Business 1.2 Flashcards
Private Sector
Goal is to make profit
Owned, financed and run by private individuals or entities
Public Sector
Goods and services provided by the government or local authority
May be free or sometimes with a small fee
e.g., public hospitals, museums, etc.
Types of for-profit/commercial organizations
Sole trader
Partnership
Private limited company
Public limited company
Sole trader
Business that is completely owned and controlled by just one person
Simplest form of business
Owned by a single person who assumes all profits and liabilities
Sole trader advantages
Advantages of sole traders:
Quick and easy to set up
Owner receives all profits
Highly motivated owners with a sense of achievement and control
Decision-making is swift as there is no need to consult others
Enjoy privacy in terms of publishing financial accounts
Tax advantages for small business owners who work from home
Sole trader disadvantages
Finance is generally provided by the owner
Owner accepts all risks, including losses and collapse of the business
Workload can be extremely high with all pressures, burdens, and responsibilities falling on the owner
Unlimited liability for debt owed to others, even requiring the owner to pay debts from personal belongings and assets
Lack of continuity in operations if owner is unwell, on holiday, or wants to retire
Difficulty in gaining economies of scale, leading to higher prices for goods and services
Limited access to external finance, making business expansion difficult.
Partnership
Company ran by two or more individuals who form a partnership
Each person contributes money and resources, as well as sharing the responsibilities of managing a business.
Turns into a corporation if there >15 partners and will pay corporate tax.
Has a deed of partnership stating the responsibility of each partner
Involves presence of “silent” or “sleeping” partners, who do not make decisions, merely giving money to the business and earning profit
Advantages partnership
Advantages of partnerships:
Partnerships can raise more finance than sole traders.
Having partners can provide different skills and expertise.
Partners can share the workload and responsibilities.
Partnerships benefit from continuity if a partner is unwell or on vacation.
Partnerships can benefit from specialization and division of labor.
Business affairs of a partnership are kept confidential.
Partnership disadvantages
Disagreements and conflict can arise between owners.
Decision-making is slower with more owners involved.
Profits must be shared between all owners.
Partners have unlimited liability.
Access to finance is limited to partners.
No continuity if a partner leaves or dies.
Private limited company
Shareholders are limited to family, friends, business partners
Shares cannot be sold to the public
Type of incorporation
Owner and company are separate entities
Results in limited liability
Registered at the Securities and Exchange Commision (SEC)
Private limited company advantages
Better control as shares cannot be bought/sold without agreement of existing shareholders.
More finance can be raised compared to sole traders or partnerships.
Greater privacy as final accounts are not made public.
Shareholders have limited liability.
Continuity in the event of death of a major shareholder.
Private limited company disadvantages
Profits: Profits are shared between several shareholders.
Lengthier decision-making: All shareholders need to discuss and agree on decisions.
Shares cannot be traded publicly to raise finances.
Privacy: The business may not be examined by external experts due to privacy reasons.
High costs: It can be costly and time-consuming to set up a privately held company.
Public limited company
Company whose shares are listed on a stock exchange and can be freely bought and sold by anyone
Required by law to publish their complete and true financial position
Type of incorporation
Must conduct shareholders’ meetings
An LTD can convert to PLC by offering stock market flotation or an initial public offering (IPO)
Public limited company advantages
Additional finance can be raised through share issue
Easier to borrow money from bank loans and mortgages
Shareholders enjoy limited liability
Can enjoy benefits of operating on a large scale
Can enjoy continuity even if a major shareholder leaves or dies
Public limited company disadvantages
Lack of privacy
Difficult and expensive to set up and run
Potential threat of takeover bid
Large companies can suffer from diseconomies of scale.
Types of for-profit social enterprises
Cooperatives
Private sector companies
Private sector for profit company
Make profits, but it’s not the prior objective
Profits are a tool to achieve socially important aims
Same features as for private sector companies
Types of non-profit social enterprises
NPOs
NGOs
Charities
Pressure Groups
Cooperatives
Organizations that are jointly owned and run by its members who share in profits and benefits
Cooperatives advantages
Shareholders must be help run organization, work is more spread out
Equal voting rights/power among all shareholders
Cooperatives Disadvantages
DSlower decision-making: Decisions are likely to be delayed because the organisation runs democratically.
Limited promotion opportunities: The organisation chart are flatter which allows fewer opportunities for employees to progress professionally.
Challenge in attracting external sources of finance: As cooperatives are not profit-driven, it can be difficult to attract investors, financiers and member-shareholders.ecision-making may be more time consuming or involve more conflicts
Less profit for each shareholder as it is spread among many members
Non-profit organizations (NPOs) vs. non-government organizations (NGOs)
NPOs
Does not divide its funds between owners
Aim is to raise funds and use it for their beneficiaries
e.g. service organizations or charities, Bantay Bata, PGH, PCSO
NGOs
Exists in the private sector
NGOs participate in humanitarian projects, education projects, etc.
e.g. WWF, UNESCO, Red Cross
Charities
A non-profit organization that is exempt from taxes
Deploys its resources for charitable purposes
May raise funds to reduce poverty or to reduce environmental problems.
Advantages NGO
Benefit the local community
Non-profit social enterprises exist for the benefit of local communities and societies. Examples include fundraising events and donations to meet social aims of a community.
Tax exemption
Governmental assistance: Many NPOs also qualify for government assistance in the form of grants and/or subsidies, thereby reducing their costs of production.
Positive impact on employee: There can be a positive impact on employees and donors who feel that the non-profit enterprise is pursuing a socially meaningful ambition.
Disadvantages NGO
Strict guidelines: Not all trading activities are permitted to ensure the general public is protected against dishonest charities.
Tough survival for small NPOs: It is more difficult to raise funds for less known NPOs. It is also important to note that NPOs’ survival depends on the general public’s goodwill.
Lack of financial control: Managers at NPOs are not expected to earn a profit for their owners or shareholders.
Less appealing wages: Less financial appeal to the workers. Using luxury goods such as company car and business class travelling is deemed unethical.
