Types of business entities

a) Distinction between the private and the public sectors  AO2

b) The main features of the following types of organisations AO3

• Sole traders

• Partnerships

• Privately held companies

• Publicly held companies

c) The main features of the following types of for-profit social enterprises AO3

• Private sector companies

• Public sector companies

• Cooperatives

d) The main features of the following type of non-profit social enterprise AO3

• Non-governmental organizations (NGOs)

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 numbercan 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.

A for-profit social enterprise in Australia is a business entity that operates with the primary purpose of generating revenue and profits, like a traditional for-profit company. However, what sets it apart is its secondary, but equally important, objective of addressing social or environmental issues. This means that while seeking financial sustainability and profitability, a for-profit social enterprise also focuses on creating positive social or environmental impact as an integral part of its mission. It balances its financial goals with a commitment to contributing to the well-being of society or the environment, making it distinct from purely profit-driven businesses.

Define 

• Precise definition and example. 

• If you can’t give an example, add an extra point. 

• Definitions are usually worth 2 marks.

• Look at the glossary pages

• You should have 100s of definitions in your notes

Outline 

• To outline something means to give a brief account or summary of it.

• Define, provide characteristics/features

• Usually 4 mark questions

Explain

• To explain something means to give a detailed account of it, including reasons or causes where appropriate.

• If the question allows, follow the cause and effect method. This involves giving a detailed account and then finishing off with “This will lead to”

Evaluation

• One of the most challenging command terms, 

• Evaluation requires students to make an appraisal by weighing up the strengths and limitations of something

• Usually the question is asking you to evaluate between two options.

• My method is

• Option 1: Define/key features/Pros/Cons

• Option 2: Define/key features/Pros/Cons

• Recommend an option: State why you chose that option over the other

• Be balanced in your answer, look at both sides, and when recommending also be aware of the negatives

• Use the case study as much as possible

• Use academic language

• Extra inclusions: Look at alternatives, Limitations of the case study, short and long term

Lesson 1

Outline two benefits to Larry Page and Sergy Brin of starting Google as a partnership. [4 marks]

A partnership is a business alliance consisting of between 2 and 20 individual owners who are jointly responsible for the business 

Two benefits include:

1. A partnership is easy to set up as there are limited legal formalities. As two university students without experience in the world of business or awareness of the rules and regulations of company formation, a partnership would have been an ideal legal structure to initially start with for Larry and Sergey.  

2. The owners of a two person partnership have complete control — Larry and Sergey are not answerable to anyone else, for example, shareholders. Page and Brin would have been free to pursue their own business strategy, vision and objectives without outside interference.  

Outline the features of a NGO (4 marks)

A Non-Governmental Organisation (NGO) operates within the private sector, distinguishing it from government entities. NGOs are essentially voluntary groups that are not government-owned or controlled. Comprising individuals who share a common passion for a specific social cause, they are driven by their commitment to these causes, such as human and animal rights, environmental protection, and development aid. NGOs work as advocates for these causes and strive to effect positive change. Their operations can span various levels, from local and national to international, allowing them to address issues at the most relevant and effective scale. To sustain their activities, NGOs typically draw funding from diverse sources, including government grants, international organizations, charitable foundations, contributions from businesses, and donations from private individuals and philanthropists.

Explain one feature of a sole trader (4 marks)

Cause and Effect Method):  a sole trader is a business owned and operated by a single individual. An important feature of this legal structure os the freedom and independence of operating a business on your own. As the sole trader has full control over the business, this setup often leads to quick decision-making. The owner can make choices without the need for extensive consultations or approvals. However, this also means that all responsibilities and risks fall on the individual. When the business incurs debts or legal obligations, the sole trader is personally liable for them. 

Explain how an individual can use a SWOT to analyse a business internally (4 marks)

Second Method (Cause and Effect)

When an individual employs a SWOT analysis to examine a business's internal factors, it involves a detailed assessment of its strengths and weaknesses. This assessment of strengths provides a comprehensive understanding of what the business does exceptionally well, such as its highly skilled and motivated workforce or its efficient production processes. Identifying these strengths allows the business to capitalise on them, which can lead to increased competitiveness, market advantage, and overall success. Conversely, delving into the weaknesses reveals areas within the business that need attention. These can be weaknesses like outdated technology, inadequate staff training, or financial instability. By addressing these weaknesses, the business can work to improve its internal operations, which, in turn, may lead to increased efficiency, cost reduction, and enhanced overall performance. 

Capital Waste Disposal PLC was created five years ago when the capital city’s rubbish collection was privatised. As a public sector enterprise, the organisation had been overstaffed and inefficient, but charges for collecting waste were low and the service was popular with local residents. The city government subsidised the waste services and this helped to keep charges down. Shortly after privatisation, the director’s announced substantial job cuts to save on costs. The waste collection service was reduced to once a week, yet charges were increased. The city government also announced that the city’s rubbish collection services would be opened up to competition. The business started to make big profits. It invested in new equipment and paid dividends to its shareholders. Last year, for the first time since privatisation, profits fell. This was due to competition from a newly formed waste disposal business. Many of Capital Waste’s shareholders wanted the directors to be replaced.

Evaluate the decision of Capital Waste Disposal’s transition from a Public Sector Corporation to a Private Limited Company. (10 marks)

INTRO Transitioning to a Private Limited Company denotes the conversion from government ownership to private ownership, where the organisation is operated and owned by private individuals and shareholders. This is called privatisation.

PROS OF GOING PRIVATEPrivatisation typically brings about greater efficiency and cost savings, allowing for streamlining operations and reducing overstaffing. It attracts investors and shareholders seeking returns on their investments. It can raise capital by selling shares and primarily aims for profit generation.  Additionally, privatisation encourages competition and innovation, leading to improved services and lower costs for customers. 

CONS OF GOING PROFITHowever, it may also result in higher service charges, impacting the affordability of services for citizens, and a potential shift in focus from community welfare to shareholder interests.

PROS OF STAYING PUBLIC On the other hand, maintaining the status of a Public Sector Corporation entails remaining under government ownership and operation, with a primary focus on providing essential services to the community. It typically ensures affordability for the community due to government subsidies. Public sector corporations prioritise the welfare of the community and offer stability and consistent service levels. 

CONS OF GOING PUBLICNevertheless, they may suffer from inefficiency and overstaffing issues, financial dependency on government subsidies, and limited investment in innovation.

RECOMMENDATIONConsidering the context of the case study, the initial benefits of privatisation, such as cost savings, efficiency, and profit opportunities, were noteworthy. However, the subsequent increase in service charges and reduction in government subsidies negatively impacted affordability and community access. The eventual competition in the sector led to decreased profitability. Therefore, in this particular scenario, it may be more advantageous to revert to the Public Sector Corporation model. This decision would realign the organisation's focus with community welfare and affordability, ensuring that essential services, like waste collection, remain accessible to all citizens.