Types of Organization

What is the difference between the public and private sector?Public sector – organizations that operate

under the ownership and control of the governmentPublic corporations are wholly owned by the

government, such as the US Postal ServicePrivate sector – Businesses that are owned

and controlled by private individuals and organizations

Why do some organizations belong in the public sector?To ensure everyone has access to basic

services, such as health care or educationTo avoid wasteful competition and enjoy the

benefits of economies of scale, such as with energy or national defense

To protect citizens, such as the police or courts system

To reduce unemployment

What is a sole-trader?Sole traders: self-employed business people

who run their own businesses (private sector)Advantages

Few legal formalities Profits don’t have to split Being your own boss

Disadvantages Unlimited liability (meaning the owner can be sued

for all possessions) Limited sources of finance Lack of continuity

What is a partnership?Partnership: business owned by two or

more people (public sector)Advantages

Financial strengthDivision of labor or specialization

DisadvantagesUnlimited liability (though split among

partners)Decision-making takes longerStill may be difficult to raise capital

What is a company or corporation?Company/Corporation: businesses that are

owned by shareholdersNOTE: Do not use the term business and company

interchangeably (See example tip on p.32)Advantages

Lower risk to investorsEconomies of scale due to larger sizeContinuity

DisadvantagesFinancial information must be shared with all

shareholdersMore bureaucracyCommunication problems

How can companies be classified?Private limited companies: Shares are sold to

a private family or friendsDo not have report financial standing of the

companyPublic limited companies: Sells shares of the

company to the publicFinancial information about the company must

be made public

Why do people become shares?To receive dividends (portions of the profits

of the company)For capital growth (prices of the shares

increase)For voting power

What is a non-profit organization?Non-profit organization or not-for-profit

organization: establishment run in a business-like manner, but profit is not the major objectiveBusiness surplus (or profit) is put back into the

business

What is a non-governmental organization?Non-governmental organization: a type of

not-for-profit organization that are run for the benefit of others in society (also called Private Voluntary Organizations)Two types of NGOs

Operational NGOs: established for a given objective Example: Unicef (United Nations Children’s Fund)

Advocacy NGOs: take an aggressive approach to defend a cause Example: Greenpeace

What is a charity?Charity: non-profit organization that collects

donations in support of a causeAdvantages

Provide support for the welfare of societyExempt from paying income tax

DisadvantagesLack of profit motive may cause staff to be

unmotivatedSurvives solely on donations, which may cause

financial problems and decrease quality of talent pool

What is a pressure group?Pressure group: Non-profit organization

established by their members to address a special interest of the groupCovered more in Unit 1.4

HL: Relationship between public and private sector organizationsWhat is the role of the government?

To provide services to the general public that are in its best interest

What options does the government have to provide these services?Supply the services themselvesAllow private firms to supply themForm a public-private sector partnership (such

as Disneyland in Japan)

What is the difference between public and private goods?Private goods: Goods that are excludable;

people who cannot afford them can go without them (such as mobile phones, cars, etc.)

Private goods: Products that are enjoyed by the general public but would probably not be provided without government intervention