Private Sector & Public Sector Flashcards
Define the Private Sector
Businesses that are owned and operated by individuals or groups with a main goal of generating profits. Owners answers the economic questions
Sole Trader
business pwned and operated by one individual
Advantages of Sole Trader
1) Easy to for
2) Quick Decision making
3) Owner enjoys all profits
4) Benefit from grants
5) Flexibility
Disadvantages of Sole Trader
1) Unlimited Liability
2) High risks
3) Difficulty in sourcing capital
4) Do not benefit from economies of scale
5) Lack of continuity
6) Less informed decision making
Partnerships
Partnership Act (1890) - A business where 2-20 persons work together to make profit.
Partnership Deed
1) Capital Contribution
2) How P/L id shared
3) How a partnership will be ended
4) How much control
5) Rule for adding new partners
Advantages of Partnerships
1) Easy to form
2) Privacy
3) Shared responsibilities
4) Larger capital base
Disadvantages of Partnerships
1) Unlimited Liability
2) Slow decision making
3) Conflict
4) Lack of continuity
Limited Liability Partnership
one partner has unlimited liability liability while rest experience limited (Partnership Act 2000)
Limited Companies
A business regarded as an artificial person distinct and separate from owners. The companies Act of 2004.
Articles of Association
includes number of directors, rights of shareholders, procedures of meeting/how directors are appointed, tenure of directors, process of transferring shares
Memorandum of Association
name of company, address of registered office, objectives of company, details of capital, liabities of owners.
Private Limited Companies
Limited to 50 individuals and are not sold on the stock exchange
Advantages of Private Limited Companies
Limited Liability
Continuity
Greater Capital
Lower possibility of loss of control
Legal identity sperate from owners
Disadvantages of Private Limited Companies
Less capital since shares cannot be traded
Share of Profit
Less privacy than ST and Partnership since statements must be sent to office
Legal Requirements
Public Limited Companies
Traded to general public
Advantages of Public Limited Companies
Limited Liability
Continuity
Economies of Scale
Loans
Freedom to transfer shares
Disadvantages of Public Limited Companies
Legal Requirements
High cost of formation
Lost of internal control threat
No Privacy
Conflict
Overexpansion (impersonality can lead to diseconomies of scale)
Holding Companies
A company that owns/controls seprate businesses but do not tie them into one unified company
Conglomerates
A conglomerate is a large business formed when one company purchases or merges with many other companies
Co-operatives
A group of persons voluntarily coming together to achieve a common economic/social/cultural need via democratic control e.g Credit Union, Workers Union
Principles of Co-operatives
1) Voluntarily open membership
2) Democratic control
3) Mac share a member cannot exceed 20%
4) Development and Training of memebrs
Advantages of Co-operatives
Creates employment, democratic control, guaranteed market, minimal advertising costs, economies of scale
Disadvantages
Inexperienced management, minimal profits, conflict, long decision making
Franchises
contractual agreement between a franchisee and franchisor allowing the franchisee to operate under the trade name. There are pure franchises (complete business format and system), product distribution franchises (license to sell), trade name franchise (right to use name)
Advantages of Franchises
Management and support
Brand name appeal and goodwill
Taxes paid on imported goods
Marketing of the franchisor
Franchiser pays royalties
Expansion
Disadvantages
Increased competition for local firms
Less control for franchisee
Franchisee is obligated to pay royalties and purchase from franchisor
Franchisor can lose trade secrets
Joint Ventures
Two or more persons/businesses agree
Advantages of Joint Venture
Fostering expansion
Shared lost
Capital
Access to advanced technology
Shared risks
Product diversification
utilizes established channels of distribution
Disadvantages
Loose trade secrets
Loss of Credibility
Lack of trust
Disagreement/Conflict
Loss of Independence
