AO2: distinction between the private and public sector
private sector: the commercial sector of the economy, mainly owned and run by private individuals and organisations that typically strive for a profit.
examples :
sole traders
partnerships
limited liability companies
franchises
multinational corporations
public sector : Controlled by regional and/or national government. organisation in this sector provides goods and services deemed to be essential and of benefit to its citizens. The government controls many aspects of the product or service such as the price.
examples :
transport and communication networks
healthcare services
education
national defence
AO3: the main features of the following types of for-profit ( commercial ) organisation
1. sole trader: a commercial business owned by a single person
- unincorporated business: no legal separation between the owner and the business itself
- has unlimited liability : means that the owner of a business is personally liable for all of its debts. this means that s/he may need to pay for the debt by selling off their personal asset
advantages :
owner has complete control and is free to make decision without consultation with others. therefore, decision making is quick
owner enjoys privacy as the business does not need to publish its financial account to the general public
disadvantages :
the sole trader bears all risks and has unlimited liability as the firm's finances are not separate from the owner's
finance is limited as the main source is provided by the owner, access to external finance is difficult as firm represents high risk, so expansion is difficult
2. Partnerships : a commercial business organisation owned by 2 or more people.
- at least 1 partner will have unlimited liability, although it is usual for all the partners to share responsibility
- deed of partnership: legal contracts to prevent misunderstandings and conflict
advantages :
the partners can benefit from having more ideas and expertise along with shared workloads and responsibilities, they can also benefits from specialisation and the division of labour
raise more finance
disadvantages :
any profit must be shared between partner
there might be disagreements and conflict between the partners, which can undoubtedly harm the running of the firm.
3. corporation ( private and public limited companies ) : commercial businesses with limited liabilities and owned by their shareholders. Hence any profits must be distributed among shareholders.
- divorce of ownership and control : a legal difference between the owners of a company and the business itself ( hence shareholders have the benefits of limited liability )
- limited liability : protects shareholders who in the event of the company going bankrupt cannot lose more than the amount they invested in the company
- memorandum of association & articles of association must be submitted for a certification of incorporation
- broad of directors : take charge of the strategic direction of the company on the behalf of its owner
3.1 private limited company
- Shares can only be sold to friends and family and cannot be offered for sale to the general public or transferred without agreement of all shareholders.
- owners have limited liability
advantages :
control of the company cannot be lost as shares cannot be bought without the agreement of existing shareholder
owners have limited liability
disadvantages
share cannot be sold to the general public, restricting finance compared with a public limited company
lack of privacy as financial accounts must be made available upon request
3.2 public limited company
- share can be bought by and sol to any member of the public or institution
- no legal maximum no. of shareholder
advantages :
easier to obtain finance for growth and evolution by selling additional share capital & they can enjoy the benefits of being large ( economies of scale, maker power and market dominance )
owner enjoys limited liability
disadvantages :
high cost of complying with the rule of the stock exchange : the marketplace where people and businesses buy and sell secondhand company stocks and shares
financial information are publised
AO3: types of for-profit social enterprises
social enterprise : an organisation that uses commercial business practices to improve communities, the environment and human well-being rather than focusing on profits for external shareholders
cooperatives
micro-finance providers
private-public partnership
cooperative : for-profit social enterprise owned and run by their members such as employees, managers and customers. Cooperatives strive to provide a service and to create value for their members, rather than a financial return for their member-owners.
advantages :
shareholders have equal voting rights ( all members are equally important for the cooperative ), making the organisation more democratic and harmonious
any surplus is spent on the welfare of the members and a portion is kept for reserves as an internal source of finance
disadvantages :
employees and managers may not be highly motivated due to the absence of financial rewards and benefits and also difficult to attract them
although some members have more responsibilities, they still only get one vote, which may be deemed as unfair
2. Microfinance providers : type of banking service provided to unemployed or low-income earners who would otherwise struggle to gain external finance
advantages :
empower entrepreneurs ( especially females ) of small businesses
generate social benefits ( health, education, clean water, job creation ) and helps to build and encourage a culture of economic responsibility
disadvantages :
micro-finance is small scale, so is insufficient to transform communities and societies
system of earning profit from the poor is regarded as being unethical
3. public-private partnerships ( PPPs ) : organisations jointly established by the government and at lease one private sector organisation
advantages :
shared finance and risks
positive impacts on employment and economic growth since they are run more efficiently than traditional bureaucratic
disadvantages :
opportunity cost: gov turndown other important projects/ area of expenditure
potential danger of conflict of interests between shareholders of PPP
AO3: types of non-profit social enterprises
non-profit organisation acts in a business-like way but does not distributed profits to its owners or shareholders, but instead uses the surplus to pursue its mission and vision
non-governmental organisation ( NGO ): neither part of a government nor a traditional for-profit enterprise but run by voluntary groups - run to promotes social cause
( not all NGOs are charity. to be a charity the organization must be registered with the respective Charity Commission )
Charities : operate in an altruistic way with the objectives of promoting a worthwhile cause
advantages :
exempt from paying income taxes and corporate taxes
exit for the benefit of local communities and societies
disadvantages :
earnings of workers are often lower as it would be regarded as unethical if workers were paid similar wages to those in for-profit firms.
often reliant on donations and external support in order to survive
Commentaires