Analyse local organisations of different types and identify their main
Explain the advantages and disadvantages of each type of
Relate each type of ownership to the degree of control.
Distinguish between organisations in the Private and Public Sectors.
The Private Sector comprises businesses owned and controlled by
individuals or groups of individuals. In every country, most business activity
is in the private sector.
The Public Sector comprises Organisations accountable to and controlled by
central or local government. These usually include:
Health and education services
Law and order
Some strategic industries.
activity owned financed and controlled
by private individuals
Private Limited Companies
Public Limited Companies (PLCs)
Sales and Sales
Easy to set up
no legal formalities.
Owner has complete control
to anybody else.
Owner keeps all profits.
Able to choose times and patterns of
Able to establish close personal relationships
with staff (if any are employed) and
The business can be based on the interest
and skills of the owner
rather than working
as an employee for a larger business.
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 specialise in areas of the
business that are most interesting
responsible for all aspects of management.
Difficult to raise additional capital.
Long hours often necessary to make
Lack of continuity
as the business does not
have separate legal status, when the owner
dies, the business ends too.
This is the most common form of business organisation. One person provides the finances
and in return, has full control of the business and is able to keep all the profits.
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
Partners may specialise in different
areas of business management.
Shared decision making.
Additional capital injected by each
Business losses shared between the
Greater privacy and fewer legal
formalities that corporate Organisations
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
A sole trader, taking on partners will
loose independence of decision
Characteristics of Limited Companies
Capital is divided into shares
Companies are run by directors
Memorandum of Association + Article of Association
Registrar of Companies
Certificate of Incorporation
Name of the company
Name and address of the company’s registered office
The objectives of the company and scope of its activities
The liability of members
The amount of capital to be raised and the number of shares to be issued
A limited company must have a minimum of two members.
The rights of shareholders
The procedure for appointing directors and scope of their powers
The length of time directors should serve before reelection
The timing and frequency of company meetings
The arrangement for auditing company accounts
Tend to be relatively small companies.
Their business name ends in Limited or Ltd.
Shares can only be transferred privately and all shareholders must agree to
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
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
The business will continue even if one of
the owners dies
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
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
Memorandum of Association + Article of Association + Statutory Declaration
Registrar of Companies
Certificate of Incorporation
Publish of Prospectus
A plc cannot begin trading until it has completed these tasks and has
received at least 25% payment for the value of shares.
It will then receive a Trading Certificate and can begin operating.
The shares will be quoted on the
The Stock Exchange is a market where second hand shares are bought
and sold. A full Stock Exchange listing means that the company must
comply with the rules and regulations laid down by the Stock
The company needs lawyers to ensure that the prospectus is ‘legally’
A large number of publications have to be made available.
The company must use financial institutions to process share application.
The share has to be
A fee is paid to an underwriter who must
buy any unsold shares.
The company will have advertising and administrative expenses.
The company must have a minimum of $50,000 share capital.
Huge amounts of money can be raised from
the sale of shares to the public.
Production costs may be lower as firms gain
Because of their size, plc can often dominate
It becomes easier to raise finance as
financial institutions are more willing l to lend
Setting up costs can be very expensive.
Since anyone can buy shares, its possible for
an outside interest to take control of the
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
There is divorce of ownership and control
which might lead to the interest of owners
being ignored to some extent.
inflexible due to their size.
This is a common form of business organisation in some countries, especially
in agriculture and retailing.
All members can contribute to the running of the business, sharing the work
load, responsibilities and decision making.
All members have one vote at important meetings.
Profits are shared equally among members.
Buying in bulk.
Working together to solve
problems and make decisions.
Good motivation of all members to
work hard as they will benefit from
Poor management skills unless
professionals are employed.
Capital shortages because no sale of
shares to the non
public is allowed.
Slow decision making if all members
are to be consulted
This is a contract between two firms. The contract allows one of them, the
to use the
of the other,
The franchisee can separately, then decide which form of legal structure to
Many businesses change their legal status as they become older.
The Need for finance:
A change in legal status may be forced on the
The size of a business operation is likely to affect its legal status.
Owners can protect their own personal financial position if
the business is a Limited Liability company.
Degree of control:
Owners may consider retaining control of the business
The Nature of the Business:
The type of business activity may influence
the choice of legal status.
Activity owned, financed and controlled
by the state through government or local
key departments set policy and monitor
District Councils, Parish Councils
Consumption of the good/Service
by one individual does not reduce the
Amount available for others
It is impossible to exclude others
From benefiting from their use
These are services which people thing should be provided in greater quantities
Examples of merit goods are:
Education, Health Services, Public Libraries
If the individual is left to decide whether or not to pay for these goods, some
may choose not to, or may not be able to.