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 OrganizationsPublic 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 OrganizationsObjectives 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 AdvantagesDisadvantages

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 greatSubsidies 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 continuitySole 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.

AdvantagesDisadvantages

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 ownerMay 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

AdvantagesDisadvantages

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 raisedProfits have to be shared

Business losses are sharedNot able to raise capital from sale of shares

Greater privacy and less legal formalitiesWorking 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 continuityPrivate 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. AdvantagesDisadvantages

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 shareholderQuite difficult for shareholders to sell shares

Original owners is still often able to retain controlEnd-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.

AdvantagesDisadvantages

Limited LiabilityLegal formalities in formation

Separate legal identityCost of business consultants and financial advisers when creating a PLC

ContinuityShare 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 PLCsLegal 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 saleRisk 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