1.2 Types of organisations

Question 1

Public sector

Answer 1

Comprises organisations accountable to and controlled by central central or local government

Question 2

Private sector

Answer 2

Comprises businesses owned and controlled by individuals or groups of individuals

Question 3

Mixed economy

Answer 3

Economic resources are owned and controlled by both private and public sectors

Question 4

Free market economy

Answer 4

Economic resources are owned largely by the private sector with very little state intervention

Question 5

Privatisation

Answer 5

The sale of public sector organisations to the private sector

Question 6

Examples of public sector need

Answer 6

Maintaining employment

Maintaining environmental standards

Ensuring supplies of essential good and services

Preventing private monopolies

Question 7

Public corporation (public sector enterprise, nationalised industry)

Answer 7

A business enterprise owned and controlled by the state

Question 8

Advantage of public sector organisations

Answer 8

Managed with social objectives rather than solely with profit objectives

Loss making services might still be kept operating if the social benefit is great enough

Finance raised mainly from the government so not subject to limitations from banks or shareholders

Question 9

Disadvantages of public sector organisations

Answer 9

Tendency towards inefficiency due to lack of strict profit targets

Subsidies from government can encourage inefficiencies

Government may interest in business decisions for political reasons

Question 10

Sole trader

Answer 10

A business which one person provides the permanent finance and therefore has full control of the business and is able to keep all of the profits

Question 11

Advantages of sole trader

Answer 11

Easy to set up - no legal formalities

Owner has complete control - not answerable to anyone else

Owner keeps all profits

Able to choose times and patterns of working

Able to establish close personal relationships with staff and customers

The business can be based on the interest or skills of the owner

Question 12

Disadvantages of sole trader

Answer 12

Unlimited liability - all owner’s assets are at risk

Often faces intense competition from bigger firms

Owner is unable to specialise in areas of the business that are most interesting - is responsible for all aspects of management

Difficult to raise additional capital

Long hours often necessary to make business pay

Lack of continuity - as the business does not have separate legal status, when the owner dies the business ends too

Question 13

Partnership

Answer 13

A business formed by two or more people to carry on a business together, with shared capital investment and, usually, shared responsibilities

Question 14

When does a partnership become a corporation and pay corporate tax?

Answer 14

More than 15 partners

Question 15

Advantages of partnership

Answer 15

Liability is spread around

Range of skills

Higher capital

Losses are shared

Shared decision making

Question 16

Disadvantages of partnership

Answer 16

Unlimited liability despite being spread out between partners

Profits are shared

No contiunuity after death of one of the partners

Slower decision-making

Question 17

Limited liability of a company

Answer 17

The only liability - or potential loss - a shareholder has if the company fails is the amount invested in the company, not the total wealth of the shareholder

Question 18

Share

Answer 18

A certificate confirming part ownership of a company and entitling the shareholder to dividends and certain shareholder rights

Question 19

Shareholders

Answer 19

Individuals or institutions that buy/own shares in a limited company

Question 20

Legal personality of a company

Answer 20

A company is legally recognised as having identity separate from that of its owners.

Question 21

Continuity of a company

Answer 21

The death of an owner or director does not lead to its break up or dissolution

Question 22

Private limited company

Answer 22

A small to medium sized business that is owned by shareholders who are often members of the same family. This company cannot sell shares to the general public

Question 23

Advantages of a private limited company

Answer 23

Shareholders have limited liability

Seperate legal personality

Continuity in the event of the death of a shareholder

Original owner is still often able to retain control

Able to raise capital from sale of shares to family, friends and employees

Greater status than an unincorporated business

Question 24

Disadvantages of a private limited company

Answer 24

Legal formalities involved in establishing the business

Capital cannot be raised by sale of shares to the general public

Quite difficult for shareholders to sell shares

End of year accounts must be inspected

Question 25

Public limited company

Answer 25

A limited company, often a large business, with the legal right to sell shares to the general public. Its share price is quoted on the national stock exchange

Question 26

Advantages of public limited company

Answer 26

Limited liability Separate legal identity Continuity Ease of buying and selling of shares for shareholders - encourages investment Access to substantial capital sources due to the ability to issue a prospectus to the public and to offer shares for sale

Question 27

Disadvantage of public limited company

Answer 27

Legal formalities in formation Cost of business consultants and financial advisers when creating a plc Share prices subject of fluctuation - sometimes for reasons beyond business's control Legal requirements concerning disclosure of information to shareholders and the public Risk of takeover due to the availability of shares on the stock exchange Directors influenced by short term objectives of major investors

Question 28

Why would businesses change their legal form?

Answer 28

To expand and as the owner's objectives change

Question 29

Social enterprise

Answer 29

A business with mainly social objectives that reinvests most of its profits into benefiting society rather than maximising returns to owners

Question 30

Common features of social enterprise

Answer 30

They directly produce goods or provide services They have social aims and use ethical ways of achieving them They need to make a surplus for profit to survive as they cannot rely on donations as charities do

Question 31

Objectives of social enterprises

Answer 31

Economic - to make a profit or surplus to reinvest back into the business and provide some return to the owners Social - to provide jobs or support for local, often disadvantaged, communities Environmental - to protect the environment and to manage the business in an environmentally sustainable way

Question 32

Triple bottom line

Answer 32

The three objectives of social enterprises: Economic Social Environmental

Question 33

Cooperative

Answer 33

A group of people acting together to meet the common needs and aspirations of its members, sharing ownership and making decisions democratically

Question 34

What are the three cooperatives that cooperatives fall into?

Answer 34

Retail cooperative Agricultural cooperative Worker cooperative

Question 35

Retail cooperative (consumers' cooperatives)

Answer 35

Cooperative owned by customers for their mutual benefits. it is a private sector enterprise that is oriented towards service rather than financial profit. The consumers are the people who have provided the capital required to launch or purchase the enterprise and profits are shared either by discounts on products or by a payout to customer owners each year.

Question 36

Agricultural cooperative

Answer 36

This exists when farmers pool resources for mutual benefit

Question 37

Worker cooperative

Answer 37

Often engaged in manufacturing. Workers collectively own the business and make the important decisions

Question 38

Microfinance

Answer 38

The provision of very small loans by specialist finance businesses, usually not traditional commercial banks

Question 39

Public-private partnership (PPP)

Answer 39

Involvement of the private sector, in the form of management expertise and/or financial investment, in public sector projects aimed at benefiting the public

Question 40

Private finance initiative (PFI)

Answer 40

Investment by private sector organisations in public sector projects

Question 41

What are the 3 main types of Public private partnerships?

Answer 41

Government funded Private sector funded Government directed but with private sector finance and management

Question 42

Government funded PPP

Answer 42

Privately managed schemes. Government provides all or part of the funding, but the organisation is managed by a private business that uses private sector methods and techniques to control it as efficiently as possible.

Question 43

Costs of PPP

Answer 43

The private sector could try to increase profits by cutting staff wage sand benefits. PFI schema have been criticised for earning private sector business larger profits from high rents and leasing charges Private sector organisations may lack the experience needed to operate large public sector projects

Question 44

Benefits of PPP

Answer 44

Many schools, roads, prisons and hospitals have been built through PP schemes. Private sector had to be involved. Private sector businesses aim to make profits. Their managers will therefore operate services as efficiently as possible. By using private sector business finance, the government can claim that public services are being improved without an increase in taxes.

Question 45

Non profit organisation

Answer 45

Any organisation that has aims other than making and distributing profit and which is usually governed by a voluntary board

Question 46

Non governmental organisation (NGO)

Answer 46

A legally constituted body with no participation or representation of any government which has a specific aim and purpose

Question 47

Types of aims for NGOs

Answer 47

Social Environmental Humanitarian

Question 48

Charities

Answer 48

An organisation set up to raise money to help people in need or to support causes that require funding

Question 49

Examples of activities of charities that are accepted as being for charitable purposes

Answer 49

Prevention or relief of poverty Advancement of education Advancement of religion Advancement of health or the saving of lives