Unit 1 - 1.2 Business entities Flashcards
Private sector (main aim)
Organisations owned and controlled by private individuals and businesses
* main aim: to make profit
Public sector (main aim)
Organisations owned and controlled by the government
* main aim: to provide essential goods and services
Profit-based organisations
Revenue generating businesses with profit objectives at the core of their operations
* sole traders
* partnerships
* privately held companies
* publicly held companies
Goals of profit-based organisations (3)
- Make a profit
- Reward the owners with profits from the business
- Return some of the profits back into the business for capital growth
Sole traders
Individual ownership of a business
* usually the most common
* start up capital is obtained from personal assets
* sole traders have unlimited liability
Unlimited liability
When the owners and partners of a business assume full legal responsibility for its debts
Limited liability
The business protects its owners from being personally pursued for the repayment of the comapny’s debts or liabilities
Sole traders advantages (name 4)
- Few legal formalities
- Profit taking
- Being your own boss
- Personalised service
- Privacy
- Quicker decision-making
Sole traders disadvantages (name 4)
- Unlimited liability
- Limited sources of finance
- High risks
- Workload and stress
- Limited economies of scale
- Lack of continuity
Partnerships
Businesses owned by two or more persons
* one partner must have unlimited liability
* start up finance from personal funds pooled together by partners
* legal document known as ‘deed of partnership’ drawn up to formalise agreements (how profits and losses are shared)
Advantages of partnerships (name 3)
- Financial strength
- Specialisation and division of labour
- Financial privacy
- Cost-effective
Partnership disadvantages (name 3)
- Unlimited liability to one of the partners
- Lack of continuity (sudden end to agreement)
- Prolonged decision-making
- Lack of harmony due to disputes
Limited liability companies
Businesses owned by their shareholders
* invested money to provide capital for a company
Company
Incorporated businesses
* treated as legal entities separate from its owners
* means they have limited liability
Types of companies (2)
- Privately held companies
- Publicly held companies
Privately held companies
It’s shares are owned by friends and/or family
* cannot be traded publicly on the stock exchange market
* shareholders can only sell shares if they have prior permission from other shareholders
* many times are family businesses
Publicly held companies
Can sell shares on the stock exchange
* shares held by the general public
* no permission needed for trade
Advantages of limited liability companies (name 4)
- Raising finance
- Limited liability
- Continuity
- Economies of scale
- Productivity
- Taxt benefits
Disadvantages of limited liability companies (name 4)
- Communication problems
- Added complexities
- Compliance costs
- Disclosure of information
- Bureaucracy
- Loss of control
For-profit social enterpises (3 types)
Revenue generating enterprises with social objectives at the core of operations
* Private sector companies
* Public sector companies
* Cooperatives
Main aims of for-profit enterprises
- Make a surplus (revenue greater than costs)
- Use surplus for benefit of society
Private sector for-profit social enterprises
Aim to make surplus instead of relying on donations to achieve aims
* produce goods to compete with similar businesses
* often use the triple bottom line as an accounting framework for ethical business practices
Triple bottom line
A sustainability framework concerned around the three Ps: People, Planet, Profit
Public sector for-profit social enterprises
Sate owned to operate in a commercial way
* help raise government revenues to provide essential services to society that may be inefficient if left solely to the private sector
Cooperatives
Owners are called members
* they own and run the business but are also an employee
* Aim is to create value for members by operating in a socially responsible way
* all employees have a vote
* profits earned are shared between members
Advantages of cooperatives (name 3)
- Incentives to work
- Decision-making power
- Social benefits
- Public support
Disadvantages of cooperatives (name 3)
- Disincentive effects
- Limited sources of finance
- Slower devision-making
- Limited promotional opportunities
GlenWyvis - cooperatives case study
Scottish cooperative established in Dingwall in 2015
* purpose: to reinvigorate the community and economy
* benefit:
* job opportunities (300 people)
* more tourism = economic growth
* social sustainability through creation of own electricity and allowance of community-based investment
Grameen Danone - private sector for-profit case study
Joint business between Grameen bank (Muhammad Junus) and Danone
* adress malnutrition of Bangladeshi children
* add missing nutrition into yoghurt
* people can make investments but not dividends
* beggar program for beggars to sell yoghurt
Dividends
Portion of profit is paid to investors / shareholders
