Private sector & privatization Flashcards
The private sector…
…is characterized by private ownership in the hands of private individuals. It includes businesses that are run for the benefit of the people who own them.
UNINCORPORATED
BUSINESSES
are not legal entities on their own. This means that the businesses themselves cannot be held
liable for debt or legal issues. All legal
responsibility for the business stays with the owner or owners. The owners have unlimited liability for debts, which means that they are responsible for all the debts of the firm with their personal assets (e.g., car, house, etc.). The start-up fees are lower and the recurring costs are lower.
INCORPORATED
BUSINESSES
Incorporated businesses are legal entities on their own. This is necessary because shareholders are legally separate from the company
and they have limited liability for debts, i.e., they cannot lose more money than what they had invested into the business when they bought their shares. All losses and debts are covered by the company’s assets.
Another reason is that the ownership structure of such a
business is not stable: shareholders can easily sell their shares while others can easily become shareholders, i.e., owners.
Such companies are financially and legally responsible for their own actions and, as a result, they can
own assets, enter into contracts and be taken over, sued and liquidated.
Issuing and selling stocks is a way for such businesses to raise capital for the company. Some incorporated businesses go public,
i.e., start selling their shares on the stock exchange.
To liquidate a company:
to close a company and sell its assets
go public
When a company issues shares to the public for the first time. Shares are sold at the stock exchange.
Also called IPO (Initial Public Offering) or flotation.
personal asset
An item of value and cash belonging to a person.
unlimited liability
The owner(s) are personally responsible with their own wealth/assets for any legal actions and debts the company may face.
capital
Money invested in a business
stock exchange
a place where people buy and sell stocks and shares
limited liability
A person’s financial responsibility is limited to a fixed sum, usually the value of a person’s investment in a company. A shareholder in such a company is not personally responsible for any of the debts of the company, other than for the value of his investment in that company.
legal entity
An association, corporation, partnership, etc. or individual that has legal standing in the eyes of law.
stock/share
One of many equal parts into which the company’s capital is divided.
debt
an amount of money that you owe to a person, bank, company, etc.
start-up fees
the amount of money needed to start a business
disclosure of accounts
Limited companies are legally obliged to publish their accounts at the end of the financial year.
legal requirement
An obligation imposed by law on an organization or person
Overdraft
The amount of money which a company or person can withdraw from a bank account with the bank’s permission, which is more than what is in the account.
Incentive
A thing that encourages someone to work better.
Divident
Percentage of profits (after taxes) paid to shareholders. Large companies usually pay it twice a year
Takeover
Buying a controlling interest in a company by buying more than 50% of its shares.
Share/stock
One of many equal parts into which the company’s capital is divided.
Board of Directors
A group of directors elected by the shareholders to run the company.
Annual General Meeting
A meeting of all shareholders, when the company’s financial situation is discussed with the directors.
Joint-stock companies (=Co.s limited by shares)
- Owners have limited liability for debts.
- The owners are called shareholders.
- The business has to have a management board, a supervisory
board and a general assembly. - Higher minimum amount of share capital than the other type
of company with limited liability. - Usually more owners than the other type of company with
limited liability. - The company CAN decide to go public, but doesn’t have to.
