1.

2 TYPES OF
ORGANIZATIONS
Section 1 Business organization and environment
Unit content
Content Assessment
objectives
The private and public sectors AO2
Profit-based organizations AO3
• Sole traders
• Partnerships
• Companies (corporations)
For-profit social enterprises AO3
• Cooperatives
• Microfinance providers
• Public-private partnerships
Non-profit social enterprises AO3
• Non-governmental organizations (NGOs)
• Charities
Types of organizations and the CUEGIS concepts
THE PRIVATE AND
PUBLIC SECTORS
Over to you
1. What do these businesses sell?
2. Who owns these businesses?
3. What is the main objective of
these businesses?
Canada Post

FedEx
Private vs. public sectors
• Businesses can be categorised into private or public sector
organizations depending on:
• who owns them
• their main business objective
• Most businesses are in the private sector.

Private sector • Organizations owned and controlled by private

individuals and businesses.
• Main aim - to make profit.

Public sector • Organizations owned and controlled by the

government.
• Main aim - to provide essential goods and
services.
 PROFIT-BASED
ORGANIZATIONS
• Sole traders
• Partnerships
• Companies:
• Private limited companies
• Public limited companies
Profit-based organizations

• These are revenue

generating businesses with
profit objectives at the core
of their operations.
• Their goals are to:
• Make a profit.
• Reward the owners with
profits from the business.
• Return some of the profits
back into the business for
capital growth.
Sole traders
• These businesses are owned by
individuals who own and run a
personal business.
• This is the most common type
of busines ownership as it is
relatively easy to set up.
• Start-up capital is usually
obtained from personal savings
and borrowing.
• Sole traders have unlimited
liability.
Unlimited vs limited liability
• When deciding on which type of organization to set up, an
entrepreneur needs to consider whether or not to incorporate
the business to benefit from limited liability.
• This video explains what it means to have limited liability (0:00
to 0:42).
Sole traders

Advantages Disadvantages
• Few legal formalities • Unlimited liability
• Profit taking • Limited sources of finance
• Being your own boss • High risks
• Personalised service • Workload and stress
• Privacy • Limited economies of scale
• Lack of continuity
Partnerships
• Partnerships are owned by two or
more persons (known as partners).
• At least one partner must have
unlimited liability.
• Start-up finance is raised mostly by
personal funds which are pooled
together by the partners.
• A legal document known as a deed of
partnership is drawn up to formalise
agreements such as how profits and
losses are to be shared between
partners.
Partnerships
Advantages Disadvantages
• Financial strength • Unlimited liability
• Specialisation and division of • A lack of continuity
labour • Prolonged decision-making
• Financial privacy • Lack of harmony due to
• Cost-effective disputes/disagreements
Companies (corporations)
• These are businesses owned by their
shareholders.
• Shareholders have invested money to
provide capital for a company.
• Companies are incorporated businesses.
• In the eyes of the law, the companies are
treated as a legal entity separate from its
owners.
• This means they have limited liability.

• There are two types of companies – private

and public limited companies.
Private limited companies
• A private limited company’s shares are
owned by friends and/or family.
• These shares cannot be traded publicly on
the stock exchange.
• Shareholders can only sell their shares if
they have prior permission from other
shareholders.
• Typically, private limited companies are
also family businesses.

IKEA, Mars and Aldi are all family businesses

incorporated into private limited companies.
Public limited companies
• A private limited company can sell shares on
the stock exchange.
• Shares are held by the general public.
• No prior permission by other shareholders is
required for a shareholder to sell their
shares.
• They often carry abbreviations after their
company name to indicate their status, e.g.
PLC in the UK, Inc. in the USA, Bhd. in
Malaysia, and S.A. in Morocco).

Honda Motor Company, Ltd., The Walt Disney

Company and Facebook Inc. are all public limited
companies.
Companies (corporations)
Advantages Disadvantages
• Raising finance • Communication problems
• Limited liability • Added complexities
• Continuity • Compliance costs
• Economies of scale • Disclosure of information
• Productivity • Bureaucracy
• Tax benefits • Loss of control
Activity
Flowers by Cam is a small business in London, UK. It was set up as a sole
trader in 2010 by Cam Tran. At the time, she had three young school-aged
children, and operated her business from home and a small stall that she
rented at a local market. She relies on repeat customers in the local area,
but also prepares bespoke flower arrangements for weddings and funerals.
Sales fluctuate on a weekly basis, but she enjoys the flexibility of being able
to work from home when needed. Now that her children have graduated
from high school and university, she is keen to expand the business.
However, with the devastation of the coronavirus pandemic in the UK, her
business has struggled with liquidity issues and she is seeking to borrow a
significant amount of money from her bank.
Valentine's Day should have been her busiest day of the year in 2021, but
with national lockdowns still in force, sales were the lowest they have been
since she set up Flowers by Cam.
1. Define the term sole trader. [2 marks]
2. Explain one advantage and one disadvantage of establishing Flowers by
Cam as a sole trader. [4 marks]
 FOR-PROFIT SOCIAL
ENTERPRISES
• Cooperatives
• Microfinance providers
• Public-private partnerships (PPP)
For-profit social enterprises
• These are revenue generating
enterprises with social objectives Revenue
at the core of their operations. Costs
s
• Their aims are to: e.g. goods
• Make a surplus (i.e. earn revenue
greater than costs incurred). e.g. salaries
services
• Use the surplus for the benefit of
rent
society. interest
earnings
Cooperatives
•Owners of cooperatives are called
members.
•Members own and run cooperatives (i.e.
they are also employees of the
organization).
•Their aim - to create value for members by
operating in a socially responsible way.
•All employees have a vote to contribute to
decision-making.
•Any profits earned are shared between
their members.
Dairy Farmers cooperative
• Dairy Farmers (DF) is an
Australian cooperative set up
in 1910.
• The purpose of DF is to help
dairy farmers in the state of
New South Wales to market
their milk and butter directly
to consumers in the cities.
• Watch this video about DF’s factory in
Malanda.
1. How does this factory benefit the 56
local members of DF?
2. Why do local dairy farmers choose
to be part of DF instead of operating
their own factories?
Cooperatives
Advantages Disadvantages
• Incentives to work • Disincentive effects
• Decision-making power • Limited sources of finance
• Social benefits • Slower decision-making
• Public support • Limited promotional
opportunities
Microfinance providers
• This is a financial service aimed at
entrepreneurs who come from
disadvantaged sectors of society.
• Their aim - to enable small business
entrepreneurs to gain access
financial services in order to help
eradicate poverty.
• Women and low incomes earners
wishing to start a small business are
often those who benefit from this
type of organization.
Combating poverty through microfinancing
Watch this video about how microfinance works.

1. List some examples of financial

services that microfinance
providers offer.
2. What are these microloans
typically used for?
3. What are some other tools
needed besides microfinance
to help fight poverty?
Microfinance providers

Advantages Disadvantages
• Accessiblity • Immorality
• Job creation • Limited finance
• Social wellbeing • Limited eligibility
Public-private partnerships (PPP)
• This is a hybrid Angkor
Archaeological
organization between the Park is owned by
private and public sector. the Cambodian
government but
• Governments work with leased to a
private sector firms to private sector
firm to run as a
jointly provide certain tourist attraction.
goods or services.
• PPPs benefit from:
• Private sector dynamics, Singapore Sports
Hub is the product
finance and efficiency. of a PPP to
• Public sector funding and revamp the
support. country’s former
National Stadium.
 NON-PROFIT SOCIAL
ENTERPRISES
• Non-governmental organizations (NGOs)
• Charities
Non-profit social enterprises
• These are enterprises run in a
commercial-like manner but without
profit being the main goal.
• Their main aim is to achieve their
social objectives.
• Any surplus made (i.e. earned
revenue greater than costs incurred)
is reinvested back into the business
to achieve their social goals. Surplus
Surplus

Surplus

Non-profit social enterprise

Non-governmental organizations (NGOS)

• An NGO operates in the

private sector.
• They provide goods and/or
services normally expected
from the public sector.
• However, these goods/services
may be underprovided by
governments.
UNICEF #foreverychild
Watch this video of UNICEF and:
• Identify as many possible
goods/services provided by
UNICEF.
• Go to www.unicef.org and
identify other goods and
services that are provided by
UNICEF.
• Why are some of these goods
and services underprovided by
the public sector in some
countries?
Charities

• Charities provide voluntary support

for good causes (from society’s
point of view).
• Its key function is to raise funds to
support causes beneficial to
society.
• Refined marketing strategies are
used to catch the attention of
donors.
RSPCA – attracting donations
Watch this video by the Royal Society for the Prevention of
Cruelty to Animals (RSPCA).

1. What voluntary services does

the RSPCA provide to society?
2. What are the strategies used in
this video to attract donors?
Charities

Advantages Disadvantages

• Social benefits • Bureaucracy

• Tax exemptions for NPOs • Disincentive effects
• Tax incentives for donors • Charity fraud
• Limited liability • Inefficiencies
• Public recognition and trust • Limited sources of finance
Theory of knowledge

Can we really ‘know’ if for-profit organizations do not care

about society as much as non-profit social enterprises?
 TYPES OF
ORGANIZATIONS AND
THE CUEGIS CONCEPTS
Types of organizations and CUEGIS
• Selecting the type of organization when forming a business is a form
of strategic choice.
• Factors that affect this strategic choice include:
• Amount of finance
• Size
• Limited liability
• Degree of ownership and control
• The nature of business activity
• Change
CUEGIS – Strategy
Imagine you would like to start your own business.
1. What kind of business would you like to start-up?
2. How much finance can you raise as start-up capital?
• Think about how much you have in savings and can potentially borrow from family
and friends.

3. Are you willing to co-own the business with others?

4. How big will your new business be?
• For instance, if you want to open a café, how many seats would you like to have
available for customers?

5. Where do you see your business in 5 years time?

Based on your answers to the above, what type of
organization would you adopt for your business? Explain
why you have chosen this business start-up strategy.