1.

2
– Public vs. private sectors
– For profit (commercial)
organisations
– For-profit (social) enterprises

– Non-profit social enterprises

Public vs. private sectors

Public
Private • Owned by the government.
• Owned and controlled by private • Provide essential goods and services
individuals. that would be otherwise inefficiently
• Can be owned by one person or by provided by the private sector.
many. • Organisations wholly owned by the
• Aim is to make profit. government are state owned
• E.g., H&M and Walmart. enterprises.
• E.g., electricity and water companies.

For profit (commercial) organisations

Types of for-profit organisations
Unincorporated businesses - businesses where there is no legal distinction
between the owner of the business and the business itself–everything is
carried out in the name of the owners.
E.g., sole traders and partnerships.

Incorporated businesses - businesses that have a separate legal entity from

their owners.
E.g., private limited companies and public limited companies.

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 Sole trader an individual who runs and owns his own business.
• Unincorporated.
• Individual who owns a personal business.
• Responsible for success or failure.
• May work alone or employ others.
• Startup capital usually includes personal savings and borrowing

Advantages
Disadvantages
• Fewer legal formalities.
• Unlimited liability (unincorporated).
• Profit goes directly to one owner
• Limited sources of finance (hard to
(direct).
obtain bank loans).
• Autonomy.
• High risk.
• Personalised service.
• Workload and stress.
• Privacy of financial accounts.
• Limited economies of scale.
• Setup costs are inexpensive and
• Lack of continuity.
time-saving

Partnerships a profit-seeking business owned by multiple people (at least

two)
• Unincorporated.
• Ordinary partnerships have a maximum of 2–20 people.
• Money can be pooled from partners’ personal funds which have financial stake
but
don’t actually make decisions (silent partners).
• At least one partner must have unlimited liability.

Advantages
• Set up costs are inexpensive and quick. Disadvantages
• Financial strength (more partners • Unlimited Liability (unincorporated).
means more personal funds). • Prolonged decision making.
• Specialisation and division of labour • Lack of harmony.
due to multiple partners. • Profits must be shared among multiple
• Financial privacy (no need to publish partners.
accounts).

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 Private Limited Company (Ltd.) a company that cannot raise share capital
from the general public. The shares are sold to private family members
and friends. E.g., IKEA, Lego, Rolex, Chanel, etc.

Disadvantages
Advantages • Profits have to be shared among much
• Limited liability. larger number of members.
• No limit on the number of owners. • Setting up business takes time and it’s costly.
• Shares can only be sold privately. • Company’s financial accounts are public.
• Better decision making. • No member has full control of the company.
• Easier to raise additional funds. • Firms are not allowed to sell their shares to
the public.

Public Limited Company (PLC) Often big, multinational companies

boasting large numbers of employees that are able to advertise and sell
its shares to the general public via the stock exchange.
E.g., China mobile, HSBC, Samsung, Nike, etc.

Flotation occurs when a business first sells all or part of its business to
external investors (shareholders). This process is known as an initial
public offering (IPO).

Disadvantages
Advantages • Takes time due to bureaucratic
• Shares can be sold to the public. nature
• Efficient sources of finance are more available of big companies.
(bank loans). • Communication issues due to size.
• Limited Liability. • Final accounts are public.
• Possibility of market dominance. • Less able to offer personal services
• Economies of scale. to customers.
• Tax benefits. • Compliance costs.
• Loss of control.

For-profit (social) enterprises

Social Enterprise revenue generating businesses with social objectives at the
centre of business operations. These run according to business

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 principles but do not aim at making profit. Their surpluses from
trading may be shared with employees and customers, passed on to a
third party, used to buy resources, raise finance, employ staff etc.

Cooperatives businesses owned and run by their members, including

employees and customers. The common goal is to create value for the
members by engaging in socially responsible business activities.
• All employees have a vote.
• Profits earned are shared between members.

Advantages Disadvantages
• More incentive to work. • Disincentive effects.
• Employees have decision making power. • Limited sources of finance.
• Social benefits (CSR). • Slower decision making.
• Public support. • Limited promotional opportunities.

Microfinance providers a financial service aimed at financing disadvantaged

members of society and helping to stop the poverty cycle.
E.g., small businesses, women, minority groups.

Disadvantages
Advantages
• Immorality (micro-finance
• Disadvantaged people
providers
have access to
benefit from the
this.
poor/unemployed).
• Job creation.
• Limited finance.
• Social well-being
• Limited eligibility (not everyone
incentives.
qualifies).

Public-private partnerships when the government works together with the

private sector to jointly provide certain goods or services.

Non-profit social enterprises

Non-profit social enterprises businesses run in a commercial manner but
without profit being the main goal. These companies use surplus
revenues to achieve social goals.

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 Non-Governmental Organisations (NGOs) non-profit social enterprise
that operates in the private sector, (i.e., it is not owned or controlled by
the government). Set up to benefit society.
E.g., UNICEF.

Charities provides voluntary support for good causes (from society’s point
of view), such as the protection of children, animals and the natural
environment. Reliant on donors, endorsements, promotion etc.
E.g., WWF.

Advantages Disadvantages
• Social benefits. • Bureaucracy.
• Tax exemptions. • Disincentive effects.
• Tax incentives for donors. • Charity fraud.
• Limited liability. • Inefficiencies.
• Public recognition and trust. • Limited sources of finance.

Operational NGOs are established from a given objective or purpose. These

NGOs tend to be involved in relief-based and community projects, such as Oxfam
and UNICEF.

Advocacy NGOs take a more aggressive approach to promote or defend a

particular cause, striving to raise awareness and support through direct action
(such as lobbying, public relations and mass demonstrations), such as
Greenpeace and Amnesty International.

Types of business entities and the key concepts

There are various factors that affect the strategic choice of business entity,
including:

Amount of finance - Sole traders and partnerships need less start-up capital
than a publicly held company. A change in the legal status of a business will
usually require more finance

Size - The larger and more complex the business operations, the more likely it
is to be a limited liability company (corporation). Sole traders, for instance,

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 find it unnecessary or unaffordable to hire a large workforce or to operate a
tall hierarchical structure

Limited Liability - The desire to have limited liability, in order to protect the
personal possessions of the owners, can affect the choice of legal status of a
business entity.

Degree of ownership and control - Those who wish to retain control and
ownership of a business may prefer to stay relatively small as sole traders or
even as privately held companies.

The nature of business activity - The type and scale of business activity can
influence the legal status of an organization, e.g. mainstream aircraft and
motor vehicle manufacturers rely on external sources of finance, so are likely
to be formed as publicly held companies.

Change - As a business grows and evolves it may need additional sources of

finance and human resources. Thus, the type of organization and its legal
status are likely to change.

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