1.2 Types of organisations

Question 1

Private sector

Answer 1

goal is to make profit and is owned, financed and run by private individuals

Question 2

Public sector

Answer 2

goods and services provided by the government local authority

Question 3

Reasons for public sector business activity

Answer 3

• 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

Question 4

What is a sole trader?

Answer 4

a self-employed person who runs and controls the business and is the sole person held responsible for its success or failure

Question 5

Name the advantages and disadvantages of a sole trader.

Answer 5

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

Question 6

What is a ‘partnership’?

Answer 6

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

Question 7

What does the ‘deed of partnership’ include?

Answer 7

• 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

Question 8

Name the advantages and disadvantages of a partnership.

Answer 8

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

Question 9

What are private limited companies?

Answer 9

a business owned by shareholders with limited liability but whose shares cannot be bought by or sold to the general public

Question 10

What are the features of private limited companies?

Answer 10

• 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

Question 11

What are public limited companies

Answer 11

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

Question 12

Before companies can begin, what two documents must be submitted to the appropriate authorities?

Answer 12

Memorandum of Association

Articles of Association (Articles of Incorporation)

Question 13

Memorandum of Association

Answer 13

a relatively brief document outlining the fundamental details of the company
e.g. its name, its main purpose, address, amount or share capital invested

Question 14

Articles of Association

Answer 14

states the internal regulations and procedures of the company
e.g. the rights, roles and power of the BOD and shareholders

Question 15

Certificate of Incorporation

Answer 15

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

Question 16

What must all companies host?

Answer 16

an Annual General Meeting

Question 17

What are the three main processes at an AGM?

Answer 17

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

Question 18

Name the advantages and disadvantages of companies/corporations.

Answer 18

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

Question 19

What are ‘social enterprises’?

Answer 19

revenue-generating businesses with social objectives at the core of their operations

Question 20

What are the three main types of social enterprises?

Answer 20

• cooperatives
• microfinance providers
• public-private partnerships (PPP)

Question 21

Cooperatives

Answer 21

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

Question 22

What are the three main types of cooperatives?

Answer 22

consumer cooperatives
worker cooperatives
producer cooperatives

Question 23

Name the advantages and disadvantages of cooperatives.

Answer 23

Ads:

• incentives to work
• decision-making power
• social benefits
• public support

Disads:

• disincentive effects
• limited sources of finance
• slower decision-making
• limited promotional opportunities

Question 24

Microfinance

Answer 24

a type of financial service aimed at entrepreneurs of small businesses, especially females and those on low incomes

Question 25

Name the advantages and disadvantages of microfinance providers.

Answer 25

Ads:

• accessibility
• job creation
• social wellbeing

Disads:

• immorality
• limited finance
• limited eligibility

Question 26

Public-private partnerships

Answer 26

occur when the government works together with the private sector to jointly provide certain goods or services

Question 27

Non-governmental Organisation (NGO)

Answer 27

is non-profit social enterprise that operates in the private sector; it is not owned or controlled by the government

Question 28

What are the two types of NGOs?

Answer 28

operational NGOs

advocacy NGOs

Question 29

Operational NGOs

Answer 29

established from a given objective or purpose; tend to be involved in relief-based and community projects

Question 30

Advocacy NGOs

Answer 30

take a more aggressive approach to promote or defend a cause, striving to raise awareness through direct action

Question 31

Charity

Answer 31

non-profit social enterprise that provides voluntary support for good causes (from society’s point of view)

Question 32

Name the advantages and disadvantages of charities

Answer 32

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

Question 33

What are the factors that affect the strategic choice of business organisation?

Answer 33

size 
amount of finance
limited liability
degree of ownership and control
the type of business activity
change