1.2 types of business entities

Question 1

define public sector firms

Answer 1

owned and controlled by the government and usually funded through taxation

Question 2

define private sector firms

Answer 2

owned and controlled by other firms and private individuals (entrepreneurs and shareholders) and are usually funded by owner’s capital, borrowing and retained profits

Question 3

define privatisation

Answer 3

occurs when government owned firms are sold to the private sector

Question 4

why would governments partially privatize their firms?

Answer 4

• cost reduction
• a source of revenue
• governments can retain shares but still have the influence of the business’ decision making

Question 5

what is the main goal/ main objective of a public sector business?

Answer 5

to provide a service

Question 6

what is the main goal/ main objective of a private sector business?

Answer 6

profit maximization

Question 7

list 3 characteristics of a public sector firm

Answer 7

1. operates on a local region or national government level
2. governments are likely to retain ownership of organization because they are strategically important to the country and provides essential services
3. goal is to provide a service

Question 8

list 3 objectives of a private sector firm

Answer 8

1. objective is to maximize profit
2. private sectors are more efficient and has a high level of productivity due to the first reason
3. types of business ownership varies (e.g. shareholders, sole traders, partnership)

Question 9

what are the 4 types of for-profit organisations?

Answer 9

1. sole traders
2. partnership
3. private limited companies
4. public limited companies

Question 10

what are the pros for sole traders?

Answer 10

• owner receives all the profits
• complete control of the business

Question 11

what are the cons for sole traders?

Answer 11

• large commitment
• unlimited liability (has everything to lose)

Question 12

what are the pros for partnership?

Answer 12

• shared responsibility
• able to have different skills/ expertise from owners

Question 13

what are the cons for partnerships?

Answer 13

• profits are shared amongst all
• unlimited liability

Question 14

what are the pros for private limited companies?

Answer 14

• limited liability
• significantly more finance

Question 15

what are the cons for private limited companies?

Answer 15

• cant sell shares to the public
• control may be lost
• shared ownership

Question 16

what are the pros for public limited companies?

Answer 16

• limited liability
• are able to sell shares to the public

Question 17

what are the cons for public limited companies?

Answer 17

• lack of company privacy
• loss of control
• greedy shareholders

Question 18

what are the 3 for-profit social enterprises?

Answer 18

1. private sector companies
2. public sector companies
3. coperates

Question 19

define coperates

Answer 19

• relating to large companies, or to a particular large company
• owned and managed by their members