Types of Organization

Review

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
Trader

Partnership

Private
Ltd

Limited
Companies

Cooperatives

Public
plc

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 owners 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.

Limited Company
Separate legal
entity
Business owned by
shareholders
Run by directors
(who may also be
shareholders)
Liability is limited

Setting up a Limited Company

Controls of a Company

Importance of Limited Liability

Private and Public Limited

Companies

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 PLC

Can raise money by issuing shares of stock.

Offers owners limited liability.

of

Owners are liable only up to the amount

their investments.

People can easily enter or leave the business by buying or selling

shares of stock.

their

The business can hire experts to

each
aspect of the business.

professionally manage

Disadvantages of a PLC

Start-up is costly legal assistance is

required as well as business consultants
and financial advisors.
PLC are subject to more government
regulations than partnerships or sole
proprietorships

Public Limited Companies

Disadvantages

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?

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.

Flotation or
Initial Public Offering (IPO)

Buying Shares in a Company

Factors affecting Choice

Starting a business

Identifying Market
Opportunities

Activity

Select one Private Limited company and

one Public Limited company
Identify their objectives
Identify all their stakeholders
Analyze the organizations impact on 3 of
its stakeholders
Present your findings in powerpoint

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

Managed with social

objectives rather than
profit
Loss-making services
might be kept
operating if the social
benefit is great
Finance raised mainly
from the government

Disadvantages

Tendency towards
inefficiency because
no profit targets
Subsidies from
government can
encourage
inefficiencies
Government may
interfere in business
decisions for political
reasons

Non-Profits
AKA: 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

Higher Level Stuff

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
Example: HopeClinicLukuli in
Kampala, Uganda. Receives
government funding for malaria
prevention and HIV testing

Private Sector Funded (PPP)

Large projects that are financed in

the private sector releasing the
government from the burden of
funding.
The govt 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

If managed by the
private sector, can cut
wages and benefits
and workers no longer
have protection of
being employed by the
public sector
Reputation of large
business earning large
profits paid by
taxpayers
Private sector may
lack experience
managing such large
scale projects

Benefits

Schools, roads, prisons,

and hospitals have
been built with this
scheme
The goal is for private
sector to make a profit
causing cost efficiency
not seen with
government supervision
Public service
improvement without
increasing taxes for
capital improvements