Day 1: Types of Business Entities

Jigsaw: You are assigned 1 of the following ownership structures. 

Step 1: Define the ownership structure. 

Step 2: What are the advantages and disadvantages of each?

Step 3: Provide an example.

Step 4: Share with others (Complete the following table or take your own notes)

https://docs.google.com/document/d/1V48LfIXUTgqleIAp6wqxm9Tl84Vl_H6cCy-o-SfTbIM/edit?usp=sharing 

1. sole trader

2. partnership

3. publicly held company

4. for-profit social enterprise

5. non-profit social enterprise

6. cooperative

7. non-governmental organisation (NGO) 

For advantages and disadvantages consider: 

• Number of owners

• Reasons to choose

• How easy to set up

• Liability

• Risks

• Raising funds

• Control and decision making

• Transparency

• Continuity

Day 2 Practice Exam Question:

Case Study Tennis Town: 1.2 Case Study Questions

https://docs.google.com/document/d/10gH3AXEqmE70RzqzsJFwPwO_pPIarTMt7OjmZ-G89us/edit?usp=sharing 

Formative: 1.1-1.2 Multiple Choice (27 questions)

What you should know

By the end of this subtopic, you should be able to:

• define the following terms: (AO1)

  • private sector

  • public sector

  • sole trader

  • partnership

  • publicly held company

  • privately held company

  • for-profit social enterprise

  • cooperative

  • non-profit social enterprise

  • non-governmental organisation (NGO)

• distinguish between the private and public sectors (AO2)

• compare and contrast the sole trader, partnership and corporation forms of ownership (AO3)

• examine different forms of for-profit and non-profit social enterprises (AO3)

• recommend an appropriate type of legal structure for a business (AO3)

https://quizlet.com/pa/724170845/12-types-of-business-entities-flash-cards/?i=4jrhob&x=1qqt

https://www.gimkit.com/view/63291a21c4fd9600215adb9b

Companies (corporations)

This refers to any business organisation that is owned by its shareholders, who have limited liability. They comprise of privately held companies and publicly held companies.

Cooperatives

These are for-profit social enterprises owned and run by their members (usually employees, managers or customers). Their primary goal is to create value for their member-owners.

Deed of Partnership

A legally binding contract that all joint owners of a partnership sign, stating the purpose of the business, the formal rights of the partners, and how any profits should be split.

Incorporation (incorporated)

This means that there is a legal difference between the owners of a company (the shareholders) and the business entity itself. This ensures that the owners are protected by limited liability.

Initial public offering (IPO)

An IPO occurs when an organization sells all or part of its business to shareholders on a public stock exchange for the first time. This changes the legal status of the business to a publicly held company.

Limited liability

This legal status of a business enables its shareholders (business owners) not to be liable for more than the original amount of money invested in the business.

Limited partnership

This is a special type of partnership where one or more partners contribute capital and enjoy a share of the profits but do not participate in the running of the business. However, at least one partner must still have unlimited liability.

Non-governmental organizations (NGOs)

A type of non-profit organization (NPO) operating in the private sector of the economy for the benefit of others in society (rather than for shareholders).

Partnership

A business alliance consisting of between 2 and 20 individual owners who are jointly responsible for the business (although this number can vary between countries).

Private sector

This section of the economy is made up of businesses that are owned by individuals or groups of individuals, rather than by the government.

Privately held company

This is a business owned by shareholders with limited liability, but the shares cannot be traded on a public Stock Exchange.

Publicly held company

A joint-stock company owned by shareholders. The shares in a publicly held company can be bought and sold by the general public, without prior approval of existing owners.

Public sector

Businesses in this section of the economy are run and owned by the government in order to provide essential services for society as a whole, e.g., education and healthcare services.

Sleeping partner

Also known as a silent partner, this is an investor in a partnership but who does not get involved in the daily running and management of the organization.

Social enterprises

These organizations are revenue-generating businesses with community (social) objectives at the core of their operations in order to benefit the general public, rather than private shareholders.

Sole trader (sole proprietor)

An organization which is owned by a single entrepreneur who has exclusive responsibility for the running of the business.

Stock exchange

This is any marketplace where the general public and other companies can buy and/or sell shares.

Unlimited liability

This means the owner(s) of a business (such as a sole trader or partner) is personally liable for any business debts, even if this requires the debts to be settled by selling off personal assets.

• The private sector of the economy consists of businesses owned and run by private individuals and organizations. They often aim to earn a profit for their owners or to meet the vision or mission of the owners as they make the decisions.

• The public sector consists organizations controlled by a regional and/or national government, with the main aim being to provide essential goods and services for the general public.

A sole trader (also known as a sole proprietor) is a commercial for-profit business owned by a single person. Although this person can employ as many people as needed, the sole trader is the only owner of the business.

• There is little legal distinction between the individual and their business

• This form of organisation is fairly easy to set up

• Sole traders are able to run the business as they see fit and keep all the profits

  • Can choose whether to reinvest profits in the business, or use them to meet their own financial needs.

Examples:

• self-employed, restaurant owners, freelance workers, fashion designers, tailors and interior decorators

A partnership involves the creation of a business by two or more individuals, or partners. 

• Partnerships are governed by partnership agreements, which define the ownership interests of the different partners, as well as how major decisions will be made by the partnership. 

• Two partners may set up a business where ownership and control are split equally between the partners, or they may determine another arrangement that suits the purposes of the business. 

Common examples: medical practices and law firms.

• Are incorporated

• The shares of privately held companies are not sold on a stock exchange

• Most privately held companies (sometimes referred to as private limited companies) are small businesses, with shares typically owned by family, relatives, and friends.

• Limited liability: if the business experiences a financial collapse, the owners will only be liable for the capital they invested in the company.

• There is no legal requirement for the company to publish detailed financial accounts for the general public (this is only needed for corporate tax purposes).

Examples of well-known privately held companies include:

• Dell, Deloitte, Dyson, Ernst & Young, IKEA, Lego, Mars, Pricewaterhouse Coopers

Publicly held companies are limited liability companies owned by shareholders with the shares in the business being traded (bought and/or sold) on a public stock exchange (or stock market).

Share prices of publicly held companies can go down as well as up

Features of publicly held companies

• Also known as a joint-stock company, a publicly held company is owned by shareholders. The shares in such companies can be bought and sold by the general public, without the need for the prior approval of existing owners.

• Shares in a publicly held company can be bought and sold via a stock exchange (or stock market), such as the New York Stock Exchange (NYSE), London Stock Exchange, Hong Kong Stock Exchange, Tokyo Stock Exchange, Shanghai Stock Exchange, and the National Association of Securities Dealers Automated Quotations (NASDAQ).

• When a company first sells its shares to become a publicly held company, it does so through an initial public offering (IPO) via a stock exchange.

• In order to protect shareholders, publicly held companies are strictly regulated and are required to publish their final accounts each year.

• As there is no legal limit placed on the maximum number of shareholders in a publicly held company, the company can raise a significant amount of finance so long as it can attract investors.

Private sector companies are for-profit business organizations that operate in the private sector. They differ from those that operate in the public sector in terms of ownership, and control, the purpose of their existence, how they raise finance, how they are managed, and how any profits (financial surplus) are distributed or how losses dealt with.

A for-profit social enterprise operating as a private sector company is a revenue-generating, profit-seeking organization but the purpose of its existence is mainly concerned with social goals which are at the centre of its operations. 

• This differs from commercial or traditional for-profit companies that aim to maximise earnings for their shareholders (owners). For-profit social enterprises have social objectives and use ethical practices to achieve these goals.

• Therefore, for-profit social enterprises in the private sector earn their revenues and profit in socially responsible ways and uses the surplus to directly benefit the society or environment rather than distributing the profit to owners in the form of dividend payments.

Examples of for-profit social enterprises that operate as private sector companies include:

• Change Please - The British coffee chain with outlets in London and Manchester donates all of its profits to tackle the problems of homelessness (see Case Study 1 below).

• KASHF Foundation - This organization provides financial and social-support services to female entrepreneurs to empower them to set up their own businesses in food production, cloth making, and other industries in Pakistan.

• M-Pesa - A multinational mobile phone-based money transfer, financing, and microfinance service provider that also provides mobile banking services (see Case Study 2 below).

• SECLO Foundation - Financial company that provides sustainable energy solutions, such as solar-powered lightning, to low-income households and small businesses in India.

• Thaely - A vegan footwear brand that manufactures sports shoes (sneakers) from waste plastic bags and bottles (each pair contains 15 plastic bags and plastic 22 bottles)

• TOMS Shoes, known for giving away one pair of shoes (to those in need) for every pair the private sector social enterprise sells.

Public sector companies operate in a commercial-like way (selling goods and/or services in order to generate a financial surplus) but are owned and/or controlled by government authorities. 

They can be owned wholly or partially by the government. 

They are set up as legal business entities to partake in the commercial business activities, enabling successful public sector companies to earn a financial surplus for the government to be used for the benefit of society as a whole.

These social enterprises bid for contracts with regional or local governments, who outsource some essential services to for-profit businesses. 

An example of this is when a local municipality contracts a private firm to carry out recycling services. In some areas, governments contract out ambulance services to for-profit social enterprises.

Why don't governments just do it themselves?

• By making such arrangements with for-profit companies, governments may be able to lower their costs and focus on other areas of public services. 

• For their part, the businesses can look forward to consistent demand for the essential services they provide. 

• However, governments must maintain some oversight to ensure that the service is being carried out as expected, and they must ensure that if the business runs into financial trouble, the public will not lose access to the service.

More Examples:

• Broadcasting services, such as national broadcasters of television and radio services.

• Educational establishments, such as schools, colleges, and universities.

• Housing associations to provide social housing for people.

• National health service providers that charge for some of their services although provide free basic healthcare services to the vast majority of the population.

• Public transport providers, such as buses and mass rail transit.

• Sports and leisure centres, including public swimming pool.

A non-profit social enterprise works to improve social or environmental outcomes, however has no owners and reinvests all profits. 

• To qualify for non-profit status, they need to prove their social or environmental purpose to the government. 

• Funding: may receive all funding through grants and donations, or they may be involved in additional revenue-generating activities such as selling goods or services. 

• Any surplus generated is required by law to be reinvested into the business to increase its impact. 

• Most non-profits are run by a board of directors. The board is responsible for hiring senior staff to carry out the organisation’s mission. The board is also accountable to third parties, such as the community in which the enterprise operates.

Non-governmental organisations (NGOs) are a sub-category of non-profit social enterprises that have a purpose or mission to benefit society or the environment. 

NGOs are not controlled by governments however they can receive government funding. 

NGO often refers to groups whose work has a broad scale, usually national or international, and where the work may overlap with activities in which governments engage. That is why there is a need to distinguish them from government activities, through the label 'NGO'. 

NGOs are often operated by a voluntary group to promote a social cause, such as the protection of human and animal rights, protection of the environment, and development aid. They operate at a local, national, or international level and put pressure on governments to adopt policies in support of their social cause.

They are usually funded by a combination of sources:

• Government grants or donations

• International organizations

• Charitable organizations

• Commercial businesses, as part of their corporate social responsibilities (CSR), and

• Private donors and philanthropists.

1.2 Case Study Questions

https://docs.google.com/document/d/10gH3AXEqmE70RzqzsJFwPwO_pPIarTMt7OjmZ-G89us/edit?usp=sharing 

1.2 Case Study Answers

https://docs.google.com/document/d/1Gb8yUrFRYxZCpLH8ooql460kIHLq0zDIYSr8LE4uXgA/edit?usp=sharing