Types of OrganizationTypes of OrganizationReviewReview

ContentContentTypes of OrganizationsTypes of Organizations Profit, non-profit and non-governmentalProfit, non-profit and non-governmental Sole Trader/ProprietorsSole Trader/Proprietors PartnershipsPartnerships Companies/CorporationsCompanies/Corporations

Classifications of Business

Private and Public sectors Profit-based and non-profit based

Private Sector First

The Private Sector OutlineThe Private Sector Outline

Types of Private SectorBusinesses

SoleTrader Partnership

LimitedCompanies

Cooperatives

PrivateLtd

Publicplc

The Sole Trader/ProprietorThe Sole Trader/ProprietorThis is the most common form of business This is the most common form of business

organization. One person provides the finances organization. One person provides the finances and in return, has full control of the business and and in return, has full control of the business and is able to keep all the profits.is able to keep all the profits.

Identify some of the advantages………… Identify some of the advantages…………

The Sole Trader/Proprietor AdvantagesThe Sole Trader/Proprietor Advantages Easy to set up-no legal formalities.Easy to set up-no legal formalities. Owner has complete control –not answerable to Owner has complete control –not answerable to

anybody else.anybody else. Owner keeps all profits.Owner keeps all profits. Able to choose times and patterns Able to choose times and patterns of working.of working. Able to establish close personal Able to establish close personal

relationships with staff relationships with staff (if any are employed) and customers.(if any are employed) and customers.

The business can be based on the The business can be based on the interest and skills of the owner – interest and skills of the owner – rather than working as an employee rather than working as an employee for a larger business.for a larger business.

The Sole Trader/ProprietorThe Sole Trader/ProprietorIdentify some of the disadvantages………… Identify some of the disadvantages…………

The Sole Trader/Proprietor DisadvantagesThe Sole Trader/Proprietor Disadvantages

Unlimited liability – all of the owner’s a assets are Unlimited liability – all of the owner’s a assets are potentially at risk.potentially at risk.

Often faces intense competition from bigger firms, for Often faces intense competition from bigger firms, for example, food retailing.example, food retailing.

Owner is unable to specialize in areas of the business Owner is unable to specialize in areas of the business that are most interesting – it is responsible for all that are most interesting – it is responsible for all aspects of management.aspects of management.

Difficult to raise additional capital.Difficult to raise additional capital. Long hours often necessary to Long hours often necessary to

make business pay.make business pay. Lack of continuity- as the Lack of continuity- as the

business does not have separate business does not have separate legal status, when the owner dies, legal status, when the owner dies, the business ends too.the business ends too.

PartnershipPartnership

Partnerships are agreements Partnerships are agreements

between two or more people between two or more people

carry on a business together, carry on a business together,

usually with a view of making a profit.usually with a view of making a profit.

The The Deed of PartnershipDeed of Partnership establishes the rights and establishes the rights and privileges of the partners. This document privileges of the partners. This document includes issues such as voting rights, distribution includes issues such as voting rights, distribution of profits, The management role of each partner of profits, The management role of each partner and who has the authority to sign contracts.and who has the authority to sign contracts.

PartnershipPartnership

Identify Identify advantagesadvantages of a partnership of a partnership

PartnershipPartnershipAdvantagesAdvantages

Partners may specialize in different areas of Partners may specialize in different areas of business management.business management.

Shared decision making.Shared decision making.

Additional capital injected by each partner.Additional capital injected by each partner.

Business losses shared between the Business losses shared between the partners.partners.

Greater privacy and fewer legal formalities Greater privacy and fewer legal formalities that corporate Organizations (companies) that corporate Organizations (companies)

PartnershipPartnership

..

Identify Identify disadvantagesdisadvantages of a partnership of a partnership

Partnership Partnership DisadvantagesDisadvantages

Unlimited Liability for all partners.Unlimited Liability for all partners. Profits are shared.Profits are shared. There is, as with sole traders, There is, as with sole traders, no continuityno continuity and the and the

partnership will have to be reformed in the event of partnership will have to be reformed in the event of the death of one partner.the death of one partner.

Al partners are bound by the decision of any one of Al partners are bound by the decision of any one of them.them.

Not possible to raise capital from selling shares.Not possible to raise capital from selling shares. A sole trader, taking on partners will loose A sole trader, taking on partners will loose

independence of decision making.independence of decision making.

Limited Company

3 Differences between limited companies and sole traders and partnerships

Limited companies have:1. Limited Liability2. Legal Personality3. Continuity

What is limited liability?

Financial protection in the event that the company fails. The financial liability is limited.

Sole Traders and Partnerships are financially responsible for all claims against the company.

What is legal personality?

A company is its own entity having an identify separate of that of its owners.

“It is its own person” so to speak in the eyes of the law.

What is continuity?

The company will continue to exist in the event of the death of its owners.

A sole trader or partnership is automatically dissolved.

Who owns a limited company?

ShareholdersThe company issues shares. Each share is a small ownership in the company.

Shareholders own shares in a limited company.

What is a Private Limited Company? (Ltd.)

It is a company – has issued shares.

Its shares are not available for sale to the public.

Private Limited CompaniesPrivate Limited Companies Tend to be relatively small companies.Tend to be relatively small companies. Their business name ends in Limited or Ltd.Their business name ends in Limited or Ltd.

IE: JP Solutions Ltd.IE: JP Solutions Ltd. Shares can only be transferred privately Shares can only be transferred privately

and all shareholders must agree to the and all shareholders must agree to the transfer.transfer.

Private Limited Companies are often family Private Limited Companies are often family businesses owned by members of the businesses owned by members of the family or close friends.family or close friends.

The directors of these companies tend to The directors of these companies tend to be shareholders and are involved in the be shareholders and are involved in the running of the business.running of the business.

Many manufacturing firms are Private Many manufacturing firms are Private Limited Companies rather than Sole Traders Limited Companies rather than Sole Traders or Partnershipsor Partnerships

Private Limited Companies AdvantagesPrivate Limited Companies Advantages

Shareholders have limited liability.Shareholders have limited liability.

More capital can be raised as there are no limits on More capital can be raised as there are no limits on the number of shareholders.the number of shareholders.

Control of companies cannot be lost to outsiders.Control of companies cannot be lost to outsiders.

The business will continue even if one of the owners The business will continue even if one of the owners dies.dies.

Private Limited Companies DisadvantagesPrivate Limited Companies Disadvantages

Profits have to be shared out amongst a much Profits have to be shared out amongst a much larger number of members. larger number of members.

There is a legal procedure to set up the business. There is a legal procedure to set up the business. This takes time and costs money.This takes time and costs money.

Firms are not allowed to sell shares to the public Firms are not allowed to sell shares to the public This restriThis restricts the amount of capital that can be raised.cts the amount of capital that can be raised.

Financial information filed with the Financial information filed with the Registrar can be inspected by any Registrar can be inspected by any member of the public. member of the public.

Competitors could use this to their Competitors could use this to their advantage.advantage.

What is a Public Limited Company? (Plc.)

It is a company – has issued shares.

Its shares are available for sale to the general public. Its share price is quoted on the stock exchange.

A board of directors control the management of the company appointed at an annual meeting.

Advantages of a CorporationsAdvantages of a Corporations• Can raise money by issuing shares of stock.Can raise money by issuing shares of stock.

• Offers owners limited liability. Offers owners limited liability. Owners are liable only up to the Owners are liable only up to the amount of amount of their investments. their investments.

• People can easily enter or leave the business by buying or People can easily enter or leave the business by buying or selling selling their shares of stock. their shares of stock.

• The business can hire experts to The business can hire experts to professionally professionally manage eachmanage eachaspect of the business. aspect of the business.

Disadvantages of a CorporationsDisadvantages of a Corporations•Start-up is costly – legal assistance is required as well as business consultants and financial advisors.

•Corporations are subject to more government regulations than partnerships or sole proprietorships

•Share prices fluctuate; risk of takeover

•Income is taxed twice

•Short-term profit objectives of major shareholders

Public Limited CompaniesPublic Limited Companies

AdvantagesAdvantages Huge amounts of money can Huge amounts of money can

be raised from the sale of be raised from the sale of shares to the public.shares to the public.

Production costs may be Production costs may be lower as firms gain economies lower as firms gain economies scale. scale.

Because of their size, plc can Because of their size, plc can often dominate the market.often dominate the market.

It becomes easier to raise It becomes easier to raise finance as financial finance as financial institutions are more willing l institutions are more willing l to lend to plcs.to lend to plcs.

DisadvantagesDisadvantages

Setting up costs can be very Setting up costs can be very expensive.expensive.

Since anyone can buy shares, its Since anyone can buy shares, its possible for an outside interest to possible for an outside interest to take control of the company.take control of the company.

All company accounts can be All company accounts can be inspected by member of the public.inspected by member of the public.

Because of their size they cannot Because of their size they cannot deal with customers at a personal deal with customers at a personal level.level.

The way they operate is controlled The way they operate is controlled by various company acts which aims by various company acts which aims to protect shareholders.to protect shareholders.

There is divorce of ownership and There is divorce of ownership and control which might lead to the control which might lead to the interest of owners being ignored to interest of owners being ignored to some extent.some extent.

Plcs inflexible due to their size.Plcs inflexible due to their size.Questions: What are the limitations of being a limited company in a highly competitive market?

Public Sector Organizations

Now the Public Sector

Public Sector OrganisationsPublic Sector Organisations

The Public Sector is made up or organizations which The Public Sector is made up or organizations which are owned and controlled by central or local are owned and controlled by central or local government or public corporations. They are government or public corporations. They are funded by government and in some cases from funded by government and in some cases from their own trading ‘surplus’ or profit.their own trading ‘surplus’ or profit.

Public Sector businesses still have important roles Public Sector businesses still have important roles to play in certain areas of business activity.to play in certain areas of business activity.

Public CorporationsPublic Corporations

Public corporations are owned and Public corporations are owned and controlled by the government.controlled by the government.

Profit is not their main goal.Profit is not their main goal. They are meant to serve or meet the needs They are meant to serve or meet the needs

of citizens.of citizens.

Examples:Examples:PBS PBS

(Public Broadcasting Service)(Public Broadcasting Service)

United States Postal ServiceUnited States Postal Service

Public CorporationsPublic Corporations

AdvantagesAdvantages Managed with social Managed with social

objectives rather than objectives rather than profitprofit

Loss-making services Loss-making services might be kept might be kept operating if the social operating if the social benefit is greatbenefit is great

Finance raised mainly Finance raised mainly from the governmentfrom the government

DisadvantagesDisadvantages

Tendency towards Tendency towards inefficiency because inefficiency because no profit targetsno profit targets

Subsidies from Subsidies from government can government can encourage encourage inefficienciesinefficiencies

Government may Government may interfere in business interfere in business decisions for political decisions for political reasonsreasons

Non-ProfitsAKA: Non-Governmental Organizations (NGOs)

Charities Pressure Groups Social Enterprise

Charity

Profit is not the objective

Money raised is used to support or bring attention to cause

Pressure Group

Pressure groups are charities

Their goal is to change behaviors in:

CitizensBusinessGovernments

Social Enterprise A company with an objective

to reinvest or use profits to benefit society.

Triple bottom line:

Economic: Make a profit to reinvest

Social: Provide job support for community

Environmental: Manage business in a sustainable way

Higher Level “Stuff”

Public-Private Partnerships (PPP)

Private sector management and financing in public sector projects that benefit the public

Government Funded PPP

Government provides all or part of the funding

Private management to control costs and be efficient

Example: HopeClinicLukuli in Kampala, Uganda. Receives government funding for malaria prevention and HIV testing

Private Sector Funded (PPP)

Large projects that are financed in the private sector releasing the government from the burden of funding.

The gov’t then leases or pays rent Known as PFI – Private Finance

Initiative

Govt Directed with Private Financing and Management (PPP)

Private sector funding and private sector management of public projects.

Example: London hospital was built with private financing, then leased to the government which manages and control hospitals health care services.

PPP Costs and BenefitsPPP Costs and Benefits

CostsCosts

If managed by the If managed by the private sector, can cut private sector, can cut wages and benefits wages and benefits and workers no longer and workers no longer have protection of have protection of being employed by being employed by the public sectorthe public sector

Reputation of large Reputation of large business earning large business earning large profits paid by profits paid by taxpayerstaxpayers

Private sector may Private sector may lack experience lack experience managing such large managing such large scale projectsscale projects

BenefitsBenefits

Schools, roads, prisons, Schools, roads, prisons, and hospitals have and hospitals have been built with this been built with this schemescheme

The goal is for private The goal is for private sector to make a profit sector to make a profit causing cost efficiency causing cost efficiency not seen with not seen with government supervisiongovernment supervision

Public service Public service improvement without improvement without increasing taxes for increasing taxes for capital improvementscapital improvements