Types of Organization

Content
Types of Organizations
 Profit, non-profit and non-governmental
 Sole Trader/Proprietors
 Partnerships
 Companies/Corporations
 Classifications of Business
 Private and Public sectors
 Profit-based and non-profit based

Private Sector First

 The Private Sector Outline

Types of Private Sector

Businesses

Sole Limited Cooperatives

Trader Partnership Companies

Public
Private
plc
Ltd
 The Sole Trader/Proprietor
This is the most common form of business
organization. One person provides the finances
and in return, has full control of the business and
is able to keep all the profits.
Identify some of the advantages…………
 The Sole Trader/Proprietor Advantages
 Easy to set up-no legal formalities.
 Owner has complete control –not answerable to
anybody else.
 Owner keeps all profits.
 Able to choose times and patterns
 of working.
 Able to establish close personal
relationships with staff
(if any are employed) and customers.
 The business can be based on the
interest and skills of the owner –
rather than working as an employee
for a larger business.
 The Sole Trader/Proprietor
Identify some of the disadvantages…………
 The Sole Trader/Proprietor Disadvantages
 Unlimited liability – all of the owner’s a assets are
potentially at risk.
 Often faces intense competition from bigger firms, for
example, food retailing.
 Owner is unable to specialize in areas of the business
that are most interesting – it is responsible for all
aspects of management.
 Difficult to raise additional capital.
 Long hours often necessary to
make business pay.
 Lack of continuity- as the
business does not have separate
legal status, when the owner dies,
the business ends too.
 Partnership
Partnerships are agreements
between two or more people
carry on a business together,
usually with a view of making a profit.
The Deed of Partnership establishes the rights
and privileges of the partners. This document
includes issues such as voting rights,
distribution of profits, The management role of
each partner and who has the authority to sign
contracts.
 Partnership

 Identify advantages of a partnership

 Partnership
Advantages
 Partners may specialize in different areas of
business management.
 Shared decision making.
 Additional capital injected by each partner.
 Business losses shared between the
partners.
 Greater privacy and fewer legal formalities
that corporate Organizations (companies)
 Partnership
.

 Identify disadvantages of a partnership

 Partnership
Disadvantages
 Unlimited Liability for all partners.
 Profits are shared.
 There is, as with sole traders, no continuity and the
partnership will have to be reformed in the event of
the death of one partner.
 Al partners are bound by the decision of any one of
them.
 Not possible to raise capital from selling shares.
 A sole trader, taking on partners will loose
independence of decision making.
 Limited Company
 3 Differences between limited
companies and sole traders and
partnerships
 Limited companies have:

1. Limited Liability
2. Legal Personality
3. Continuity
 What is limited liability?
 Financial protection in the event that
the company fails. The financial
liability is limited.

 Sole Traders and Partnerships are

financially responsible for all claims
against the company.
 What is legal personality?
 A company is its own entity having
an identify separate of that of its
owners.

 “It is its own person” so to speak in

the eyes of the law.
 What is continuity?
 The company will continue to exist in
the event of the death of its owners.

 A sole trader or partnership is

automatically dissolved.
 Who owns a limited company?
 Shareholders
The company issues shares. Each
share is a small ownership in the
company.

 Shareholders own shares in a limited

company.
 What is a Private Limited
Company? (Ltd.)
 It is a company – has issued shares.

 Its shares are not available for sale

to the public.
 Private Limited Companies
 Tend to be relatively small companies.
 Their business name ends in Limited or Ltd.
IE: JP Solutions Ltd.
 Shares can only be transferred privately
and all shareholders must agree to the
transfer.
 Private Limited Companies are often family
businesses owned by members of the
family or close friends.
 The directors of these companies tend to
be shareholders and are involved in the
running of the business.
 Many manufacturing firms are Private
Limited Companies rather than Sole Traders
or Partnerships
 Private Limited Companies Advantages

 Shareholders have limited liability.

 More capital can be raised as there are no limits on
the number of shareholders.
 Control of companies cannot be lost to outsiders.
 The business will continue even if one of the owners
dies.
 Private Limited Companies Disadvantages
 Profits have to be shared out amongst a much
larger number of members.
 There is a legal procedure to set up the business.
This takes time and costs money.
 Firms are not allowed to sell shares to the public
This restricts the amount of capital that can be raised.
 Financial information filed with the
Registrar can be inspected by any
member of the public.
 Competitors could use this to their
 advantage.
What is a Public Limited Company?
(Plc.)
 It is a company – has issued shares.

 Its shares are available for sale to

the general public. Its share price is
quoted on the stock exchange.

 A board of directors control the

management of the company
appointed at an annual meeting.
Advantages of a Corporations
• Can raise money by issuing shares of stock.
• Offers owners limited liability.
Owners are liable only up to the amount of
their investments.
• People can easily enter or leave the
business by buying or selling
their shares of stock.

• The business can hire experts to

professionally manage each
aspect of the business.
 Disadvantages of a Corporations
•Start-up is costly – legal assistance is
required as well as business consultants
and financial advisors.
•Corporations are subject to more
government regulations than
partnerships or sole proprietorships
•Share prices fluctuate; risk of takeover
•Income is taxed twice
•Short-term profit
objectives of major
shareholders
 Public Limited Companies
Advantages
 Huge amounts of money can
be raised from the sale of
shares to the public.
 Production costs may be
lower as firms gain economies
scale.
 Because of their size, plc can
often dominate the market.
 It becomes easier to raise
finance as financial
institutions are more willing l
to lend to plcs.
Questions: What are the
limitations of being a
limited company in a highly
competitive market?
Disadvantages
 Setting up costs can be very
expensive.
 Since anyone can buy shares, its
possible for an outside interest to
take control of the company.
 All company accounts can be
inspected by member of the
public.
 Because of their size they cannot
deal with customers at a personal
level.
 The way they operate is
controlled by various company
acts which aims to protect
shareholders.
 There is divorce of ownership and
control which might lead to the
interest of owners being ignored
to some extent.
 Plcs inflexible due to their size.
 Public Sector Organizations

Now the Public Sector

 Public Sector Organisations

The Public Sector is made up or organizations which

are owned and controlled by central or local
government or public corporations. They are
funded by government and in some cases from
their own trading ‘surplus’ or profit.

Public Sector businesses still have important roles

to play in certain areas of business activity.
 Public Corporations

 Public corporations are owned and

controlled by the government.
 Profit is not their main goal.
 They are meant to serve or meet the
needs of citizens.

Examples:
PBS
(Public Broadcasting Service)
United States Postal Service
 Public Corporations

Advantages Disadvantages
 Managed with social
objectives rather than  Tendency towards
inefficiency because
profit no profit targets
 Loss-making services  Subsidies from
might be kept government can
operating if the social encourage
inefficiencies
benefit is great
 Government may
 Finance raised mainly interfere in business
from the government decisions for political
reasons
 Non-Profits
Non-Governmental
Organizations (NGOs)

 Charities
 Pressure Groups
 Social Enterprise
 Charity
 Profit is not the
objective
 Money raised is
used to support or
bring attention to
cause
 Pressure Group
 Pressure groups
are charities
 Their goal is to
change behaviors
in:

Citizens
Business
Governments
 Social Enterprise
 A company with an
objective to reinvest or use
profits to benefit society.
 Triple bottom line:

Economic: Make a profit to

reinvest

Social: Provide job support for

community

Environmental: Manage
business in a sustainable
way
 Public-Private Partnerships (PPP)
 Private sector management and
financing in public sector projects
that benefit the public
 Government Funded PPP
 Government provides all or part of
the funding
 Private management to control costs
and be efficient
 Private Sector Funded (PPP)
 Large projects that are financed in
the private sector releasing the
government from the burden of
funding.
 The gov’t then leases or pays rent
 Known as PFI – Private Finance
Initiative
 Govt Directed with Private
Financing and Management (PPP)
 Private sector funding and private
sector management of public
projects.
 Example: London hospital was built
with private financing, then leased to
the government which manages and
control hospitals health care
services.
 PPP Costs and Benefits
Costs
Benefits
 If managed by the
private sector, can cut  Schools, roads,
wages and benefits prisons, and hospitals
and workers no longer have been built with
have protection of this scheme
being employed by  The goal is for private
the public sector sector to make a
 Reputation of large profit causing cost
business earning large efficiency not seen
profits paid by with government
taxpayers supervision
 Private sector may  Public service
lack experience improvement without
managing such large increasing taxes for
scale projects capital improvements