1.

2 Types of business entities

On completion of this chapter, you should be able to:

Analyse and apply:

 The distinction between organizations in the private sector and public sector.
(AO2)

Evaluate: (AO3)

 The main features of the following types of for- profit (commercial)

organizations:
- sole traders
- partnerships.
- Privately held companies.
- Publicly held companies.
 The main features of the following for-profit social enterprises:
- Private sector companies.
- Public sector companies.
- Cooperatives.
 The main features of the following type of non-profit social enterprises:
- Non-governmental organizations (NGOs)

1
 Your task

 Distinguish between the private sector and the public sectors and give
examples of businesses in your country that operate in the two sectors.

Private sector: the part of a country's economic system that is run by

individuals and companies, rather than a government entity

Public sector: portion of the economy composed of all levels of government

and government-controlled enterprises.

Examples in China:

- Private sector: AnTuTu

- Public sector: Bank of China, Sinopec Group

https://www.tutor2u.net/business/reference/private-and-public-sector-organisations

https://www.toppr.com/guides/business-studies/forms-of-business-organisations/
forms-of-organising-public-sector/

1.2.1 For-profit (commercial) organisations.

 Define and give local examples of profit-based organizations.

Profit-based organizations: one whose main goal is to make money, i.e.,
make a profit

2
 Explain the main features, advantages and disadvantages of the following
types of for-profit (commercial) organizations:

(i) Sole traders

a business in which one person provides the permanent finance and, in return, has full control
of the business and can keep all of the profits

https://www.toppr.com/guides/business-studies/forms-of-business-
organisations/sole-proprietorship/

3
(ii) A partnership

https://www.toppr.com/guides/business-studies/forms-of-business-
organisations/partnership/

a business formed by two or more people to carry on a business together,

with shared capital investment and, usually, shared responsibilities

4
 (iii) Privately held Companies
a small to medium-sized business that is owned by shareholders who are often members of the same
family. This company cannot sell shares to the general public

5
 (iv) Publicly held companies.
a limited company, often a large business, with the legal right to sell shares to the general public. Its
share price is quoted on the national stock exchange

https://www.toppr.com/guides/business-studies/forms-of-business-organisations/
joint-stock-company/

6
In 1995, Larry Page and Sergey Brin met at Stanford University. The following year
they formed a partnership and began collaborating on a search engine called
BackRub. In 1997, they decided to rename BackRub and came up with Google
(derived from ‘googol’ a mathematical term for the number represented by the
numeral 1 followed by 100 zeros).

With $100 000 support from a backer, Google Inc was set up in 1998 in a garage in
California. Later that year, PC Magazine recognised Google’s search engine as one of
the top 100 websites. In 2000, Google became available in many languages including
French, German, Italian and Chinese. By 2004, the Google search index contained 6
billion items, including 4.28 billion web pages and 880 million images. It moved to an
office in California called Googleplex with over 800 employees and offices all over
the world. In the same year, Google became a public limited company offering for
sale 19,605,052 shares at an opening price of $85 a share.

Over the next five years, Google refined and added to its search engines a range of
products such as Google News, Google Earth, Google Maps and Google Video.
Today, Google is a huge multinational corporation worth around $160 billion, and its
share price is over $500 a share.

1. Define the term “partnership”. [2]

Partnership is the a business formed by two or more people to carry on a

business together, with shared capital investment and, usually, shared
responsibilities

2. Outline two possible benefits to Larry Page and Sergey Brin of starting Google
as a partnership. [4]
a. One of the benefits Larry Page and Sergey Brin potentially will have as a
partnership is that the since the two are shared in decision-making the
two will share the losses. As the partnership will help towards
minimizing the losses towards each individual.
b. Another benefit between their partnership is that the partnership would
have greater privacy and fewer legal formalities than corporate
organisations or companies. This will not only allow the start-up and
organization of the Google to be easier in terms of legal process, but it
also allows the partnership to have more privacy on business
information.
3. Analyse two possible problems Larry Page and Sergey Brin might encounter by
starting Google as a partnership. [4]
a. A possible issue the two may encounter as a partnership is despite being
able to share the losses, they will be required to share the profits of the
7
 project as well. This will cause each individual to have a reduced amount
of profit compared to starting Google individually. In addition the
distribution of profit may cause issues between the partnership with
potential conflicts.
b. different management syles, personal habits, financial status and equity,
boundaries, and commitment levels
4. Discuss the advantages and disadvantages to Google of its conversion to a
public limited company in 2004.
a. advantages:
i. Raising capital through public issue of shares
ii. ability to raise share capital, particularly where the company is
listed on a recognised exchange.
iii. Widening the shareholder base and spreading risk
iv. opportunity to spread the risk of company ownership among a
large number of shareholders
v. Other finance opportunities
1. Banks and other financial institutions may be more willing
to extend finance to a public limited company
vi. Growth and expansion opportunities
1. the value of being able to raise finance is in how it can be
employed to serve the business. By having more finance
potentially more readily available and on better terms than
a private company, the public limited company can be in an
advantaged position to:
a. Pursue new projects, new products or new markets
b. Make capital expenditure to support and enhance the
business
c. Make acquisitions (whether in cash or by offering
shares to the shareholders of the target business)
d. Fund research and development
e. Pay off existing debt (or replace existing debt with
new debt on better terms)
f. Grow organically
g. Transferability of shares
vii. The shares of a public limited company are more easily
transferable than those in the private equivalent, meaning
shareholders benefit from liquidity.
viii. Exit Strategy
1. Going public can enhance the options for the founders to
exit the business at some point in the future, if they wish to
do so. Both higher transferability of shares and the

8
 increased visibility of the business and its performance may
increase the chances of bid interest from potential suitors.
b. disadvantage
i. More regulatory requirements fee, and a trading certificate must
be obtained from Companies House before the company can trade
(there is no such requirement for a private company)
ii. Higher levels of transparency required
iii. Limited companies, whether public or private, have more of their
details in the public domain, available via Companies House, than
other business types. But the required level of transparency is
much higher for public companies.
iv. More vulnerable to takeovers
v. At worst, a company can become vulnerable to a hostile takeover
if a majority of shareholders agree to a bid. With shares being
freely transferable, a potential bidder can build up a shareholding
in advance of launching a bid attempt.
vi. Initial financial commitment is higher
vii. Ownership and control issues
viii. With a public limited company, it's much harder to control who is
a shareholder of the company, and who the directors are
ultimately accountable to. There is therefore a possibility that the
original owners or directors can lose control of the direction of the
company, face disputes or just spend a lot more time managing
shareholder expectations.

1.2.2 For profit social enterprises

“Doing well by doing good”

A Social Enterprise: An organization that applies commercial strategies to

maximize improvements in human and environmental well-being, rather than
maximizing profits for external shareholders. Social enterprises can be structured
as a for-profit or non-profit, and may take the form of a co-operative, mutual
organization, a social business, or a charity organization.

https://www.thegoodtrade.com/features/what-is-a-social-enterprise

 Define and give local examples of for-profit social enterprises

a business with specific social objectives that serve its primary

purpose

9
 e.g. gingko house

 Describe the common features of social enterprises.

1. a social enterprise is a proper business that makes its money in socially responsible ways
and uses most of any surplus made to benefit society.
2. They directly produce goods or provide services.
3. They have social aims and use ethical ways of achieving them.
4. They need to make a surplus or profit to survive as they cannot rely on donations as
charities do.

 Explain the 3 main objectives of social enterprises.

Economic – to make a profit or surplus to reinvest back into the business and
provide some return to owners.
Social – to provide jobs or support for local, often disadvantaged
communities.
Environmental – to protect the environment and to manage the business in
an environmentally sustainable way.

 Explain the main features, advantages and disadvantages of the following

types of for-profit social enterprises:

(i) Private sector social enterprises

(a) Describe the features/characteristics of a social enterprise.
1) They directly manufacture goods or provide services.
2) They have social objectives and use responsible ways of accomplishing
them.
3) They need to make a surplus or earnings to keep up as they cannot
completely depend on donations as charities do.

(b) Explain the advantages of disadvantages of being a for-profit social

enterprise
Advantages a Social Enterprise
1. Making an Impact in the Society

10
 2. It is Possible to Receive (money from governments or private investors)
3. Easy Marketing (a social issue is being handled with a solution, it is
simpler to pull in the attention of the people and media. The level of
exposure frequently relies upon the level of uniqueness of the arrangement.)
4. The feeling of Responsibility to Employee (understand that they are
directly or indirectly contributing to benefiting something in a socially
responsible way.)
5. Making Occupations and Pay Streams
Disadvantages of a Social Enterprise
1. Have to compete with commercials
2. Strict Rules and Regulation
3. Constantly Monitor Market

https://honestproscons.com/social-enterprise-advantages-and-disadvantages/

22 Awesome Social Enterprise Ideas and Examples - theSedge.org

https://www.sehk.gov.hk/en/

https://www.localiiz.com/post/culture-local-stories-social-enterprises-hong-kong

Well known examples of social enterprises include Divine Chocolate, the Eden
Project and fair-trade coffee company Cafedirect.

(ii) Public sector social enterprises

(a) Describe the characteristics

The ability to deliver innovative approaches and fresh thinking to services,
such as catering and recycling, make social enterprises an attractive option
for public services. However, they will be required to compete for tenders
through the public sector procurement process

11
 There are a wide variety of opportunities in the delivery of public services,
where social enterprises work in partnership with government, including:
- the health and social care sector
- fostering and adoption
- transport services
- refuse collection/recycling
- sports and leisure services

(b) Explain the advantages of disadvantages of being a non-profit social

enterprise

Benefits of public sector contracts

Public sector organisations are stable customers who pay promptly and
within agreed contract terms and due to the public procurement process you
can be assured contacts are awarded in a fair and transparent way.

Barriers facing social enterprises competing for public service contracts

One of the main barriers facing social enterprises when competing for public
service contracts is resource capability - will you be able to deliver on the
requirements of the contract? Also will the contract allow you to meet your
goals and social purpose?

https://www.nibusinessinfo.co.uk/content/social-enterprises-and-public-sector

(iii) Cooperatives

(c) Describe the features of and give examples

Feature:
- Joint ownership
- Democratic ownership

12
 - Voluntary association
- Compulsory to get registration
- Not affect the entry or exit of members
- There is a limited liability as to the extent the amount contributed by the
members as capital
- Work of the principal of mutual agreement and welfare

https://www.toppr.com/guides/business-studies/forms-of-business-
organisations/cooperative-society/

https://ncbaclusa.coop/resources/what-is-a-co-op/

(d) Explain the advantages of disadvantages of a cooperative

https://www.yourarticlelibrary.com/business/cooperative/advantages-and-
disadvantages-of-cooperative-society-discussed/40799

advantages:
1. Easy Formation:
a. does not involve long and complicated legal formalities.
b. Everything is voluntarily so there’s a lot of flexibility within the
system
2. Limited Liability:
a. liability of members is limited to the extent of their capital in the
cooperative societies.
3. Perpetual Existence:
a. A cooperative society has a separate legal entity. Hence, the death,
insolvency, retirement, lunacy, etc., of the members do not affect
the perpetual existence of a cooperative society.

13
4. Social Service: The basic philosophy of cooperatives is self-help and
mutual help. Thus, cooperatives foster fellow feeling among their
members and inculcate moral values in them for a better living.
5. Open Membership: The membership of cooperative societies is open to
all irrespective of caste, color, creed, and economic status. There is no
limit on maximum members.
6. Tax Advantage: Unlike other three forms of business ownership, a co-
operative society is exempted from income-tax and surcharge on its
earnings up to a certain limit. Besides, it is also exempted from stamp
duty and registration fee.
7. State Assistance: Government has adopted cooperatives as an effective
instrument of socio-economic change. Hence, the Government offers a
number of grants, loans and financial assistance to the cooperative
societies – to make their working more effective.
8. Democratic Management: The management of cooperative society is
entrusted to the managing committee duly elected by the members on the
basis of ‘one-member one -vote’ irrespective of the number of shares
held by them. The proxy is not allowed in cooperative societies. Thus,
the management in cooperatives is democratic.

Disadvantages:

1) Lack of Secrecy: A cooperative society has to submit its annual reports

and accounts with the Registrar of Cooperative Societies. Hence, it
becomes quite difficult for it to maintain secrecy of its business affairs.
2) Lack of Business Acumen: The member of cooperative societies
generally lack business acumen. When such members become the
members of the Board of Directors, the affairs of the society are
expectedly not conducted efficiently. These also cannot employ the
professional managers because it is neither compatible with their avowed
ends nor the limited resources allow for the same.
3) Lack of Interest: The paid office-bearers of cooperative societies do not
take interest in the functioning of societies due to the absence of profit
motive. Business success requires sustained efforts over a period of time
which, however, does not exist in many cooperatives. As a result, the
cooperatives become inactive and come to a grinding halt.
14
 4) Corruption: In a way, lack of profit motive breeds fraud and corruption in
management. This is reflected in misappropriations of funds by the
officials for their personal gains.
5) Lack of Mutual Interest: The success of a cooperative society depends
upon its members’ utmost trust to each other. However, all members are
not found imbued with a spirit of co-operation. Absence of such spirit
breeds mutual rivalries among the members. Influential members tend to
dominate in the society’s affairs.

1.2.3 Non-profit social enterprises

“We make a living by what we get, but we make a life by what we give.”
Sir Winston Churchill

 Define and give local examples of non-profit social enterprises

Non-Profit: An organization that uses its surplus revenue to help achieve its
purpose or 'mission', rather than distributing its surplus income to the
organization's directors (or equivalents) as profit.

Whereas a non-profit is an organization that puts all the money it raises towards a
social issue, a social enterprise uses the money it makes from selling a good or
service towards furthering a cause.

As you can see, the two are very similar and their difference can vary based on
how each specific non-profit organization or social enterprise is structured. The
divergence occurs here:

15
1. First, they differ based on how they attain money. Non-profits acquire
money through fundraising efforts whereas social enterprises operate like a
for-profit business by selling a product or service to the public and acquire
funds through sales.

2. Second, their methods of operations are distinctly different. Non-profits

operate in a unique manner, seeking support from governments and donors.
Social enterprises, on the other hand, use the same methods and disciplines
as for-profit businesses, working to establish big margins and generate high
revenue.

3. Third, the return on investment (ROI) is also a divergent point for the two
types of firms. For every firm there is a spectrum of ROI: from 100%
financial return to 100% social return. Non-profits operate with an almost
absolute social ROI, putting almost all revenue towards its mission
statement. Social enterprises have traditionally operated on a blended ROI,
which is a mix of social and financial ROI. They put part of their revenue
towards a social cause, and part of their revenue towards furthering their
good or service.

 Explain the main features of the following types of non-profit social

enterprises:

• (a) Non-governmental organizations (NGOs)

non-governmental organisation (NGO) a legally constituted body with
no participation or representation of any government
o separate from government.
o often charities too and many of them are involved in development,
health, and humanitarian issues
o Their work can support and add to the efforts made by government
organizations, for example in disaster or poverty relief.
o The objectives of NGOs are not profit-based but are specifically
focused on social or humanitarian objectives.
https://www.investopedia.com/ask/answers/13/what-is-non-government-
organization.asp

16
 https://www.investopedia.com/ask/answers/13/ngos-get-funding.asp

 Evaluate the impact of the activities of non-profit, non-governmental

organizations on your country or region.
(a) Benefits to the country (China)
- economic and social development in the fields of environmental
protection, humanitarian aid, poverty alleviation, development assistance,
health, education, family

http://www.standardmedia.co.ke/article/2000176223/german-based-ngo-
donates-sh10-million-for-a-project-of-the-blind

(b) Problems to the country

- Interference in local government
- Little or no respect to local customs
- No rules or regulations: NGO’s are not governed by any international
charger or agreement and as such, there is very little to regulate their
activities. As a result, several NGO operatives have started using their
base of operations for other purposes besides charity, resulting in NGOs
getting mired in several scandals

Do the quiz below

https://www.tutor2u.net/business/reference/forms-of-business-revision-quiz

Research HW- Inquiry

1. Identify a social need that you might want to address in the future.
A social need that I might want to address in the future is the need of
security in terms of mental health, and the awareness of mental health
issues. I find this social need rather important as poor mental health is
usually the effects or catalyst for other social issues as well. When a

17
 society can gain a group of individuals that care for their well-being,
they would then be able to help stabilize with behaviors and tragedies
in society.
2. Identify a social enterprise that currently meets that social need.
Mental healthiness is a social enterprise that aims to promote mental
health and reduce psychiatric stigma.
3. Describe how the social enterprises meets the social need. What do
they do?
 Research focus groups that tries to better understand mental
health equity
 Or research groups that research on mental health
issues or the experience/treatment (socially, and in
general) from patients who suffer from mental health
issues
 Provide job opportunities to people by teaching them
methods of basic therapy/treatments (e.g. what to do if
someone has a panic attack…) then having them educate
larger sessions or help others
 Charity is always an option to raise money and fundings for
patients not as economically developed to receive the
treatments/therapy sessions they need
 Have social medias and events that advocate for mental
health or reduction of psychiatric stigma
4. What challenges are they facing and how do they overcome these
challenges?
1. Lack of funding support
- How to get fundings is an issue/problem the enterprises
will face in terms of if they require payment for
therapy/sessions, or what they decide to do to act upon
the social need. Essentially how they will profit through
the enterprise
2. professionalism
- How will they professionally condone actions of mental
health, as mental health can result in outbursts (panic
attacks, etc.)
18
 3. Ethics
- In terms of ethics on the sessions and therapy they may
provide
- What draws the boundaries between helping and
invading or even harming
4. Social media
- How to raise awareness on social media when there are
many other things happening as well, how to get people
to read the feed the enterprise is providing rather than
others
5. Unexpected changes
- How to continue with business and enterprise work when
given spontaneous changes (Covid, Government
restrictions etc.)
6. Legal process
- tend to be more legal processes need to be condoned by
social enterprises in general
- depending on where/how wide scale the enterprise is the
government may have restrictions and more legal
processing
5. How do they sustain their operations? [Creativity; ethics;
sustainability; change].
1. Change:
- Economic changes such as lack of fundings would
require the business to seek out more fundings or
advocate on different platforms rather than face to face
sessions -> social media
- Spontaneous changes such as covid would require
enterprises to go for other platforms to help with social
needs
2. Ethics:
- to ensure ethics in the process, there are often people sent
from the government or professionals that check if the
enterprises are potentially harming or condoning illegal
businesses under the image advocating for social needs
19
 - to have professionals leading therapy sessions or
treatments
- ensure everything done is legal, and the patient/receiver
feels comfortable for the treatments
3. Sustainability
- To ensure sustainability mental health related social
enterprises usually focuses on social sustainability. As it
requires a lot of awareness for mental health social
enterprises to be conscious on their community setting.
As mentioned in the ethics section, mental health is a
topic that requires a lot of understanding, embracing,
while also needing to be aware of privacy of individuals.
- Cultural sustainability may also be an aspect to consider.
Depending on where the business locates or affects upon,
the cultural setting would also be an influence of the
people’s opinion of psychiatric stigma. Along with their
understanding and comfort of the topic on mental health.
4. Creativity
- To ensure sustainability mental health related social
enterprises usually focuses on social sustainability. As it
requires a lot of awareness for mental health social
enterprises to be conscious on their community setting.
As mentioned in the ethics section, mental health is a
topic that requires a lot of understanding, embracing,
while also needing to be aware of privacy of individuals.
- Cultural sustainability may also be an aspect to consider.
Depending on where the business locates or affects upon,
the cultural setting would also be an influence of the
people's opinion of psychiatric stigma. Along with their
understanding and comfort of the topic on mental health.

CAS Connection

As a UWC alumni, how will you make a positive difference through business in
line with the UWC Values?

20
As a UWC alumni, the UWC’s core values of peace and sustainability will allow
me to develop strong ideals and visions for the business. As UWC advocates
peace, this concept and core value allows me to conduct businesses that benefit and
help working/aiming towards peace. In addition, having peace in mind as an UWC
alumni will allow me to form business etiquette. Having business etiquette, I
would naturally try to prioritize social needs and other needs (such as workers or
other people’s needs) that will allow a more positive business community in
general. The concept of sustainability UWC promotes also allow me as an alumni
to be more aware of the sustainability of a business (economic, cultural, social, and
environmental). It allows me to formulate business ideas that could bring a greater
good to society while having prior ideas and thinking to sustain the business.

https://edition.cnn.com/2018/10/08/success/business-students-impact-investing/
index.html

https://www.google.com/search?
rlz=1C1GCEU_enHK837HK837&lei=DZgeY_nMMvDK2roP5dGe2Ak&q=social
%20enterprise
%20organizations&ved=2ahUKEwi5h6SdmY76AhVwpVYBHeWoB5sQsKwBK
AJ6BAhREAM&biw=1280&bih=601&dpr=1.5&safe=active&ssui=on

https://www.mandelarhodes.org/ideas/news/five-young-leaders-in-the-running-for-
80k-for-socially-impactful-projects-in-africa/

Next: 1.6 Multinational Companies (MNCs)

21