1.2 Types of organizations

Question 1

Public sector

Answer 1

Comprises organizations accountable to and controlled by central or local government, traditionally, they provide essential goods and services that would be under provided or inefficiently provided by the private sector, e.g. health care, education and emergency services.

Question 2

State-owned enterprises

Answer 2

Organizations that are owned by the government.

Question 3

Private sector

Answer 3

Comprises businesses owned and controlled by individuals or groups of individuals, they differ in size, ranging from those owned and run by just one person, to large multinational companies that operate around the world. The main aim of most, although not all, private sector organizations is to make profit.

Question 4

For-profit (commercial) organizations

Answer 4

• sole trader
• partnership
• companies (private limited/ public limited)

Question 5

Sole trader

Answer 5

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

Question 6

Advantages of sole traders

Answer 6

• few legal formalities - it’s easy to set up
• profit taking - the owner takes all the profit
• being your own boss
• financial privacy - do not have to make financial information public

Question 7

Disadvantages of sole traders

Answer 7

• unlimited liability
• limited sources of finance
• high risk
• lack of continuity

Question 8

Partnership

Answer 8

A business formed by two or more people (up to 20) to carry on a business together, with shared capital investment and, usually, shared responsibilities .

Question 9

Deed of partnership

Answer 9

A legal agreement between each partner.

Question 10

What is likely to be included in a deed of partnership?

Answer 10

• 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 11

Advantages of partnerships

Answer 11

• few legal formalities - it’s easy to set up
• financial strengths - more financial strength than sole trader, as each partner invests in the business
• specialization and division of labor - partners can benefit from shared expertise, workload and moral support
• financial privacy - do not have to make financial information public

Question 12

Disadvantages of partnerships

Answer 12

• unlimited liability
• lack of continuity
• prolonged decision-making
• disagreements and conflict between partners

Question 13

Private Limited Company (LTD)

Answer 13

A company that cannot raise share capital from the general public, instead, shares are sold to private family members and friends, the shares cannot be traded without the prior agreement from the BOD, so that the directors can maintain overall control of the company.

Question 14

Advantages of LTDs

Answer 14

• Shareholders have limited liability - separate 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

Question 15

Disadvantages of LTDs

Answer 15

• Profits have to be shared among much larger number of members
• Setting up business takes time and it’s costly
• No member has full control of the company
• Firms are not allowed to sell their shares to the public

Question 16

Public Limited Companies (PLC)

Answer 16

A company that is able to advertise and sell its shares to the general public via a stock exchange.

Question 17

Advantages of PLCs

Answer 17

• Shares can be sold to the public
• Limited liability
• Easier to raise loans from banks
• Because of their size, they can dominate the market

Question 18

Disadvantages of PLCs

Answer 18

• Setting up business takes time and it’s costly
• Company’s financial accounts are public
• Risk that an outsider take control of the company

Question 19

For-profit social enterprises

Answer 19

• cooperatives
• microfinance providers
• private-public partnership

Question 20

Cooperatives

Answer 20

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 21

Types of cooperatives

Answer 21

• consumer cooperatives
• worker cooperatives
• producer cooperatives

Question 22

Consumer cooperatives

Answer 22

Owned by the customers who buy the goods and/or services for personal use, in most cases, members get access to goods and services at lower prices than those charged by traditional commercial businesses.

Question 23

Worker cooperatives

Answer 23

Set up, owned and organized by their employee members, by operating as an enterprise, members are provided with work.

Question 24

Producer cooperatives

Answer 24

Cooperatives that join and support each other to process or market their products.

Question 25

Advantages of cooperatives

Answer 25

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

Question 26

Disadvantages of cooperatives

Answer 26

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

Question 27

Microfinance providers

Answer 27

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

Question 28

Advantages of microfinance providers

Answer 28

• accessibility - microfinance helps those in poverty to become financially independent
• social well-being

Question 29

Disadvantages of microfinance providers

Answer 29

• limited finance - only offer small amounts of money to borrowers given the high risk of failure to repay
• limited eligibility - not all poor individuals qualify for microfinance

Question 30

Public-private partnership (PPP)

Answer 30

The government creates a commercial partnership with the private sector to provide certain goods or services.

Question 31

Advantages of PPPs

Answer 31

• by using private sector finance the government can claim that public services are being improved, without increasing taxes
• private sector businesses aim to make profit therefore, services will be operated efficiently

Question 32

Disadvantages of PPPs

Answer 32

• private sector workers may lack experience needed to operate large public sector projects, leaving failure to put vulnerable people at risk
• the private sector business, may try to increase profit by cutting staff wages and benefits, losing worker security of employment
• high rents imposed by private sector businesses for public use of facilities are then required to be payed by tax payers

Question 33

Non-profit social enterprises

Answer 33

• Non-governmental organizations (NGOs)
• charities

Question 34

Non-governmental organizations (NGOs)

Answer 34

A not-for-profit group, independent from government, which is organised on a local, national or international level to tackle issues that support the public good.

Question 35

Charities

Answer 35

A non-profit social enterprise that provides voluntary support for good causes, its key function is raising funds from individuals and organizations to support a cause that is beneficial to society, since charities do not necessarily sell’ anything to customers,they must use refined marketing strategies to catch the attention of donors.