Unit 1.2

Business can be categorized into private or public sector organizations depending on: 

• Who owns them 

• Their main objective 

Most business are in

the private sector 

Private Sector

Organizations owned and controlled by private individuals and businesses 

Main aim of Private Sector

to make profit. 

Public Sector 

Organizations owned and controlled by the government. 

Main aim of Public Sector

•  to provide essential goods and services. 

Profit Based Organizations 

These are revenue generating business with profit objectives at the core of their operations 

 

Goals of Profit Based Organizations: 

• Make a profit 

• Rewards the owners with profits from their business 

• Return some of the profits back into the business for capital grow

Profit Based Organizations: Make a

profit

Profit Based Organizations: Rewards the owners with

profits from their business 

Profit Based Organizations: Return some of the profits

back into the business for capital growth. 

Unlimited vs. limited liability 

When deciding on which type of organization to set up, an entrepreneur needs to consider whether or not to incorporate the business to benefit from limited liability.

Sole Traders

These businesses are owned by individuals who own and run a personal business. 

Sole Trader is the most common type of business ownership as it is . 

relatively easy to set up

Start-up capital is usually obtained from personal

savings and borrowing. 

Sole traders have

unlimited liability.

Sole Trader Advanatges

• Few legal formalities 

• Profit taking 

• Being your own boss 

• Personalised service 

• Privacy 

• Quicker decision-making 

 

Sole Trader: Few

legal formalities

Sole Trader: profit

taking

Sole Trader: Being

your own boss

Sole Trader: Personalised

Service

Sole Trader: Having

privacy

Sole Trader: Quicker

decision making

Sole Trader Disadvantages

• Unlimited liability 

• Limited sources of finance 

• High risks 

• Workload and stress 

• Limited economies of scale 

• Lack of continuity 

 

Sole Trader: Unlimited

liability

Sole Trader:Limited

sources of finance 

Sole Trader: High  

risks

Sole Trader: Workload

and stress 

Sole Trader: Limited

economies of scale  - buying in bulk

Sole Trader: Lack of  

continuity

Partnerships are owned by

two or more persons (known as partners). 

At least one partner must

have unlimited liability. 

Start-up finance is raised mostly by

personal funds which are pooled together by the partners. 

Limited Liability

a legal status that restricts an owner's or investor's financial responsibility for a company's debts or lawsuits to the exact amount they invested

Unlimited Liability

a legal structure where business owners are personally responsible for all debts and financial losses of their company

A legal document known as a deed of partnership is drawn up to

formalise agreements such as how profits and losses are to be shared between partners. 

Partnership Advantages

• Financial strength 

• Specialisation and division of labour 

• Financial privacy 

• • Cost-effective 

Partnership: Financial  

strength

Partnership: Specialisation

and division of labour 

Partnership: Financial  

privacy

Partnership: Cost- 

effective

Partnership Disadvantages

Unlimited liability 

A lack of continuity

 Prolonged decision-making 

Lack of harmony due to disputes/disagreements 

 

Partnership: Unlimited  

liability

Partnership: A lack of

continuity

Partnership:  Prolonged

decision-making 

Partnership: Lack of harmony due to

 

disputes/disagreements 

Limited Liability companies are

businesses owned by their shareholders. 

Limited: Shareholders have invested money to

provide capital for a company.

Limited: Companies are

incorporated businesses. 

LLC: In the eyes of the law, the companies are

treated as a legal entities separate from its owners. 

This means they have limited liability. 

There are two types of companies -

private held and publicly held companies. 

 

LLC Advantages 

• Raising finance 

• Limited liability 

• Continuity 

• Economies of scale 

• Productivity 

• Tax benefits 

 

LLC: Raising  

finance

LLC: Limited  

liability

LLC: Continuity

Doesn’t die with owner

LLC: Economies of  

scale - buying in bulk

LLC: Productivity 

 

Productivity

LLC: Tax  

benefits

LLC Disadvantages

Communication problems 

Added complexities 

Compliance costs 

Disclosure of information 

Bureaucracy 

Loss of control

LLC: Compliance  

 

 

costs

LLC: Communication  

problems

LLC: Added  

complexities 

LLC: Loss of  

control

LLC:Bureaucracy 

High system to follow

LLC: Disclosure of  

information

A privately held company's shares are

owned by friends and/or family. 

Private HC: These shares cannot be

traded publicly on the stock exchange. 

Private HC: Shareholders can only sell their shares if they have

prior permission from other shareholders. 

Private HC: Typically, privately held companies are

also family businesses. 

 

Examples:Private HC

Mars, Aldi and IKEA – family businesses incorporated into privately held companies 

A publicly held company can

sell shares on the stock exchange. 

Public HC: Shares are held

by the general public. 

Public HC: No prior permission by other shareholders

is required for a shareholder to sell their shares. 

Examples Public HC:

Honda Motor Company, The Walt Disney Company and Facebook Inc (Meta) are all publicly held companies. 

For-profit social enterprises 

These are revenue generating enterprises with social objectives at the core of their operations. 

Aims of For-profit social enterprises

• Make a surplus (i.e. earn revenue greater than costs incurred). 

• • Use the surplus for the benefit of society.

Costs of For-profit social enterprises

Salaries, Rent

Revenues of For-profit social enterprises

Goods, Services and other revenue streams

Private sector for-profit social enterprises 

These enterprises operate in a similar way to traditional for-profit businesses. 

Private sector for-profit social enterprises  aim

to make a surplus instead of relying on donations to achieve social aims

Private sector for-profit social enterprises produce

goods and/or services and compete with similar businesses. 

Private sector for-profit social enterprises often 

use the triple bottom line as an accounting framework for ethical business practises. 

Example of Private sector for-profit social enterprises often :

This Saves Lives is a private sector for-profit social enterprise that aims to earn a surplus to end severe acute malnutrition in children. 

Public sector for-profit social enterprises 

These enterprises are state-owned to operate in a commercial way. 

Public sector for-profit social enterprises help

to raise government revenues to provide essential services to society that may be inefficient and undesirable if left solely to the private sector. 

 

Example of Public sector for-profit social enterprises :

 

Niagara Falls attracts about 13 million tourists each year. Ontario Nigra Commissions was established by the Canadian Government to manage the Canadian Side of Niagara Falls, with a focus on reformed land use and sustainable tourism 

Owners of cooperatives are

called members. 

Cooperatives 

Members own and run cooperatives (i.e. they are also employees of the organization)

Cooperative’s aim

is to create value for members by operating in a socially responsible way. 

Cooperative: All employees have a vote to

contribute to decision-making

Cooperative: Any profits earned are shared

between their members. 

Cooperative Advantages 

Incentives to work 

Decision-making power 

Social benefits 

Public support 

Cooperative: Incentives to  

work

Cooperative: Decision-

making power 

Cooperative: Social  

benefits

Cooperative: Public  

support

Cooperative Disadvantages

Disincentive effects 

Limited sources of finance 

Slower decision-making 

Limited promotional opportunities

Cooperative: Disincentive  

effects

Cooperative: Limited sources

of finance 

Cooperative: Slower

decision-making