Types of business

organization
 The private and the public sectors
Private sector – comprises businesses owned
and controlled by individuals or groups of
individuals.

Public sector – comprises organizations

controlled by central or local government (the
state)
e.g. health, law enforcement, defence and
education services
 Links between sectors
• In some countries, important ‘strategic’
industries are also state owned and controlled,
such as energy, telecommunications and public
transport. The objectives of public sector
organizations are often more than profit:
– Ensuring supply of essential services
– Preventing monopolies
– Maintaining employment
– Maintaining environmental standards
 Starting a business
An entrepreneur combines and organizes resources in a firm for the purpose of carrying out
productive activity or business. Firms are therefore also known as business organizations.

A firm may take a number of legal forms depending on how it is owned, controlled and financed.

Do I have enough capital (or money) to Am I willing to share ownership and

set up in business? profits?

Yes? Form a No?

Yes? Sole trader
No? partnership or
Sole trader
Form a partnership limited company
or limited company

Can I manage my business alone? Am I willing to risk everything I own?

Yes? No? No?

Yes?
Sole trader Form a partnership Form a partnership
Sole trader
or limited company or limited company
Financial liability in business
Owning a business involves financial risk

Unlimited liability
The financial obligation of business owners in the
event of business failure is to repay all business
debts (even if it means selling off their personal
possessions)

Limited liability
The financial obligation of business owners for
business debts is no more than the amount of
capital they invested in the enterprise
This is because business owners with limited
liability have a separate legal identity from their
business
 Sole trader
• A sole trader or sole proprietorship is a business owned and controlled by one person
• It is the oldest and most popular form of business organization

Advantages
 A sole trader is his or her own boss
 A sole trader can choose his or her own
hours of work
 A sole trader receives all profits
 This type of business is easy to set up
Disadvantages
A sole trader:
x may lose revenue if off sick or on holiday
x has unlimited liability to pay business debts
x has full responsibility for the business
x may lack capital to finance business growth
 Partnership
• A partnership is a legal agreement between two or more people to own, finance and
run a business
• It is popular among professionals such as solicitors, accountants, veterinary surgeons

Advantages
 A partnership is easy to set up
 More partners means more capital
 Partners bring new skills and ideas
 Limited partners have limited liability
 Partners share responsibility for decisions
Disadvantages
x Partners can disagree
x Partners share any profits
x General partners have unlimited liability
x Partners may lack capital to finance growth
Joint-stock company
• These companies sell shares in their ownership to
raise capital

• Shareholders are the owners of joint-stock

companies

• Shareholders elect directors to run their company

from day to day

• These firms are also known as corporations or

limited companies because shareholders have
limited liability

• A joint-stock company has a separate legal identity

from its owners
Private limited company
Suyin felt that setting up a private limited company was better than a partnership.
Why?
Advantages A private limited company
 Shareholders have limited liability (ltd) is often a small business
 Shareholders receive dividends from profits such as a partnership as
 Shareholders elect directors to manage company UNIFUTURE.
 The company has a separate legal identity
 It is a popular form of organization for sole traders and Shares do not trade on the
partnerships seeking to raise additional finance for business stock exchange, they can be
expansion
sold privately.
Disadvantages

x Financial information may have to be disclosed

x Large shareholders can out-vote others
x Directors may run the business in their own interests rather
than for shareholders
x Shares can only be sold privately and with the agreement of
all other shareholders
 Public limited company
Advantages
A public limited company (plc) is
 Shareholders have limited liability
usually a large, well-known
 Shareholders receive dividends from profits
business. This could be a
 Shareholders elect directors to manage the
company manufacturer or a chain of
 Companies have a separate legal identity retailers with branches in most
 Shares can be advertised and sold publicly on city centers.
the stock market to raise significant new capital

Disadvantages Shares trade publically on the

x The legal costs of set up can be high stock exchange.
x Annual financial accounts must be published
x Directors may run the business in their own
interests rather than for shareholders
x The original owners may also lose control of their
company if it is taken over by another company
through the purchase of shares on the stock market
 Cooperative

• A cooperative is owned by its members for mutual benefit

• There is a one member, one vote policy
What is social enterprise?

• A social enterprise is a business with the

following features:
– Primarily social objectives
– Profits are re-invested in the business or the
community
– Not driven by the need to maximise profits for
shareholders/ owners

Can exist in the Public and Private sector

Objectives of social enterprise?

• Economic – to make a profit or surplus to

reinvest back into the business and provide
some return to the owners.
• Social – to provide jobs or support for local,
often disadvantaged communities.
• Environmental – to protect the environment
and to manage the business in a
environmentally sustainable way.
 Why do social enterprises exist?

• To fulfil social or environmental needs

• Consumers want ethical products and services
• To fill a gap in the market

Social enterprises need to be at least as good as

competing businesses that are working for profit
maximisation
Examples of social enterprise?

• Jamie Oliver’s Fifteen restaurant

• http://www.fifteen.net/
• Divine Chocolate
• http://www.divinechocolate.com
• The Big Issue
• http://www.bigissue.com
• Bryson House
• http://www.brysongroup.org
 Cooperative

• A cooperative is owned by its members for mutual benefit

• There is a one member, one vote policy