Berbice Educational Institute

Business Education Department

Subject: Principles of Business

Grade 10

Section 1: The Nature of Business

Handout #2

Topic: The Private and Public sectors

Subtopic: Definition of private and public sectors;

Private sector: comprises businesses owned and controlled by individuals or groups of individuals.

Public sector: comprises organizations accountable to and controlled by central or local government (the
state).

The main differences between the private sector and the public sector:

Difference Private sector business Public sector business

Owners ● Private individuals, e.g. ● The state

shareholders of a
company
Aims ● Profit ● Provide important
goods or services.
● Growth

Source of finance ● Private investors ● Government loans and

subsidies
● Profits kept in business
● Profits (if any) are kept
● Loans, e.g. from banks in the business.

Distribution of profits ● Distributed to owners, ● Paid to government

e.g. dividends paid to
company shareholders
Types of products ● Goods and services
demanded by business
customers or private
consumers
● Public goods such as
police, or street lights,
that would not be
provided by the private
sector

● Merit goods such as

health care, education
and waste disposal
 which the private sector
would not provide
enough of.

Topic: Business Organizations

Subtopic: Forms of business organizations and arrangements:

a) Sole trader/ sole proprietorship

b) Partnership
c) Cooperatives
d) Companies (private limited and public limited companies)
e) Conglomerate
f) Multinationals
g) Franchise
h) State corporations
i) Local and municipal authorities and government departments.

1. Sole trader (sole proprietor): a business in which one person provides the permanent finance
and has full control of the business and is able to keep all of the profits.

Formation of sole trader businesses

This type of business organization is mostly established in the construction sector, retailing, and
hairdressing, car-servicing and catering trades. It is also common for sole traders to employ others, yet
the business is likely to remain very small. Many sole traders remain small because the owner wishes to
remain in control of their own business. Another reason for them remaining small is the limitations that
they face in relation to raising additional capital for the business.

Advantages and disadvantages of sole trader (sole proprietor)

Advantages Disadvantages

● Easy to set up- no legal formalities
● Owners has complete control and can
take all decisions quickly-not answerable
to anyone else
● Unlimited liability- all of the owner’s
assets are potential at risks.
● Often faces intense competition from
bigger firms for example food retailing

● Owners keeps all profits ● Owner is unable to specialize in areas of

the business that are most interesting
● Able to choose times and patterns of
but is responsible for all aspects of
working
management
● Able to establish close personal
● Difficult to raise additional capital
relationships with staff (if any are
employed) and customers ● Long hours often necessary to make
 ● Business can be based on the interests or business pay
skills of the owner rather than working as
an employee for a larger firm. ● Lack of continuity

● Owner must accept all losses of the

business.

2. Partnership: a business formed by 2-20 people to carry on a business together, with shared capital
investment and usually, shared responsibilities.

Formation of a Partnership:

A partnership does not create a separate legal leg unit, a partnership is just a grouping of individuals.
These are formed to overcome some of the drawbacks of being a sole trader. A rare type of partnership
called a limited partnership can be formed which offers limited liability to all partners apart from at least
one, who has to accept unlimited liability.

Partnerships are the most common form of business organization in some professions, such as law and
accounting. Small building firms are often partnerships too.

A sleeping partner is a person who may be willing to invest in the business but does not want to take
an active part in running it.

Partnership agreement:

It is usual, although not a legal requirement, to draw up a formal Deed of Partnership between all
partners. This provides agreement on issues such as voting rights, the distribution of profits, the
management role of each partner, and who has authority to sign contracts.

Advantages and disadvantages of partnership:

Advantages Disadvantages

● Partners may specialize in different areas ● There is unlimited liability for all partners
of business management (with some exceptions)

● Decision making is shared ● Profits are shared

● Additional capital is injected by each ● There is no continuity and the

partner
● Business losses are shared between the
partners
● There is fewer privacy and fewer legal
formalities than in corporate
organizations (companies).
partnership will have to be reformed in
the event of the death of one of the
partners.
● All partners are bound by the decisions of
any one of them
● It is not possible to raise capital from
selling shears
 ● A sole trader, taking on partners, will lose
independence of decision making.

3. Cooperatives: a business that is owned, controlled and operated by a group of users for their own
benefit.

Advantages and disadvantages of cooperatives:

Advantages Disadvantages

● Members work together to solve ● Finance for expansion is often limited as

problems and make decisions
● Profits are shared in the form of
dividends
● Motivation levels are good; members
work hard because they will all benefit
from shared profits.
● Retail cooperatives often offer lower
prices than large supermarket chains
aiming for high profits.
members may not have many resources
and profits may be low.
● Management can be inefficient if the
members do not have experience of
running a larger business.
● Decision making can be slow if all
members have to be consulted on major
issues.

Features of cooperatives:

● Open membership: any person over 16 years may join for a small fee, although certain
specialized cooperatives may only allow people with suitable skills to join for example, teachers
would join the Teacher’s Cooperative Society.
● Democratic control: all members have to vote at important meetings and all members can
contribute to the running of the business, sharing the workload, responsibilities and decision-
making.
● Distribution of profits: profits are shared equally among members in the form of dividends.
● Limited interest on capital: when money is borrowed from members it is called the members’
share capital. Only a low rate of return is paid-often limited to 5 percent.

Types of cooperatives:

a) Consumer cooperatives: these operate retail stores and share any profits with regular shoppers
who are members of the cooperative.
b) Producer cooperatives: these group together several small producers, e.g. farmers, and they
share tools and equipment.
c) Workers’ cooperative: these are businesses that are owned and controlled by the workforce.
Major decisions are taken collectively and any profits from operating the business are shared
amongst the workers.
 d) Marketing cooperatives: these exist when small producers combine to sell their products. By
operating in groups like this it is argued that they can obtain better deals from large customers
such as supermarkets.

(The continuation of this topic will be done in Handout #3)

Class Activity

a. Explain in your own words how public sector organizations may differ from that of private sector
organizations.

a) Define the following concepts: limited liability and unlimited liability.

C) What role does a ‘sleeping partner’ play within a partnership?