1.2 Types of business entities

Private Sector

1. definition

2. features

3. advantages & disadvantages

1. Businesses owned and controlled by private individuals

2. Private ownership & control

   • Little or no government involvement

   • Owners can earn profits

   • Largely privately funded

Advantage	Disadvantage
limited liability	high set-up costs
owner can retain control	difficult to control works

Multinational Company

A business that operates in at least two countries, which one of them is not the company’s home country

Public Sector

1. definition

2. features

3. advantages & disadvantages

1. This business sector is created, owned and controlled by the government

2. Owned and controlled by the government

   • Provides essential goods and services to citizens

   • Financed by the government through taxes and other public funds

   • Answerable to the public for any decisions taken

3. Advantages	Disadvantages
   finance is raised mainly by the government	government may interfere in business decisions
   job security	lack of strict profit targets

Public goods

Being provided by the government, they tend to be non-rivalrous and non-excludable.

e.g: street lights

Merit goods

Also provided by the government, but because they would be under-consumed if provided by private sectors.

E.g: education, health care

Sole traders

1. definition

2. features

3. advantages & disadvantages

1. A business that is owned and controlled by one person. The owner has unlimited liability

2. Owner has complete control

   • Unlimited liability

   • Privacy of statements

Advantage	Disadvantage
easy to set up	unlimited liability
sole trader keeps all profits	very long working hours

Unlimited liability

Personal assets and business are legally together

Partnerships

1. definition

2. features

3. advantages & disadvantages

1. A business that consists of two or more individuals, known as partners

2. Profit sharing

   • unlimited liability

   • profit sharing

Advantage	Disadvantage
easy to set up	unlimited liability
greater access to finance people	profits aren’t always shared equally

Partnership agreement might include

• The amount of money put into each partner

• Sharing of profits & losses by each partner

• The roles & responsibilities of each partner

• The rules around accepting new partners/the withdrawal of existing partners

• Procedures for ending the partnership

Ordinary partnerships consist of approximately

20 owners

LLP

Limited Liability Partnership →If a partner in the firm engages in any form of misconduct, the other partners are given liability and are, therefore, not affected

Companies

Larger organisation usually owned by many individuals or groups of individuals

Shareholders

People who own a part of a business

Limited liability

When the business or individual(s) are not personally responsible for the debts of the business.

Privately held company

1. definition

2. features

3. advantages & disadvantages

1. Privately owned and often has family/friends as shareholders

2. A board runs the company

   • Shareholders

   • Not sold to the public

Advantage	Disadvantage
control and ownership	lengthier decision-making
limited liability	expensive

Publicly held company

1. definition

2. features

3. advantages & disadvantages

1. Firm whose ownership is shared amongst general shareholders

2. Corporate governance

   • Division of shares

   • Limited liability

Advantage	Disadvantage
access to capital	loss of control
limited liability	loss of flexibility

Dividend

A portion of a business’s profts distributed to the owners/shareholders

Social Enterprise

Any organisation that has a social and/or environmental purpose at its core

Types of FPSEs

* Private Sector FPSE
* Public Sector FPSE
* Cooperatives

Private Sector FPSE

Produces goods & services that are typically sold in markets for a price

Public Sector FPSE

Prives goods & services that are typically provided by the government/public sectors

Cooperative FPSE

A business owned and operated by **its members**

Social washing/Green washing

Misleading claims about the social enterprises’ sustainability

Offshore

When a business moves some parts of its business operations to another country.

Non-profit Social Enterprises

Enterprises that works to improve social or environmental outcomes

NGO

Non-governmental organisation

Role of an NGO

These are sub-categories of non-profit social enterprises that have a purpose or mission to benefit society/environment.