Unit 1.2

Question 1

Public Sector

Answer 1

Businesses entities that are owned and controlled by the government.
Public sector organizations are run to provide essential goods and services that would be inefficiently provided or underprovided by the private sector.

Question 2

Nationalization:

Answer 2

when a government takes control of a private sector business.
Example: Norway controls the majority of its oil resources. It did so in 2001 by buying up 81% of the shares of the then privately held oil companies that operated in the country.

Question 3

Privatization:

Answer 3

If a government sells one of its organizations to a privately controlled company.
Example: Japan abolished their government controlled postal service in 2007. Four companies now run the postal service with some government oversight.

Question 4

Private Sector

Answer 4

Businesses that are run and owned by private individuals and businesses. The main aim of private sector businesses is to make a profit. The three main types are sole traders, partnerships and privately/publicly held companies (grouped together as limited companies)

Question 5

Sole Trader

Answer 5

A sole trader is a for-profit business owned by one person.
There is no legal distinction between the owner and the business.
The owner of the business has unlimited liability for the debts incurred by the business.

Question 6

Advantages & Disadvantages of a Sole Trader

Answer 6

Advantages:
Quick to create with minimal expensive start-up procedures. It is the easiest to setup.
The owner has complete control to make any business decisions so things are efficient.
Tax advantages are given for small businesses
Disadvantages:
The sole trader (owner) bears all risks and has unlimited liability as the firm’s finances are not separate from the owners.
Sources of Finance (3.2) are limited as the main source is provided by the owner. Capital that is borrowed is at a higher interest rate due to higher risk to lenders.
No one else to share ownership decisions with or to benefit from the division of labour.

Question 7

Partnership

Answer 7

A partnership is a for-profit business owned by two or more people.
In most forms of partnerships, each partner has unlimited liability for the debts incurred by the business.
The three typical classifications of partnerships are general partnerships, limited partnerships, and limited liability partnerships

Question 8

Private limited companies

Answer 8

Shares are restricted! Meaning that they are owned by a core group of people who can then give authorization to others to buy shares in the company. This is usually only done for family members or trusted individuals.

Question 9

Public limited companies

Answer 9

shares can be traded on the stock exchange, the owners and the general public who own shares are the shareholders.
Both get the benefit of limited liability should the business fail and they are both their own separate legal entity.

Question 10

Importance of Limited Liability

Answer 10

Without Limited Liability it would be harder to sell shares as those shareholders would also be responsible for any debt taken on by the company. There is too much personal risk for the potential gain!
With Limited Liability the only thing that is risked by being a shareholder is your initial investment

Question 11

Advantages & Disadvantages of Private limited companies

Answer 11

Ad:
Shareholders have limited
liability
Separate legal personality
Continuity in the event of
the death of a shareholder
Original owner is still often
able to retain control
Able to raise capital from
sale of shares to family,
friends and employees
Dis: Legal formalities involved in
establishing the business
* Capital cannot be raised by
sale of shares to the general
public
Quite difficult for
shareholders to sell shares
End-of-year accounts must
be sent to Companies
House

Question 12

Cooperatives

Answer 12

A cooperative is a limited liability business that can be formed for-profit or not-for-profit.
A cooperative differs from a for-profit corporation in that it has members, as opposed to shareholders, who share decision-making authority.

Question 13

Public Private Partnership (PPP)

Answer 13

A PPP is when the government (Public) and private sector work together to provide certain goods and services

Question 14

NGO

Answer 14

NGOs exist to benefit a specific cause and exist outside government oversight so they can operate (almost) anywhere.
Examples: Unicef, Greenpeace, World Wildlife Fund (WWF)