1.2 Types of business Flashcards
(28 cards)
Private sector
Owned and controlled by private individuals with an aim to earn profit for owners(for most private sectors)
Public sectors
Public sector firms are owned and controlled by the Government and are usually funded through taxation, usually providing essential goods/services that private sector provide.
nationalization
Nationalisation is when the government takes over ownership of firms that previously operated in the private sector.
Types of organizations
sole trader
partnership
coperations(provate held or pblich held)
Sole trader
A sole trader is unincorporated business in which an individual is the owner of the own business. The owner runs and controls the business and is the sole person held responsible for its success or failure.
Advantages of sole trader
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few legal formalities
- Easy to set up and start-up costs are usually cheaper then other types of business entities
Profit taking
- Sole trader is the only owner meaning 100% of profits goes to one person
Being own boss
- Don’t take orders from anyone, have flexibility find decision such as dictating working hours
Personalised service
- Provide personalised service to consumer because they have the opportunity tog et to know most of their costumer making them feel soeciall
Privacty
- Don’t have to make financial records public
Quicker decision making
- No other owners to cosult, can make decision quickly with no one stopping them.
Disadvantages of sole trader
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High risk
- They have the highest risk of failure, bigger threats from bigger companies
Unlimited liability
- Since you are an unicorperted business there is no limits to the debt you can have.
Workload and stress
- They have to do their own HR, accounting, marketing, operational management by themself.
limited source of finance
- Its difficult to secure funds beyond personal saving which is limited.
limited economies of scale
- Can’t benefit from economies of scale , prices are less competitive then bigger companies.
lack of continuity
- If owner are not present then there is no lack of contunitty.
Partnership
A type of private sector business that is owned by 2 or more people . They share the responsibilities and burdens imvolved in running and owning a business
- a for-profit private secotr business
- mainly financed from personal funds of eachother
Deed of partnership
Formal legal agreement between parnters include:
- the amount of finance contributed by each partner
- roles(obligation of each partner)
- how proft/losses should be shared between partners
- conditions for introducing new partners
- clauses for the withdrawal of a partner
- procedure for ending the partnership
Silent partners
invest in company without being involved in daily operations.
- are eligible for any portions earned by patnership
advanatges of partnership
Financial strength
- Partnership has more financial strength by pooling funds together.
Specialization and division of labor
- They can benefit by shared expertise, shared workload
Financial privacy
- They do not have to public their financial records unlike sole traders
Cost-effectivness
- They are more cost-effective then sole-trader as each partner specialises in certain aspects of business.
Disadvanatges of partnership
Unlimted liability
- Partnerships are responsible for their debts.
lack of contunituty
- If a partner leaves the partnership deed becomes invalid which is a lack of continuity
prolonged decision making
- It is likely to make decision making take longer as there are more owners involved.
Lack of harmony
- Disagreements and conflicts within partnerships are common which cause a lack of harmoney
Corporations
Refers to a a limted liability business that is owned by shareholders. A certificate of incoprations gives company seperte legal entitity from shareholders.
- can be both private held or public held
- owned by shareholders
- unlimited number of shareholders
- incorporated business
- owners can own but don’t have to work there
BOD + CEO= run company
- majority shareholder (has highest % of shares) has the final say
- Unlimited liability
- must have annual general meeting/AGM to allow owners to have a say in running business
3 most important documents for corperations
Memorandum of associated + articles of associatetion = certificate of incorporations
memeorndum= conditions necessary to run the company
articles of association=. basic rules of company
certificate of incorperations= doc that gov gives to company allowing them to trade
Private held Company
a company whose shares and related rights or obligations are not offered for public subscription or publicly negotiated in their respective listed markets .
Corporation
- a small number of shareholders(shares are harder to buy)
- to buy shares you need to contact shareholders
-difficult to cash out (leave company)
- usually owned by families
- no need to publish much financial information
Public held company
Its an incorperated limited liability business that allows shareholders to buy and sell shares in the company via stock exchange.
-privately held company turned public
- public = shares available to the public through stock exchange
- greater access to capital
- flotation = company sells all/part of business to shareholders/external investors (process is called initial public offering/IPO)
- IPO makes copnay registered on public stock exchange
- floatation is an additional source of finance.
Social Enterprise
A social enterprise is a revenue generating business or organization with socail objectives at core of operations. They can be for-profit or non-profit business entititeis, but all profits or surpluses are reinvested for socail purpose and not distributed to owners.
Types of social enterprises
For-profit Social entrpise
- private secotr coperatives
- Public sector coperatives
- cooperatives
Non-profit
- NGOS
Private secotr for profit coperations
Social well being is the main goal
- use profit as a tool to achieve socially important aims
- same features as private/ public
Public sector for profit coperation
-same as private sector companies but public
- run and funded by government
- provide public services
cooperatives
- Run by own memebers
- goal= generate value for members by operating in socially responsible ways
3 main types:
Consumer cooperative
- owned by consumer that buys goods/services from cooperative for personal use
- foods
- financial services
worker cooperative
- owned by employee member
- cafes
Porducer cooperatives
- cooperatives that join/support each other to process market goods
Advanatges of cooperatives
Incentive to work
- Employees have stake in cooperative, so they care about how it performs, enhances motivation
Decision making power
Since employees have a say in decision making this improves members commitment and employee loyalty
Social benefits
- Since our run in socially responsible way, create social gains that can be enjoyed by wider community
Public support
- Since they work in socially responsible manners that have better public image and support from community
Disadvantages of cooperatives
Disincentive effects
- ineffective managers and emplyees BCS they don’t pay high salrys
Limites sources of finaiance
- They can not raise finds through stock exchange, it is limited to the amount contributed
Slower decision making
- All memmebers are involved so it slows done the process
Limited promotional opportunities
- They have flatter organizational structure, so there are fewer opportunities
NGO (non-profit)
They are private sector not-for-profit social enterpise that operates for the beenfit of others rather then primarily trying to earn profit.
