Incorporation)
Memorandum of Association
a relatively brief document outlining the fundamental details of the company
e.g. its name, its main purpose, address, amount or share capital invested
Articles of Association
states the internal regulations and procedures of the company
e.g. the rights, roles and power of the BOD and shareholders
Certificate of Incorporation
a license that is issued to the company when the authorities are satisfied with its documents; it recognises the business as a separate legal identity from its owners and allows the business to start trading as a limited liability company
What must all companies host?
an Annual General Meeting
What are the three main processes at an AGM?
shareholders vote on (promises and declaration) and the re-election of the board of directors
ask questions of the chief executive officer, directors and chairperson about various aspects of the company
approve the previous year’s financial accounts
Name the advantages and disadvantages of companies/corporations.
Ads:
- raising finance
- limited liability
- continuity
- economies of scale
- productivity
- tax benefits
Disads:
- communication problems
- added complexities
- compliance costs
- disclosure of information
- bureaucracy
- loss of control
What are ‘social enterprises’?
revenue-generating businesses with social objectives at the core of their operations
What are the three main types of social enterprises?
- cooperatives
- microfinance providers
- public-private partnerships (PPP)
Cooperatives
for-profit social enterprises owned and run by their members, such as employees or customers, with the common goal of creating value for their members by operating in a socially responsible way
What are the three main types of cooperatives?
consumer cooperatives
worker cooperatives
producer cooperatives
Name the advantages and disadvantages of cooperatives.
Ads:
- incentives to work
- decision-making power
- social benefits
- public support
Disads:
- disincentive effects
- limited sources of finance
- slower decision-making
- limited promotional opportunities
Microfinance
a type of financial service aimed at entrepreneurs of small businesses, especially females and those on low incomes
Name the advantages and disadvantages of microfinance providers.
Ads:
- accessibility
- job creation
- social wellbeing
Disads:
- immorality
- limited finance
- limited eligibility
Public-private partnerships
occur when the government works together with the private sector to jointly provide certain goods or services
Non-governmental Organisation (NGO)
is non-profit social enterprise that operates in the private sector; it is not owned or controlled by the government
What are the two types of NGOs?
operational NGOs
advocacy NGOs
Operational NGOs
established from a given objective or purpose; tend to be involved in relief-based and community projects
Advocacy NGOs
take a more aggressive approach to promote or defend a cause, striving to raise awareness through direct action
Charity
non-profit social enterprise that provides voluntary support for good causes (from society’s point of view)
Name the advantages and disadvantages of charities
Ads:
- social benefits
- tax exemptions for NPOs
- tax incentives for donors
- limited liability
- public recognition and trust
Disads:
- bureaucracy
- disincentive effects
- charity fraud
- inefficiencies
- limited sources of finance
What are the factors that affect the strategic choice of business organisation?
size amount of finance limited liability degree of ownership and control the type of business activity change
