Private sector & privatization

Question 1

The private sector…

Answer 1

…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.

Question 2

UNINCORPORATED
BUSINESSES

Answer 2

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.

Question 3

INCORPORATED
BUSINESSES

Answer 3

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.

Question 4

To liquidate a company:

Answer 4

to close a company and sell its assets

Question 5

go public

Answer 5

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.

Question 6

personal asset

Answer 6

An item of value and cash belonging to a person.

Question 7

unlimited liability

Answer 7

The owner(s) are personally responsible with their own wealth/assets for any legal actions and debts the company may face.

Question 8

capital

Answer 8

Money invested in a business

Question 9

stock exchange

Answer 9

a place where people buy and sell stocks and shares

Question 10

limited liability

Answer 10

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.

Question 11

legal entity

Answer 11

An association, corporation, partnership, etc. or individual that has legal standing in the eyes of law.

Question 12

stock/share

Answer 12

One of many equal parts into which the company’s capital is divided.

Question 13

debt

Answer 13

an amount of money that you owe to a person, bank, company, etc.

Question 14

start-up fees

Answer 14

the amount of money needed to start a business

Question 15

disclosure of accounts

Answer 15

Limited companies are legally obliged to publish their accounts at the end of the financial year.

Question 16

legal requirement

Answer 16

An obligation imposed by law on an organization or person

Question 17

Overdraft

Answer 17

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.

Question 18

Incentive

Answer 18

A thing that encourages someone to work better.

Question 19

Divident

Answer 19

Percentage of profits (after taxes) paid to shareholders. Large companies usually pay it twice a year

Question 20

Takeover

Answer 20

Buying a controlling interest in a company by buying more than 50% of its shares.

Question 21

Share/stock

Answer 21

One of many equal parts into which the company’s capital is divided.

Question 22

Board of Directors

Answer 22

A group of directors elected by the shareholders to run the company.

Question 23

Annual General Meeting

Answer 23

A meeting of all shareholders, when the company’s financial situation is discussed with the directors.

Question 24

Joint-stock companies (=Co.s limited by shares)

Answer 24

• 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.

Question 25

Partnership

Answer 25

• Owners have unlimited liability for debts.
• Management and owners are not separate.
• Business ends on death of owner.
• Owners can specialize.
• More than one owners who each contribute capital.
• Owners share profit among them based on the amount
  of capital they contributed.

Question 26

Independent professions

Answer 26

• Owners have unlimited liability for debts.
• Management and owners are not separate.
• Business ends on death of owner.
• Owners are specialized for a certain activity, e.g., lawyers, dentists, etc.

Question 27

Public limited companies

Answer 27

• Owners have limited liability for debts.
• The owners are called shareholders.
• Managed by the Board of Directors, which is elected by the
  shareholders.
• Public disclosure of accounts.
• 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.
• Shares ARE sold to the general public.

Question 28

Sole proprietorship (UK) / Craft (Cro.)

Answer 28

• Very limited access to capital (personal savings, overdraft, small bank loans.)
• The owner manages the business.
• Easy and relatively cheap to set up.
• Owners have unlimited liability for debts.
• Typically has only one owner.

Question 29

Private limited companies / limited liability companies.

Answer 29

• Owners have limited liability for debts.
• The owners are called shareholders.
• Usually fewer owners than the other type of company with limited liability.
• Shares can be sold, but not very easily.
• Shares can NOT be sold to the general public.
• In Croatia, they have to have a management board, assembly and optionally a supervisory board.

Question 30

Definition of privatization

Answer 30

Privatization means relying less on government to meet people´s need for goods and services, and more on private institutions such as the marketplace, the family and voluntary organizations.

Question 31

The effects of privatization

Answer 31

• more efficient companies
• more productive national economy
• a way to raise funds by the govrnmrnt
• expand capital markets
• attact foreign capital
• loss of jobs, unemployment
• workers rights unprotected
• the interests of the public are not always protected

Question 32

to diversify

Answer 32

to extend the business’s activities
into new fields.

Question 33

to featherbed an industry

Answer 33

If a government featherbeds an industry, it gives it a lot of help, such as lower taxes, especially so that jobs will
not be lost.