BUSINESS AND MANAGEMENT MODULE 1 BUSINESS ORGANIZATIONS & ENVIRONMENT

P RIVATE & P UBLIC S ECTOR O RGANIZATIONS The Private Sector comprises businesses owned and controlled by individuals or groups of individuals. In every country, most business activity is in the private sector. These businesses differ in size The main objective is to make a profit Money earned from the sale of goods minus any costs involved in selling those goods or services The Public Sector comprises organizations accountable to and controlled by central or local government. These usually include: Health and education services Defense Law and order Some strategic industries. THE ECONOMY Private SectorPublic Sector

T HE P RIVATE S ECTOR L EGAL S TRUCTURE Private Sector Businesses Sole Trader Partnership Limited Companies Cooperatives Private LTD Public LTD

P UBLIC C ORPORATIONS Organizations that are wholly owned by the government are called Public or Corporations Examples include: BBC – British Broadcasting KCRC – Hong Kong’s national railway Nanjing Auto – China’s main automaker LCBO – Ontario’s Liquor Control Board

R EASONS FOR P UBLIC C ORPORATIONS To ensure everyone has access to basic services (health, transportation etc) To avoid wasteful competition (national defense or postal delivery) To protect citizens and businesses through institutions such as the Police and court systems To reduce unemployment as governments tend to be large employers (teachers, doctors and nurses)

P RIVATIZATION Private sector ownership provides many more benefits than the public sector Mainly in the area of money-making As a result, many governments sell off their businesses to private interests Governments will then set up regulatory bodies to monitor the conduct and performance of these businesses, since they usually have a large share of the market Ontario sell off of Ontario HydroOntario Hydro

B ENEFITS OF P RIVATIZATION Efficiency gains As more competition now enters the marketplace Lower production costs Again based on a competitive environment Increased choice For customers based on a competitive environment Incentives to innovate Coming up with new ideas to stay competitive Less financial burden As the government stops funding public companies Source of government revenue One time sales only, but the amount can be enormous

P UBLIC C ORPORATIONS Managed with social objectives Finance raised mainly from the government Tendency towards inefficiency due to lack of strict profit targets Government may interfere in business decisions for political reasons AdvantagesDisadvantages

EXAM TIP Public Limited Companies are in the private sector of industry – but public corporations are not FOR-PROFIT ORGANIZATIONS Sole – Trader Partnership Limited Company – Limited Liability

S OLE T RADER Easy to set up Owner has complete control Owner keeps all profits Independence Business based on the interests and skills of owner Able to establish close working relationships Unlimited Liability – all owner’s assets are potentially at risk Faces intense competition from bigger firms Owner is unable to specialize Difficult to raise additional capital Long hours Lack of continuity AdvantagesDisadvantages

P ARTNERSHIP Partners may specialize in different areas Shared decision-making Additional capital injected by each partner Business losses shared between partners Greater privacy and fewer legal formalities than corporate organizations (companies) Unlimited liability for all partners (with some exceptions) Profits are shared No continuity - will have to reform if a partner dies All partners are bound by the decision of any one of them Not possible to raise capital from selling shares AdvantagesDisadvantages

L IMITED LIABILITY – P RIVATE (P LC ) Shareholders have limited liability Separate legal personality Continuity in the event of the death of a shareholder Original owner is still often able to retain control Able to raise capital from sale of shares to family, friends and employees Greater status than an unincorporated business Legal formalities involved in establishing the business Capital cannot be raised by sale of shares to the general public Quite difficult for shareholders to sell shares Public inspection AdvantagesDisadvantages

P UBLIC L IMITED C OMPANIES Limited Liability Separate legal identity Continuity Ease of buying and selling of shares for shareholders Encourages investment Access to substantial capital sources due Offering of shares Legal formalities Cost of business Shares prices subject to fluctuation - economy Legal requirements concerning disclosure Risk of take over Directors influence AdvantagesDisadvantages

F OR - PROFIT S OCIAL E NTERPRISES Social enterprises are not charities, but they do have often different from those of an entrepreneur who is only profit-motivated A SE is a proper business that makes its money in socially responsible ways and uses most of any surplus made to benefit society They are not running a charity Triple bottom line – profit is not the sole objective of these enterprises Economic, social and environmental – KASHFKASHF SE compete with other businesses in the same market or industry They directly produce goods or provide services They have social aims and use ethical ways of achieving them They need to make a surplus or profit to survive as they cannot rely on donations as charities do

N ON -P ROFIT S OCIAL ENTERPRISES Non-profit organisation – any organisation that has aims other than making and distributing profit and which is usually governed by a voluntary board Non-governmental orgnisations (NGOs) – a legally constituted body with no participation or representation of any government which has a specific aim and purpose Supporting disadvantaged groups in developing countries or advocating the protection of human rights AMNESTY INTERNATIONAL

C OOPERATIVES Cooperatives – a group of people acting together to meet the common needs and aspirations of its members, sharing ownership and making decisions democratically Agricultural cooperative – when farmers pool resources for mutual benefit Buying of fertilizer or the marking of key food products NCFC

M ICROFINANCE I NSTITUTIONS Microfinance – approach to providing small capital sums to entrepreneurs in developing, low- income countries Very small loans by specialists finance businesses, usually not traditional commercial banks Microfinance

C HARITIES Charities – or organisation set up to raise money to help people in need or to support causes that require funding Tax benefits Perform useful social and environmental functions that would not be undertaken by private businesses or government-funded organisations They are dependent on private contributions

I NVESTIGATIVE C ASE Using the Internet and your global knowledge, choose any country in the world that has recently privatized a corporation. Make a point of the benefits to privatization in your answer What are some of the costs?