Chapter 1: The Purpose and Types of Business Organisations

Definition: A social arrangement pursuing collective goals, controlling its own performance, and possessing a boundary (physical or social) separating it from its environment.
Key Characteristics:
- Collective goals: Defined by the purpose (e.g., profit vs. non-profit).
- Social arrangements: Structured for people to work together.
- Controlled performance: Systems and procedures ensure goals are achieved (e.g., sales targets).
Purpose of Organisations:
- Achieve results individuals cannot achieve alone.
- Overcome physical or intellectual limitations.
- Enable specialisation and save time.
- Accumulate knowledge and pool resources (money, time).
- Synergy: Combined output of individuals working together exceeds the sum of their separate outputs.

Common Features:
- Preoccupation with performance and standards.
- Formal documented systems and procedures.
- Specialisation among members.
- Input-to-output processing.
Key Differences:
- Ownership: Private sector (shareholders) vs. public sector (government).
- Control: Owners, managers, or regulators/state.
- Objectives: Wealth maximisation vs. social service/provision.
- Other Factors: Legal status, size, sources of finance, and technology usage.
Industry Sectors: Agriculture, Manufacturing, Extractive (raw materials), Energy, Retailing/Distribution, Intellectual production, and Service industries.

Primary Objective: Maximising the wealth of owners (profit-oriented).
Legal Structures:
- Sole Trader: Owned and run by one person; no legal separation between owner and business.
- Partnership: Owned by two or more individuals ( $\le 50$ ); traditionally lacks separate legal identity (except for Limited Liability Partnerships/LLPs).
- Limited Liability Company: Separate legal identity from shareholders; liability limited to investment amount.
Private vs. Public Limited Companies:
- Private (Ltd): Often smaller, shares cannot be offered to the general public, directors usually hold majority shares.
- Public (plc): Larger businesses, shares traded on stock exchanges and offered to the public, capital raised from institutional investors.
Advantages of Companies: More investment capital, reduced investor risk, separate legal personality, and unlimited scale.
Disadvantages of Companies: Compliance costs (audits and published accounts) and reduced practical power for shareholders.

Not-for-Profit Organisations (NPOs): Focus on satisfying needs of members or society rather than profitability (e.g., HM Revenue and Customs, schools, hospitals, clubs).
Charities: Philanthropic NPOs focused on defined groups; rely on public donations and voluntary workers; eligible for favourable tax treatment.
Public Sector: Owned and run by the government; provides basic services (armed forces, street lighting, healthcare).
- Funding: Taxes, charges, and government borrowing.
- Characteristics: High accountability to government, practically limitless demand for services, and limited resources.
- Advantages: Fairness/access, filling gaps left by private sector, and economies of scale through centralised purchasing.

Non-governmental Organisations (NGOs): Private bodies with social, political, or environmental aims rather than commercial ones (e.g., Greenpeace, Amnesty International, UNICEF).
- Staffed by volunteers and paid employees; funded by grants and donations.
Cooperatives: Businesses owned and democratically controlled (one member, one vote) by workers or customers who share profits.
Mutual Associations: Owned by depositors/borrowers (e.g., credit unions or insurance mutuals); members have no direct claim to earnings and do not issue stock shares.

Q: What qualifies as an organisation per Buchanan and Huczynski? Sole traders, tennis clubs, and hospitals all meet the criteria.
Q: What is the concept where combined output exceeds individual output? Synergy.
Q: What is a primary objective for companies? Maximising shareholder wealth and making a profit.
Q: Which organisation is both NFP and private sector? Charities (as they are not government-owned but do not seek profit).
Q: What is a major disadvantage of a limited company? Increased compliance costs (auditing and publication of financial statements).
Q: What determines demand in the public sector vs. private sector? In the private sector, demand is determined by price; in the public sector, demand is nearly limitless despite resource constraints.