Business 1.2

Question 1

Private Sector

Answer 1

Goal is to make profit

Owned, financed and run by private individuals or entities

Question 2

Public Sector

Answer 2

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.

Question 3

Types of for-profit/commercial organizations

Answer 3

Sole trader
Partnership
Private limited company
Public limited company

Question 4

Sole trader

Answer 4

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

Question 5

Sole trader advantages

Answer 5

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

Question 6

Sole trader disadvantages

Answer 6

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.

Question 7

Partnership

Answer 7

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

Question 8

Advantages partnership

Answer 8

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.

Question 9

Partnership disadvantages

Answer 9

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.

Question 10

Private limited company

Answer 10

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)

Question 11

Private limited company advantages

Answer 11

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.

Question 12

Private limited company disadvantages

Answer 12

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.

Question 13

Public limited company

Answer 13

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)

Question 14

Public limited company advantages

Answer 14

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

Question 15

Public limited company disadvantages

Answer 15

Lack of privacy

Difficult and expensive to set up and run

Potential threat of takeover bid

Large companies can suffer from diseconomies of scale.

Question 16

Types of for-profit social enterprises

Answer 16

Cooperatives
Private sector companies

Question 17

Private sector for profit company

Answer 17

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

Question 18

Types of non-profit social enterprises

Answer 18

NPOs
NGOs
Charities
Pressure Groups

Question 19

Cooperatives

Answer 19

Organizations that are jointly owned and run by its members who share in profits and benefits

Question 20

Cooperatives advantages

Answer 20

Shareholders must be help run organization, work is more spread out

Equal voting rights/power among all shareholders

Question 21

Cooperatives Disadvantages

Answer 21

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

Question 22

Non-profit organizations (NPOs) vs. non-government organizations (NGOs)

Answer 22

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

Question 23

Charities

Answer 23

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.

Question 24

Advantages NGO

Answer 24

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.

Question 25

Disadvantages NGO

Answer 25

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.