1.2 Types of organisations Flashcards
Public sector
Comprises organisations accountable to and controlled by central central or local government
Private sector
Comprises businesses owned and controlled by individuals or groups of individuals
Mixed economy
Economic resources are owned and controlled by both private and public sectors
Free market economy
Economic resources are owned largely by the private sector with very little state intervention
Privatisation
The sale of public sector organisations to the private sector
Examples of public sector need
Maintaining employment
Maintaining environmental standards
Ensuring supplies of essential good and services
Preventing private monopolies
Public corporation (public sector enterprise, nationalised industry)
A business enterprise owned and controlled by the state
Advantage of public sector organisations
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
Disadvantages of public sector organisations
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
Sole trader
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
Advantages of sole trader
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
Disadvantages of sole trader
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
Partnership
A business formed by two or more people to carry on a business together, with shared capital investment and, usually, shared responsibilities
When does a partnership become a corporation and pay corporate tax?
More than 15 partners
Advantages of partnership
Liability is spread around
Range of skills
Higher capital
Losses are shared
Shared decision making
Disadvantages of partnership
Unlimited liability despite being spread out between partners
Profits are shared
No contiunuity after death of one of the partners
Slower decision-making
Limited liability of a company
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
Share
A certificate confirming part ownership of a company and entitling the shareholder to dividends and certain shareholder rights
Shareholders
Individuals or institutions that buy/own shares in a limited company
Legal personality of a company
A company is legally recognised as having identity separate from that of its owners.
Continuity of a company
The death of an owner or director does not lead to its break up or dissolution
Private limited company
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
Advantages of a private limited company
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
Disadvantages of a private limited company
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
Public limited company
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
Advantages of public limited company
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
Disadvantage of public limited company
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
Why would businesses change their legal form?
To expand and as the owner’s objectives change
Social enterprise
A business with mainly social objectives that reinvests most of its profits into benefiting society rather than maximising returns to owners
Common features of social enterprise
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
Objectives of social enterprises
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
Triple bottom line
The three objectives of social enterprises:
Economic
Social
Environmental
Cooperative
A group of people acting together to meet the common needs and aspirations of its members, sharing ownership and making decisions democratically
What are the three cooperatives that cooperatives fall into?
Retail cooperative
Agricultural cooperative
Worker cooperative
Retail cooperative (consumers’ cooperatives)
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.
Agricultural cooperative
This exists when farmers pool resources for mutual benefit
Worker cooperative
Often engaged in manufacturing. Workers collectively own the business and make the important decisions
Microfinance
The provision of very small loans by specialist finance businesses, usually not traditional commercial banks
Public-private partnership (PPP)
Involvement of the private sector, in the form of management expertise and/or financial investment, in public sector projects aimed at benefiting the public
Private finance initiative (PFI)
Investment by private sector organisations in public sector projects
What are the 3 main types of Public private partnerships?
Government funded
Private sector funded
Government directed but with private sector finance and management
Government funded PPP
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.
Costs of PPP
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
Benefits of PPP
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.
Non profit organisation
Any organisation that has aims other than making and distributing profit and which is usually governed by a voluntary board
Non governmental organisation (NGO)
A legally constituted body with no participation or representation of any government which has a specific aim and purpose
Types of aims for NGOs
Social
Environmental
Humanitarian
Charities
An organisation set up to raise money to help people in need or to support causes that require funding
Examples of activities of charities that are accepted as being for charitable purposes
Prevention or relief of poverty
Advancement of education
Advancement of religion
Advancement of health or the saving of lives
