1.2 Types of organisations

Question 1

Three sectors in the economy:

Answer 1

the public, the private, and the non-profit sectors

Question 2

The public sector

Answer 2

The public sector includes all those organisations that are owned and operated by either the central government or local governments (municipalities), or their agencies, such as the National Health Service in the United Kingdom. Institutions in the public sector are usually dedicated to providing services to the public rather than earning a profit.

Question 3

The private sector

Answer 3

The private sector includes all those organisations that are owned by individuals or groups of individuals. Organisations in the private sector are usually constrained by the necessity of earning profits in order to compensate their owners for the investment they have made in the organisation.

Question 4

Types of organisations

Answer 4

For-profit- Sole traders, Partnerships, Companies/corporations

Non-profit - NGOs, Charities

Other organisations and partnerships- Cooperatives, Microfinance providers, Public-private partnerships, Social enterprises

Question 5

For-profit organisations

Answer 5

Sole traders, Partnerships, Companies/corporations

Question 6

Sole traders

Answer 6

A sole trader is a for-profit business owned by a single individual. There is little legal distinction between the business and its owner and the owner is personally responsible for the debts of the business.

Question 7

Advantages of Sole traders

Answer 7

-Easy to set up
-Owner has total control
-Owner keeps all profits
-Financial performance remains confidential

Question 8

Disadvantages of Sole traders

Answer 8

-Unlimited liability
-No help with decision-making
-Owner assumes all losses
-Limited access to financing
-Uncertainty should the owner die or become incapacitated

Question 9

A partnership

Answer 9

A partnership is a for-profit business owned by two or more individuals who are each personally responsible for the debts of the business. Most partnerships are set up under a partnership agreement that determines how major decisions are to be made, as well as the impact on the partnership of the decease or withdrawal of one of the partners.

Question 10

Advantages of A partnership

Answer 10

-Financial performance remains confidential
-Partners share management responsibility
-Partners may have complementary expertise
-Partners may each contribute financing

Question 11

Disadvantages of A partnership

Answer 11

-Unlimited liability
-Partners share profits
-Partners may disagree
-Potential sources of additional financing remain limited compared to corporations

Question 12

A corporation

Answer 12

A corporation is a for-profit business owned by numerous shareholders who enjoy limited liability. That is, individual shareholders are not responsible for the debts of the business.

Question 13

Advantages of A corporation

Answer 13

-Limited liability
-Independent legal identity
-Can raise large amounts of funds by selling shares
-Death or change in ownership does not have an impact on the corporation

Question 14

Disadvantages of A corporation

Answer 14

-Administratively difficult and expensive to create
-Potential for conflicts of interest between owners and managers; management may not always act in shareholders’ interests
-Financial accounts must be published every quarter in the case of public limited companies
Selling shares dilutes the ownership of the corporation and control cannot be exerted over who buys the shares in the case of a public limited company

Question 15

Private limited companies

Answer 15

Private limited companies are owned by a relatively small number of shareholders, who may find it difficult to sell their shares if they wish to ‘cash out’ and use the funds for another purpose. Many private limited companies are owned by families,

Question 16

Public limited companies

Answer 16

Public limited companies therefore have greater access to capital than do private companies. However, in exchange, they must publish their financial accounts, making this information available to the public, including potential competitors.

Question 17

Non-profit organisations

Answer 17

NGOs, Charities

Question 18

Non-governmental organisations (NGOs)

Answer 18

Non-governmental organisations (NGOs) are non-profit organisations that usually state their purpose or mission as benefiting society or the environment.

Question 19

Charities

Answer 19

Charities are non-profit organisations that exist to benefit the public. Charities enjoy tax advantages under UK law.

Question 20

Other organisations and partnerships

Answer 20

Cooperatives
Microfinance providers
Public-private partnerships
Social enterprises

Question 21

Cooperatives

Answer 21

A cooperative is an organisation that is owned by its members who come together to work towards a common interest. Cooperatives are run democratically, with members having a say in important decisions.

Question 22

Type of cooperatives

Answer 22

agricultural cooperatives, retail cooperatives, consumer cooperatives, workers’ cooperatives, residents’ cooperatives

Question 23

Microfinance providers

Answer 23

Microfinance providers make financial services available to individuals whose needs would otherwise not be met by traditional financial institutions like banks.

Question 24

Public-private partnerships (PPPs)

Answer 24

Public-private partnerships (PPPs) are arrangements whereby the public sector enlists the help of a private sector organisation in order to meet its objectives more efficiently. PPPs often involve large infrastructure projects.

Question 25

Social enterprises

Answer 25

Social enterprises are organisations that engage in business activity but that have also set themselves important goals in terms of improving society or protecting the environment. Social enterprises may be organised as for-profit businesses, non-profit organisations, or cooperatives.