The Private Sector Flashcards
What is the Private Sector?
Organisations owned by private individuals that exist to make a profit.
What are the three types of businesses involved in the private sector?
Sole traders, Partnerships, Private Limited Companies
What is a Sole Trader?
A business owned and run by one person.
What are the key features of a Sole Trader?
Owned by one private individual.
Controlled (decision making) by the private individual.
Financed by their own personal savings, or possibly a bank loan or grant.
What are advantages of being a Sole Trader?
Easy to set up (do not need to complete lots of legal documents).
Owner gets to keep all the profit.
Owner gets to make all of their own decisions.
What are disadvantages of being a Sole Trader?
Unlimited Liability – if the business goes into debt, the individual owner is responsible for paying it back. This could mean their personal possessions are taken to pay for this.
Raising finance can be difficult – banks will often look at sole traders as high risk.
Workload and responsibilities cannot be shared with another owner.
What is a Partnership?
A business owned by 2-20 people, known as partners.
What are the key features of a Partnership?
Owned by the 2-20 partners.
Controlled (decision making) by the 2-20 partners.
Financed by the investment of each individual partner (may also apply for loans and grants).
Partnership Agreement (Deed of Partnership) is drawn up to outline formal relationship of partners and how profits are divided.
What are the advantages of being a Partnership?
More finance can be raised compared to a sole trader.
Workload and responsibility can be shared between partners.
Partners each bring different experience and expertise to the business.
What are the disadvantages of being a Partnership?
Unlimited Liability – if the business goes into debt, the partners are responsible for paying it back. This could mean their personal possessions are taken to pay for this.
Profit is split between the partners.
There could be disagreement/arguments between partners.
The actions of one partner are legally binding on others.
What is a Private Limited Company?
A business owned by 1-50 private shareholders (e.g. friends and family)
What are the key features of a Private Limited Company?
Owned by private shareholders – shares cannot be sold on the stock market.
Controlled (decision making) by a Board of Directors who run the business on behalf of shareholders.
Financed by share equity (capital) invested by shareholders (may also apply for loans and grants).
Must be registered with the Registrar of Companies at Companies House.
What are the advantages of being a Private Limited Company?
Limited Liability – if the business goes into debt, the owners (shareholders) are not responsible for paying it back. They can only ever lose what they have invested.
More finance can be raised compared to sole traders and partnerships.
Viewed as less risky compared to sole trader and partnerships so will find it easier to obtain additional finance (eg bank loan).
What are the disadvantages of being a Private Limited Company?
Financial accounts must be published which the public (and competitors) can then see.
More complicated and expensive to set up compared to sole traders and partnerships.
Profits shared between many shareholders by paying dividends.
What are the aims/objectives of the Private Sector?
Profit maximisation
Achieving quality
Survival
Customer satisfaction
Increase market share
Social responsibility
Innovation
