1.2 Types Of Organizations

Question 1

What is the public sector?

Answer 1

All organisations that are controlled by the centred or local government

Question 2

What is the private sector?

Answer 2

All 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 3

Which sector is (generally) not affected by recession and helps reduce inequality in society?

Answer 3

Public sector

Question 4

Which sector is incentivised through profits, doesn’t require taxes to fund and is less prone to corruption?

Answer 4

Private sector

Question 5

Which goods help reduce inequality in society?

Answer 5

Public goods (eg. road lights, streets..)

Question 6

Why is competition important?

Answer 6

• Quality
• R&D
• Cheaper
• Choice
• Responsibility to private lender
• Less taxes spent

Question 7

What is ‘privatisation’?

Answer 7

The transfer of a business, industry, or service from public to private ownership and control.
Eg. German government selling their stake in the postal business

Question 8

What is ‘nationalisation’?

Answer 8

The transfer of a major branch of industry or commerce from private to state ownership or control.
–> Eg. Dexia (Belfius) was nationalised by the Belgian Government after the 2008 crisis

Question 9

What is the opposite of ‘nationalisation’?

Answer 9

privatisation

Question 10

What is ‘limited liability’?

Answer 10

Limited Liability is when the losses that business owners (shareholders) incur are limited to the amount of capital invested by them. The business and the owner have separate legal identities. (PLC AND LTD)

Question 11

What is ‘unlimited liability’?

Answer 11

Unlimited Liability is where a business has debts the owner must pay even if this means selling their own possessions to find the money. Sole trader and partnerships.

(The owner is personally liable for all debt)

Question 12

What are “sole traders”?

Answer 12

Sole traders are individuals who own and run their businesses alone. They have unlimited liability, which means there is no legal distinction between the individual and their business.
+ easy to set up (little paperwork)
+ able to run the business how they like
- personally responsible for any losses (can seize personal possessions)
- if owner dies, the future of business may become uncertain

Question 13

What are “partnerships”?

Answer 13

Partnerships are a business owned by 2 to 20 people. Money is usually provided by the partners themselves, and they have unlimited liability. The ownership and control is spread across multiple people, so this may cause arguments.
–> Could have a sleeping investor, which has LIMITED LIABILITY

Question 14

What are “private limited companies” [LTD]?

Answer 14

A private limited company is a privately held company with a maximum of 50 shareholders. Setting up an LTD is a very popular way of starting a business.
+ limited liability (owner would be legally separate from the business)
+ continued existence
+ easy investment/ lending opportunities
- can’t be publicly traded
- maximum 50 shareholders
- lots of paperwork

Question 15

What are “public limited companies” [PLC]?

Answer 15

Public Limited Company [PLC]:
A public limited company is a company which is able to list its stocks to the public to buy. To
convert to a public limited company a company must be a private limited company.
+ limited liability
+ no maximum number of owners
+ can raise capital through public shares (IPO)
+ banks more willing to loan money to a PLC
- difficult to control who is a shareholder of a company (hostile takeover)
- many board members have to agree and appoint a ceo (more prone to arguments)

Question 16

What are “social enterprises”?

Answer 16

Social enterprises are organizations that apply commercial strategies to maximize improvements in financial, social and environmental well-being.

Generally, most social enterprises leave limited liability as it is a safer option. This means that the company is separate to the legal identity of the owners. Some social enterprises are helping their community grow, they have quite a lot responsibilities which explains why they must have limited liability.
+ limited liability
+ likely to get funding from gov as they benefit their community
- finding external investors is quite difficult as it is tough for them to compete with large businesses

Question 17

What are “cooperatives”?

Answer 17

It is a business owned and run by their owners who also share the profits. Usually, people who own
a co-op also run it (stocking the shelves of a grocery store). Co-op owners are usually people who
share common economic, social and cultural needs.
–> at least 5 owners, ALL with equal voting rights
+ limited liability
+ democratic management
+ tax exemptions
+ government grants
- lack of motivation (no promotions)
- arguments could occur in decision making
- inefficient management

Question 18

What are “micro-finance providers”?

Answer 18

This scheme is mostly used in less developed countries. They provide mini-loans to locals that can’t access standard bank loans. This helps local residents start a business or buy more agricultural land to increase harvest.
+ limited liability (if the firm goes into debt, the gov cannot come after the firm owner’s personal possessions)
+ helps people meet their financial needs
+ promotes investment in lower development countries

Question 19

What are “Public Private Partnerships”?

Answer 19

A (PPP) can be defined as a long-term contract between a private and government agency for
providing a public asset or services. Allows large scale government projects. Tend to reach periods
of 25-30 years
–> Eg. a city government isn’t able to take on a capital-intensive building idea. An enterprise might be interested in paying the requiring amount, and in return the enterprise would get something in return (eg. parts of profit of building).
+ can improve technology and innovation
+ allows and encourage private sector to create projects
+ positive for both sectors
- could exceed costs
- infrastructure that hasn’t been built correctly may lead to accidents

Question 20

What are “charities”?

Answer 20

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