Business entities

1.2 Oxford textbook

Different types of organisations

Different types of organisations

Sole traders

Partnerships

Privately held companies

Publicly held companies

Different for profit social enterprises

Private sector companies

Public sector companies

Cooperatives

Public sector

The public sector is the parts of the economy controlled by the government.

Has meaningful economic implications.

Includes utilities, telecommunications companies and public transport.

Private sector

The private sector is the part of the economy not controlled by the government.

Sole Traders (Sole proprietor)

Start their business with a limited budget and a simple organisation.

The sole trader owns and runs the business.

No legal distinction exists between the business and the sole trader. (It is liable for all debts of the business and other claims).

The finances are usually limited.

The business is often geographically close to the customer.

The sole trader has privacy and limited accountability.

Registering the business is generally relatively easy and inexpensive +quick.

Partnerships

Formed by two or more people

Popular with professional people who have related qualifications.

Decisions are made jointly by the partners.

The business is owned and managed by more than one person.

No legal distinction exists between and managed by more than one person. Work together, suffer together.

Finance is usually more available to them than sole trader business.

Some partners may be "sleeping partners". One person just gives money and has no other purpose.

Can offer a more varied service.

More accountability to the public.

Privately held companies or corporations

Sells shares privately to people known to the owners.

Number of shares permitted is pretty low.

Less disclosure and reporting requirements needed.

Publicly held companies or corporations

Has to offer its shares in a public place, such as the stock exchange.

Opens up the possibility of securing large sums of capital.

Loses some privacy.

Company or corporations

A business can become a company by a legal action that legally separates the owners of the business from the business.

The liability is now distinct from the owners of the business.

Typically has multiple owners, each owning a fraction of the company in the form of shares.

Advantages of companies

Finance is more readily available than for sole traders and partnerships.

Investors have limited liability.

There is continuity.

High possibilities of expansion

An established organisational structure exists.

Disadvantages of companies

Takes time and cost to set up a company + legal requirements.

Selling shares does not guarantee sufficient funds.

Owners risk partial or entire loss of control of the business.

Loss of privacy.

No control of the stock market - unknown outcomes.

Limited control on who buys their shares.

Shareholder

owners/financial supporters of the company

Advantages of being a shareholder

The price of shares may increase in value if the company performs well.

The company issues a proportion of the company profits as dividends. Decide how much is given and how often.

Shareholders have limited liability.

Disadvantages of being a shareholder

The price of shares may decrease if the company performs poorly.

The company may choose not to issue dividends if it does not have to.

May not get a say in what goes on in the company.

Social enterprise

Refers to a form of business that has a social purpose (aims to improve human, social, or environmental wellbeing). The social aim is their top priority, not making profits, growth or maximising sales.

For profit social enterprise

Aim to make a profit but not if it compromises their social purpose. A high degree of collaboration between the business and the local community exists.

Non profit social enterprises (NPO)

Do not aim to make a profit. Aim to receive a surplus rather than profits (surplus = total revenues -total costs). Instead of giving it to the owners, it will be going towards a social purpose.

Non government organisation (NGO)

Social enterprises that support a cause that is considered socially desirable.

Cooperative

A business organisation owned and operated by its members who share any profits. Exist in many forms but most common in agriculture.

Includes financial, housing, consumer, etc.

Charities

Specific form of NGO whose aim is to provide as much relief as possible to those in need. The business is not run by the government and operates in the private sector. They are the only business exempt from paying tax.