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Structure of the UK Economy
After studying this section you should be able to
job satisfaction
employment
power and prestige.
The public sector consists of those organisations owned and/or financed by central and
local government. This sector provides goods and services to the community through public
corporations, local government and other statutory agencies (e.g. the National Health
Service). The profit motive is not so prominent: the emphasis in the public sector is on
providing for the community by the community, using funding supplied through taxes and
government borrowing.
Figure 2.3 shows that there were 186,300 registrations in the UK in 1998, and 155,900 de-
registrations (1 in 9 of the businesses registered at the start of the year). The number
registered in 1998 had risen by 2% on 1997, to its highest level for five years. Figure 2.4
illustrates the move from the primary and secondary sectors to the tertiary sector. In 1998,
the number of registrations fell compared with 1997 in agriculture/fishing (600) and
manufacturing (900): in the same period, de-registrations for agriculture/fishing and
manufacturing both rose by 100. The net result was a loss of some 4,000 businesses,
compared with a net gain of nearly 33,000 in business services: this industry grew by over
100,000 in the five years to 1998, to 1 in 4 of all VAT registered UK businesses.
KEY POINT: Individuals in the private sector try to make profit by acting as
entrepreneurs in the market-place. The profit motive forms the foundation of the
private sector.
Legal liability and legal status
Most large commercial companies are limited by share and must include ‘limited’ or ‘plc’
as appropriate in their name. This acts as a warning to those trading with such a company
because any debts it incurs from trading may not be recoverable due to the limited
liability of its owners (shareholders).
Where a limited company cannot pay its debts from its own financial resources, it cannot
make the owners use their personal finances to meet these debts. Sole traders and
partnerships have unlimited liability: if business debts cannot be met from the firm’s own
resources, the owner(s) can be forced to sell personal assets to cover these business
debts.
Limited liability encourages greater investment than would otherwise take place, and
ensures a demand for stocks and shares.
Other companies, for example some examination bodies and professional associations,
are limited by guarantee; members of such a company guarantee its business debts, up to
a given maximum.
KEY POINT The benefit of limited liability to the economy is that it encourages
people to risk owning and/or investing in companies, because they know their
liability (losses) will be limited to the amount they have agreed to invest.
Another important difference between these forms of business ownership is in their legal
status. Limited companies are incorporated bodies. ‘Incorporation’ means that a company
has a separate legal existence from its members (shareholders). Sole traders and
partnerships are unincorporated businesses and do not have a legal existence that is
separate from that of the owners.
A limited company has the legal authority to:
own property
enter contracts in its own name
sue (and be sued) in the courts.