1.2 Types of organizations

Introduction

• Public sector comprises organizations accountable to and controlled by central or local government (the state).

• Private sector comprises businesses owned and controlled by individuals or groups of individuals.

Private sector and public sector organizations

• Mixed economy: economic resources are owned and controlled by both private and public sectors.

• Free-market economy: economic resources are owned largely by the private sector with very little state intervention.

• Command economy: economic resources are owned, planned and controlled by the state.

Distinctions between the sectors

• Public sector organizations provide essential goods and services for individual citizens and organizations.

• Private sector organizations are owned and operated by individuals or groups of people. These organizations are usually operated for a profit, but not all are.

  • For example, charities are non-profit-making organizations in the private sector; they are not owned and controlled by the government or state.

• Privatization: sale of public sector organizations to the private sector.

Public sector enterprises

• Public corporation: business enterprise owned and controlled by the state also known as nationalized industry or public sector enterprise.

For-profit organizations

• Sole trader: business in which one person provides the permanent finance and, in return, has full control of the business and is able to keep all of the profits.

• Partnership: business formed by two or more people to carry on a business together, with shared capital investment and, usually, shared responsibilities.

• Limited company

  • Limited liability: the only liability or potential loss a shareholder has if the company fails is the amount invested in the company, not the total wealth of the shareholder.
  • Share: certificate confirming part ownership of a company and entitling the shareholder to dividends and certain shareholder rights.
  • Shareholders: individuals or institutions that buy/own shares in a limited company.
  • Private limited company (Ltd): small to medium-sized business that is owned by shareholders who are often members of the same family; this company cannot sell shares to the general public.
  • Public limited company (pic): limited company, often a large business, with the legal right to sell shares to the general public; its share price is quoted on the national stock exchange.

  

For-profit social enterprises

• Social enterprise: business with mainly social objectives that reinvests most of its profits into benefiting society rather than maximizing returns to owners.

  • Triple bottom line:
  • Economic - to make a profit or surplus to reinvest back into the business and provide some return to the owners.
  • Social - to provide jobs or support for local, often disadvantaged, communities.
  • Environmental - to protect the environment and to manage the business in an environmentally sustainable way.

• Cooperative: group of people acting together to meet the common needs and aspirations of its members, sharing ownership and making decisions democratically.

• Microfinance: provision of very small loans by specialist finance businesses, usually not traditional commercial banks.

Public-private partnership (PPP)

• Public-private partnership (PPP): involvement of the private sector, in the form of management expertise and/or financial investment, in public sector projects aimed at benefiting the public.

  • Types:
  • Government-funded
  • Private sector-funded
  • Government-directed but with private sector finance and management

• Private finance initiative (PFI): investment by private sector organizations in public sector projects.

Non-profit social enterprises

• Non-profit organization: any organization that has aims other than making and distributing profit and which is usually governed by a voluntary board.

• Non-governmental organization (NGO): legally constituted body with no participation or representation of any government which has a specific aim and purpose, e.g. supporting disadvantaged groups in developing countries or advocating the protection of human rights.

• Charities: organization set up to raise money to help people in need or to support causes that require funding.