lesson 1.2 Flashcards
PRIVATE VS. PUBLIC SECTOR/MAIN FEATURES OF ALL ORGS. (29 cards)
Distinguish between the private and public sectors.
Private sector = part of the economy run by private individuals and businesses; the aim of most is to make PROFIT (sales revenue - costs)
Public sector = part of the economy controlled by the government; provides essential products.
Reasons for public sector business activity
Ensure that everyone has access to basic services like education or healthcare
To avoid wasteful competition as the government is able to benefit from economies of scale
To protect citizens and businesses through the police or courts
To create employment; governments employ a lot of teachers, doctors, and nurses
To stabilize the economy (the government might buy a bank to prevent further financial turmoil as it can afford to pay for people’s jobs)
PROFIT-BASED ORGANIZATIONS (private sector)
Sole Traders/Sole Proprietors
- a self-employed person who runs the business on their own; they have unlimited liability
Unlimited liability
- why?
- a feature of sole traders/ ordinary parternships who are legally responsible for all the monies owed to their creditors even if they have to sell off their personal possessions
- The business is UNINCORPORATED. This means that the owner is the same legal identity of the business; so, the owner is responsible for all losses or liabilities
Sole Traders/Sole Proprietors PROS VS. CONS (6 each)
Partnerships
a type of private sector business entity owned by 2-20 people (aka partners); they share the responsibilities and burdens of running and owning the business
Silent partners
owners who do not actively take part in the running of the partnership but have a financial stake in it; they are eligible for a portion of the profits
Unlimited liability in partnerships
At least one owner must have unlimited liability, as partnerships are UNINCORPORATED businesses, but typically all partners share the liability
Deed of partnership
The legal contract signed by the owners of a partnership; specifies the responsibilities of each partner and their proportion of profits/losses
Partnerships PROS VS. CONS (4 each)
- Define companies.
a limited liability business that is owned by shareholders; a certificate of incorporation gives the company a separate legal identity from its owners (shareholders)
Incorporation
there is a legal difference btw. the owners of a company and the business itself; ensures owners are protected by limited liability
Limited liability
a restriction on the amount of money that owners of a company can lose if the business goes bankrupt; e.g., shareholders can’t lose more than the amount they invested in the company
Features of companies (AGM + BOD)
A board of directors is elected by shareholders to run the company on their behalf
Each share = one vote, so the more shares an investor has, the more voting power they have
Annual General Meeting = allows the owners to have a say (or vote) in the running of the business (speak to CEO, election of BOD, vote on resolutions, present annual report, approve financial accounts, etc.)
Private limited company vs. public limited company (recall: flotation)
- Private LC = a business owned by shareholders w/ limited liability but whose shares cannot be bought by or sold to the general public on a Stock Exchange, only to private fam/freinds; the shares cannot be traded without the prior agreement from the BOD, so that the directors can maintain overall control over the company
- Public LC = an incorporated limited liability business that allows shareholders to buy and sell shares in the company via a public stock exchange
For public limited companies
- what is IPO/flotation
- stock exchange
IPO = when a business sells all/part of its business to shareholders on the stock exchange for the 1st time - changes legal status of biz. to a publicly held company
Flotation = when a business first sells all or part of its business to external shareholders, a process known as initial public offering
Stock exchange = a marketplace for trading stocks and shares of public limited companies
Companies PROS VS. CONS (6,5 each)
PROS:
- limited liability
- more sources of finance, like selling shares
- continuity (b/c of incorporation)
- economies of scale
- productivity (b/c specialist staff hired)
- TAX BENEFITSSSSS
CONS:
- compliance costs (w/ stock exchange)
- beauracracy
- communication problems as biz gets larger
- financial info. has to be publicly exposed
- LOSS OF CONTROL, now PLCs are open to hostile takeovers
Social enterprises
- ALL PROFITS MUST BE REINVESTED FOR THAT SOCIAL PURPOSE RATHER THAN BEING DISTRIBUTED TO SHAREHOLDERS
revenue-generating businesses with social objectives at the core of their operations; can be operated as a non-profit organization or as a for-profit company
FOR-PROFIT SOCIAL ENTREPRISES
Cooperatives
for-profit social entreprises set up, owned, and run by their members
Types of cooperatives
- producer
- consumer
- worker
Producer Co-ops: cooperatives that join and support each other to process or market their products (usually farmers)
Allows them to get discounts on bulk purchases
Consumer Co-ops: owned by customers who buy goods ⁄ services for their personal use
Allows them to access goods and services to be bought at lower prices
Primarily benefits the members
Worker Co-ops: are set up, owned, and organized by their employee members
E.g., Credit Union
Cooperatives PROS vs. CONS (4 each)
PROS
Incentives to work
Decision-making power
Social benefits; creates social gains that can be enjoyed by the wider community
Public support
CONS
Financial Disadvantages; don’t pay high salaries or bonuses
Limited sources of finance; most of them cannot raise funds through a stock exchange
Slower-decision making
Limited promotional oppurtunities; tend to have flatter organizational structures
Public-private partnerships
When the government works together with the private sector to jointly provide certain products; e.g., the World Health Organization
