1.

2 Types of Organizations


Business Activity

Business activities are classified into the following:
Private and Public Sector
Profit and Non-profit organizations

Private Sector: Organizations owned and controlled by private individuals e.g. Apple,
Microsoft
Public Sector: Organizations owned and controlled by the government (state) e.g.
Hospitals, Army/Defense, Schools

Business Organizations


Public sector Private sector


Organizations owned and organizations owned and controlled by
government controlled by private individuals
(the state)- e.g. schools, - eg. Apple, Microsoft, Google etc
the army,the hospitals,
sole trader partnership limited companies

Pvt Ltd co. Plc Lmt co.
Types of Economies

Mixed Economy: where economic resources are owned and controlled by both
private and public sectors. e.g. Singapore, France, Canada.
Free Economy: where economic resources are owned and controlled mainly by
the private sector, with very little government intervention. e.g. United States
Command Economy: where economic resources are owned and controlled by
the government (state) e.g. North Korea, China

Public Sector Organizations
Objectives Include:
Ensures the provision of essential goods and services (health, education,
defense)
Prevents private monopolies - not allowing one single firm to dominate the
market
Maintains high employment rates
Maintains environmental standards
Advantages Disadvantages
Managed with social objectives and not profit
objectives
Tendency of inefficiency due to lack of strict
profit targets
Loss making services might keep operating, if
the social benefit is great
Subsidies from governments can encourage
greater inefficiency
Finance is raised by the government Governments may interfere in decisions, main
due to political reasons

Privatization: this is when a government owned business is sold off to the private sector,
in order to make the business more profitable and efficient.

Private Sector Organizations (For-Profit)
Sole traders - a business in which one person provides the permanent finance
and, in return, has full control of the business and is able to keep all the profits
Partnership - a business formed by two or more people (max 20) to carry on a
business together, with shared capital investment and, usually shared
responsibilities
Limited company (Private/Public) - a form of business that has limited liability,
legal personality and continuity
Sole traders:
A business in which one person provides the permanent finance and, in return, has full
control of the business and is able to keep all the profits.

Advantages Disadvantages
Easy to set up the business Unlimited liability (the owner can loose all possessions
if unable to pay debts
Owner has complete control and keeps
all profits
Could face tough competition from larger businesses
Work timings are flexible Unable to specialize in one area, has to control and
work on all aspects of the business
Can choose to employ staff and work
closely with them
Difficult to raise additional capital
The business can be based on the skills
and interests of the owner
May need to work long hours to ensure business is
successful/profitable
Lack of continuity



Partnership:
A business formed by two or more people (max 20) to carry on a business together, with
shared capital investment and, usually shared responsibilities

Advantages Disadvantages
Partners can specialize what
theyre good at
Unlimited liability (the owner can loose all possessions if
unable to pay debts
Shared decision-making Partners are bound with one anothers decisions
Additional capital can be raised Profits have to be shared
Business losses are shared
Not able to raise capital from sale of shares
Greater privacy and less legal
formalities
Working in partnership means less individual independence
Lack of continuity, if one dies, the business has to be
restarted

Limited company: A form of business that has limited liability, legal personality and
continuity
Private Limited Company:
A small privately owned company with no more than 50 shareholders. The shareholders
liability is limited to the amount of their paid contributions.
Advantages Disadvantages
Shareholders have limited liability Legal formalities involved in establishing the business
Separate legal personality
Capital cannot be raised by sale of shares to the general
public

Continuity in the event of the
death of a shareholder
Quite difficult for shareholders to sell shares
Original owners is still often able
to retain control
End-of-year accounts must be sent to Companies House-
available for public inspection there (less secrecy over
financial affairs than sole trader or partnership )
Able to raise capital from sale of
shares to family, friends and
employees.

Greater status than an
unincorporated business.

Public Limited Companies:
A large well-known company that sells its shares to the public at the stock exchange,
also offering limited liability to its shareholders.

Advantages Disadvantages
Limited Liability Legal formalities in formation
Separate legal identity Cost of business consultants and financial advisers
when creating a PLC
Continuity Share prices subject to fluctuation-sometimes for
reasons beyond business's control, e.g. state of the
economy
Ease of buying and selling of shares for
shareholders-this encourages
investment in PLCs
Legal requirements concerning disclosure of
information to shareholders and the public, e.g.annual
publication of detailed report and accounts

Access of substantial capital sources due
to the ability to issue a prospectus to
offer shares for sale
Risk of takeover due to the availability of the shares on
stock exchange
Directors influenced by short-term objectives of major
investors

Why buy shares in a PLC?

Price and value of shares increases if a company is performing well, hence they
can make a profit
Shareholders receive dividends on the shares they purchase
Limited liability protects shareholders from being held responsible for debts

Why to PTVs become PLCs?

To raise money for expansion by selling shares at the stock exchange
Companies get money when people buy their shares, though only the first time
the shares are issued, not when theyre re-sold.
The company is able to raise even more capital by simply reissuing more shares

Main Features of a Company

Shareholders own the company, however they dont run the company
The business and its owners have separate legal identities
Registered companies are legally recorded and their matters are made public,
anyone can view their owners and see financial accounts
Greater finance is available
Companies must hold AGM for their shareholders
Annual accounts must be published
Companies have greater stability and continuity


For-Profit Social Enterprises

Social enterprises are businesses with mainly social objectives that reinvests most
profits into benefitting society rather maximizing returns to owners

Cooperatives: a form of partnership where the business is owned and run by the
members
Micro-financers: banks that lend very small amounts of money to people who
would traditionally not have access to money (poor rural women)

Public-Private Partnerships

Involvement of the private sector in the form of management expertise/or financial
investment in the public sector, aimed at benefitting society.
Partnership between governments and private companies
Private Finance Initiative (PFI) is where companies invest in public sector
projects

Non-Profit Organizations

Their aims are to support causes that are socially desirable. They are not run or
organized by the government

Charities: organizations that have aims other than making profits (e.g
Oxfam, RedCross). They gather funds through monetary donations from
the general public
NGOs: legally established organizations that are separate from
government institutions (development, health, humanitarian work).
Often support government work however are not owned or controlled
by the government.

Pressure Groups

An organization created by people with a common interest or objective who lobby
businesses and governments to change policies so that the objectives are reached.
e.g Greenpeace, WWF, Fairtrade Foundation

Fair trade Foundation: a foundation that works towards ensuring better prices
are offered, decent working conditions, local sustainability & fair terms of trade
for farmers and workers in the developing world