1.2 Types of organizations Flashcards
Public sector
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.
State-owned enterprises
Organizations that are owned by the government.
Private sector
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.
For-profit (commercial) organizations
- sole trader
- partnership
- companies (private limited/ public limited)
Sole trader
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.
Advantages of sole traders
- 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
Disadvantages of sole traders
- unlimited liability
- limited sources of finance
- high risk
- lack of continuity
Partnership
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 .
Deed of partnership
A legal agreement between each partner.
What is likely to be included in a deed of partnership?
- 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
Advantages of partnerships
- 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
Disadvantages of partnerships
- unlimited liability
- lack of continuity
- prolonged decision-making
- disagreements and conflict between partners
Private Limited Company (LTD)
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.
Advantages of LTDs
- 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
Disadvantages of LTDs
- 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
Public Limited Companies (PLC)
A company that is able to advertise and sell its shares to the general public via a stock exchange.
Advantages of PLCs
- Shares can be sold to the public
- Limited liability
- Easier to raise loans from banks
- Because of their size, they can dominate the market
Disadvantages of PLCs
- Setting up business takes time and it’s costly
- Company’s financial accounts are public
- Risk that an outsider take control of the company
For-profit social enterprises
- cooperatives
- microfinance providers
- private-public partnership
Cooperatives
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.
Types of cooperatives
- consumer cooperatives
- worker cooperatives
- producer cooperatives
Consumer cooperatives
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.
Worker cooperatives
Set up, owned and organized by their employee members, by operating as an enterprise, members are provided with work.
Producer cooperatives
Cooperatives that join and support each other to process or market their products.
Advantages of cooperatives
- incentive to work
- decision-making power
- social benefits
- public support
Disadvantages of cooperatives
- disincentive effects
- limited source of finance
- slower decision-making
- limited promotional opportunities
Microfinance providers
The provision of very small loans by specialist finance businesses, usually not traditional commercial banks.
Advantages of microfinance providers
- accessibility - microfinance helps those in poverty to become financially independent
- social well-being
Disadvantages of microfinance providers
- 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
Public-private partnership (PPP)
The government creates a commercial partnership with the private sector to provide certain goods or services.
Advantages of PPPs
- 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
Disadvantages of PPPs
- 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
Non-profit social enterprises
- Non-governmental organizations (NGOs)
- charities
Non-governmental organizations (NGOs)
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.
Charities
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.
