Nature of a Business- Part 2

Private Sector

The part of the economy owned and controlled by private individuals or organizations.

Public Sector

The part of the economy owned and controlled by the state or government.

Ownership and Control (Private Sector)

Private citizens and firms own enterprises, requiring shares purchased by individuals.

Ownership and Control (Public Sector)

Owned by taxpayers and operated by national/local governments.

Objective of Private Sector

To earn and make profits.

Objective of Public Sector

To provide essential goods and services to the public.

Source of Capital (Private Sector)

• Private individuals

• bank loans

• personal savings.

Source of Capital (Public Sector)

• Funds from taxes

• government loans

• donor agencies.

Insolvent

Unable to repay debts or bankrupt.

Liquidate

Selling off assets to repay debts.

Liability

The obligation borne by the owners or shareholders, such as debts.

Limited Liability

Shareholders are not personally responsible for business debts beyond their investment.

Unlimited Liability

General partners and sole proprietors are fully responsible for all business debts.

Incorporated

A business registered as a separate legal entity from its owners.

Unincorporated

A business where the owner is personally responsible for its debts.

Nationalization

When the government assumes control of a business to provide public services.

Privatization

The transfer of public sector assets to private ownership.

Public Corporation

Government-owned entities that may operate for profit.

Sole Trader

A single business owner who makes all decisions and bears all risks.

Characteristics of Sole Trader

• Manages the business alone

• enjoys all profits

• and bears all risks.

Advantages of Sole Trader

• Enjoys all profits

• ease of formation

• independence

• personal control.

Disadvantages of Sole Trader

• Limited finance sources

• unlimited liability

• risks tied to personal health.

Partnership

A business formed legally by at least two but no more than twenty persons.

Limited Liability Partnership

At least one partner has unlimited liability while others have limited liability.

Ordinary/General Partners

Active partners with unlimited liability and shared management.

Sleeping Partners

Partners who invest but do not participate in management.

Limited Liability Partners

Partners protected from losing assets beyond their investment.

Partnership Deed

A written agreement outlining terms, roles, and responsibilities of partners.

Partnership Advantages

• More capital

• specialization

• simplicity in organization

• shared workload.

Partnership Disadvantages

• Unlimited liability

• binding errors

• limited capital

• risk concentration.

Limited Liability Companies

Incorporated business entities protecting owners' assets from company debts.

Private Limited Liability Company

Company that restricts share purchases to private individuals or groups.

Public Limited Liability Company

Company with shares traded publicly on stock markets.

Characteristics of Private Limited Company

• Limits on shareholders

• privacy in financial statements

• 'Ltd.' suffix.

Advantages of Private Limited Companies

• Larger capital base

• continuity

• limited liability

• privacy.

Disadvantages of Private Limited Companies

• Restricted share selling

• limited capital

• slower decision-making.

Public Limited Companies Characteristics

• Unlimited shareholders

• traded shares

• ‘PLC' suffix.

Advantages of Public Limited Companies

• Easier financing

• limited liability

• growth capability

• shared risk.

Types of Shares

Categories of ownership in a company, including ordinary and preference shares.

Ordinary Shares

Shares carrying voting rights, representing ownership of the company.

Preference Shares

Shares receiving dividends before ordinary shares, usually without voting rights.

Debenture

A loan to a business without collateral, relying on creditworthiness.

Disadvantages of Public Limited Companies

• High legal costs

• public financial reporting

• potential loss of control.

Cooperatives

Business entities owned and controlled by their members for mutual benefit.

Principles of Cooperatives

• Open membership

• democratic control

• limited interest

• profit distribution.

Types of Cooperatives

Includes:

• consumer

• producer

• financial

• services

• worker cooperatives.

Advantages of Cooperatives

• Employment creation

• democratic management

• shared profits among members.

Disadvantages of Cooperatives

• Limited capital input

• potential lack of management expertise.

Consumer Cooperatives

Retail cooperatives where members buy goods to benefit from lower costs.

Producer Cooperatives

Groups of producers (like farmers) pooling resources for efficiency.

Cumulative Preference Shares

Shares that accumulate unpaid dividends to be paid in the future.

Certificate of Trading

Permission for public companies to begin trading after meeting legal requirements.

Statutory Declaration

A formal statement declaring something to be true for legal purposes.

Prospectus

A document inviting the public to buy shares, detailing company prospects.

Limited Interest on Capital

Low return rates on investments made by cooperative members.

Surplus Distribution

Sharing excess profits among cooperative members based on participation.

Democratic Controls in Cooperatives

Members govern cooperatives through elections and meetings.

Limited Capital in Cooperatives

Capital contributions restricted by membership and participation.

Employment Creation in Cooperatives

Cooperatives generate jobs and promote economic stability for members.

Decision Making in Partnerships

Collaborative process that may suffer from disagreements.

Continuity in Business

The ongoing existence of a company despite changes in ownership or management.

Personal Control in Sole Traders

Sole owners make quick decisions without external influence.

Ease of Formation in Sole Traders

Minimal legal requirements to start and operate a sole proprietorship.

Financial Reporting in PLCs

Mandated public disclosure of financial statements and performance.

Legal Identity of Companies

The ability for companies to act as separate entities in legal matters.

Voting Rights of Shareholders

Ordinary shareholders' ability to influence company decisions.

Conflict Resolution Procedures

Agreed upon methods to handle disputes among partners.