1.2 Types of businesses

Public vs Private sector

Public:

• Owned and operated by governments or their agencies
• Usually dedicated to providing services to the public; mostly not for profit
• Can be converted to private by privatization: when a government owned firm is sold to the private sector. A business can be partially privatized.

Private:

• Business or organization owned by individuals rather than government
• Main objective is to make profit

Features of organizations

Sole Trader

• Owned by one person only
• Easy and cheap to set up business
• Owner has complete control of the business
• Owner keeps all profits generated by the business
• No need to publish financial accounts (no legal complications)
• Tax benefits due to simple arrangements
• Unlimited liability: owner is responsible for any debts the business has incurred
• No permanence: business dies if owner dies
• Limited financial resources: difficulty to raise capital as there is a lot of risk involved for investors (e.g. nothing stops the sole trader from running away with all the money)
• Pressure of responsibility: owner is responsible for the whole decision-making process.
• Limited skill sets available

Partnerships

• Joint ownership of more than one owner
• Partnership agreement: set of rules for the partnership
• Easy to set up
• Cheap to set up
• Shared responsibility and decision making
• More skill sets available
• Increased access to capital and finance
• Shared workload
• profits are not always shared equally (depending on agreement)
• Unlimited liability
• Potential disagreements between partners as decisions need to be agreed upon
• Profits are shared regardless of contribution
• Possible shortage of capital

Companies/corporations

Any business organization that is owned by its shareholders who have limited liability. Can be both private and public companies.

• Must register to exist
• Is a separate legal entity
• Limited liability
• Owners are shareholders
• Shareholders share decision-making
• Power depends on amount of shares

Private Limited Companies (LTD)

• Shares are not traded on the stock market; often family-owned.
• All shareholders must agree on the transfer of shares.
• Limited liability: shareholders' responsibility for business debts is limited to the amount they invested
• Greater source of finance (capital investment)
• Continuity: if an owner dies the business lives on
• Easier to transfer ownership by selling shares
• Shareholders are not required to sacrifice personal assets if the business fails
• All shareholders must agree to transfer shares: time-consuming
• Expensive to set up
• Time-consuming to set up
• Lack of privacy: accounts need to be published (more privacy than a PLC).
• Legal requirements: more than sole traders

Public limited companies (PLC)

• Shares sold on the stock market: anyone can buy/sell shares.
• Great financing ability: ability to raise capital through issuing of shares
• Credibility: easier to get loans.
• Limited liability: shared risks reduce individual risk.
• Increased liquidity of shares
• Increased company visibility: attract customers investors suppliers etc.
• Continuity: if an owner dies the business lives on
• Easy to transfer ownership
• Loss of control over who owns the company
• Must publish financial reports for everyone to see even competitors
• Shareholder pressure to meet expectations and demands
• Vulnerable to takeovers

Initial Public Offering (IPO)

When an organization sells all or part of its business to shareholders on the public stock exchange for the first time. It changes the company's status to publicly held.

It is the price of the shares when a company becomes public

Types of for-profit social enterprises

Private sector companies

• Ownership: owned by individuals families or private investors; is typically concentrated in a limited number of hands.
• Profit motive: Primary goal is generating profits for owners and shareholders; is managed by executives and a board of directors to maximize profits.
• Capital Acquisition: Can easily raise capital through loans investors etc.
• Ownership can be easily transferred.
• Social aims: Look to improve social aspects of society; A proportion of the profits is invested in achieving these social aims. Significant profit is made while achieving social goals.

Public sector companies

• Ownership: Owned and controlled by governments.
• Profit Motive: Profit is not always the sole focus (they can aim to make profits); they provide socially focused services with the aim of making profits but not much profit is made as the aim is to provide needed goods or services.
• Capital Acquisition: Limited ability to raise capital; receive funds from the government only.

Cooperatives

• Owned and run by their members (including customers): goal is to create value
• Each member has an equal share of ownership and make business decisions
• Profits are equally shared or reinvested for members' benefits.
• Is a type of corporation: limited liability
• Shared voice as every member has a share in the running of the company
• High staff motivation
• Socially responsible principles can increase productivity
• Slow decision-making process as every member has a say
• Difficult to settle disputes
• Can't sell shares: somewhat lack of capital
• No self-interest motivation for members (e.g. performance bonuses)

Features of Non-profit social enterprise (NGO)

• Pursues a social mission while using business strategies to generate revenue and be sustainable: rarely make profit as it is not their aim
• Are independent of government: operates in the private sector
• Typically voluntary which aim to meet a need or provide a service
• Financed by donations and government/institutions funding and sales of goods and services
• Usually do not have to pay taxes as they help the government
• Are not legal entities under law
• Operates for social benefit instead of its shareholders