The DAILY OBSERVER Tuesday, September 22, 2020 Page 27

Lesson 2
with
Treisa Cornwall

PRIVATE AND PUBLIC SECTOR

A country’s economy is divided into two main

PRIVATISATION AND NATIONALISATION
sector, these are the private and the public sector.

THE PRIVATE SECTOR

Nationalisation Privatisation
The private sector is that part of the economy Movement from Movement from
where businesses are solely owned by private the private sector the public sector
to the to the
individuals. These individuals operate as sole
public sector. private sector.
traders or form partnership with other business
owners.

THE PUBLIC SECTOR When a business moves from being run by the
government to being publicly owned, this is called
The public sector consists of enterprises owned privatisation. Movement from the private sector to
and run by the government. In most countries, the the public sector is described as nationalisation.
government owns and runs key utilities such as Over the years, the government has privatised
transportation, electricity and water. businesses; this is in keeping with the notion that
the private sector encourages higher levels of
Motives for operating Motives for operating competition which leads to better use of resources.
in the Public Sector in the Private Sector
FORMS OF BUSINESS ORGANISATIONS & ARRANGEMENTS
Provision of goods and
To earn profit
services Business organisations can be described
Cater to the a target according to how they are financed, owned and
Cater to the entire
market or niche controlled. They may take the following forms:
population
market
Sole Trader – sole trader or sole proprietorship is
Provide public and a business that is owned, financed and controlled
merit goods, e.g. Provide consumer by one person. It is the most popular type of
education, national goods
business globally. Many large corporations that
defence, health, etc.
exists today started out as sole proprietorship
Limited or no Strong competition
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Types/examples of sole traders:

● Shoemaker ● Dressmaker ● Barbers/Nail Technicians ● Fruit vendors
ADVANTAGES DISADVANTAGES
Business is easy to set up Owner have unlimited liability
It is usually a small business (limited capital
Capital can be difficult to raise
needed)
Due to its small scale nature, discounts and
Decision making is easy
other benefits are not given to customers
Prices tend to be higher than that of large
Personal attention is given to business affairs
businesses
Sickness and holidays may affect the business
Special services can be offered to customers
operation
Caters for the needs of local customers
Only one owner may mean limited business skills
Profits made are not shared
Mistakes maybe possible if there’s no one to
Business affairs can be kept private
consult with

PARTNERSHIP
This is a business that consists between a minimum of two and a maximum of twenty people. These
people normally pool their resources together to operate the business.
Types of partners:
1. Limited/sleeping partners – these partners do not take an active part in the daily business operation.
2. Active partner – these partners assist with the daily operations of the business
3. Unlimited liability partner/ordinary partner

ADVANTAGES
More partners increase the amount of capital
Can work on a larger scale ehan the sole trader
Business can be easy to start just like the sole
trader
Risks and responsibilities are spread among
partners
More informed decisions can be made
There can be specialisation among partners
DISADVANTAGES
Disagreements among partners
Decision making maybe lengthy
Conflict may arise among partners
If partnership is set up legally, it will need to be
reformed if one partner dies
All partners maybe held legally responsible for
the actions of one partner
General partners have an unlimited liability to
repay any business debt.

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Partnership Deed Types of cooperatives

This is a document that sets out the terms and 1. C

conditions of the partnership among partners. It
specifies the various terms such as: profit/loss
sharing, salary, interest on capital, drawings and
the admission of a new partner etc.
The contents of the Partnership Deeds are:
 onsumer cooperative: – an organisation
owned and managed by a group of
consumers for their mutual benefits
of enjoying quality goods/services at
affordable prices. Examples of consumer
cooperatives include: credit union/financial
cooperatives, housing.

i.  The name of the firm 2. W

 orker cooperative: an organisation owned
and operated by its employees. The main
ii. N
 ame and details of the partners objective of this cooperative is to provide
employment for its members.
iii. Date of commencement of the business
3. P
 roducer/manufacturer cooperative: an
iv. Duration of the firms existence
organisation formed by a group of producers
v. C
 apital contributed by each partner who produce the same or similar products
to cooperatively market their products.
vi. P
 rofit/loss sharing ratio
ADVANTAGES DISADVANTAGES
vii. Interest on capital to be paid to partners
Profits are shared Limited access
viii. T
 he extent to the borrowing each partner among members to capital
can draw
Members work Members may lack
collectively to managerial and
Unlimited solve problems technical experience
Limited
liability
liability Employment Decision-making is
– there is no limit
– this states is created for slow if members are
to a partners debt.
that a partner members consulted
Partners may have to
is not liable
sell their
for debt exceeding COMPANIES (PRIVATE LIMITED AND PUBLIC LIMITED)
personal assets
that of his/her
to pay debts
investment.
owed. This is a group of companions who have come
together to set up a business. Once the business
is set up it becomes a legal body that is separate
COOPERATIVES in law from its owners. The owners of a company
are its shareholders; they appoint a board of
A co-operative is a business organisation directors who are responsible for decision making.
that is jointly owned and controlled by its Possible decisions will include how much profit is
members. Members usually work together for to be distributed to shareholders.
one common objective and profits are typically
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There are two main types of companies: private and public company. The main difference between
the two is a private company is privately owned by founders, managers and owners, they provide their
own investments. A public company on the other hand is one where members of the public are allowed
to invest/buy shares in the business. Its shares are traded on the public stock exchange market.
The table below shows the main difference between a private and a public company.
PRIVATE LIMITED COMPANY PUBLIC LIMITED COMPANY
Financial support is from private individuals Financial support comes from the general
such as family members, personal savings etc. public or loans from financial institutions.
The shareholders have limited liability Liability is limited to the amount invested
therefore “Ltd” is included in the company name in the company
The business is registered with the registrar
The business is considered a legal entity
of companies.

Advantages and Disadvantages Private Limited Company

ADVANTAGES DISADVANTAGES
Shares cannot be issued to members of the
Profits are retained by the owners
public
There is greater access to capital than smaller
Decision making is quiet slow
organisations
Financial statements are audited by the
There is continuity if one shareholder dies
registrar of companies
Shares are not easily transferred without the
Shareholders are paid dividends on profits
consent of the directors

Advantages and Disadvantages of Public Limited Companies

ADVANTAGES DISADVANTAGES
Financial statements must be audited
All shareholders have limited liability
and published
The organisational structure may be complex
There is greater access to capital
and difficult to understand
The business may get too large resulting in
Shares are easily transferrable
diseconomies of scale
The business risk is spread among many
Decision-making can be very slow
shareholders
The business lack the personal element that
Shareholders are rewarded with dividends
is common in smaller businesses

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FRANCHISES

A franchise business is one in which the franchisor (the owner of the company) grants a franchisee (the
purchaser of the franchise) a license to use the established brand and reproduce the franchisor’s product
and pay for the right to use the name, logo and marketing. Examples of franchises include: KFC, Popeye’s,
Domino’s Pizza, Burger King etc. The franchisee will be expected to share the profit made with the franchisor.

Advantages and Disadvantages of Franchises

ADVANTAGES
For the Franchisor
Broadens the franchisor’s access to
international markets
Larger capital base
Easy source of revenue for the franchisor
For the Franchisee
Avoids the risks/stresses associated with
starting a business from scratch
Benefits from the management, financial
and technical support provided by
the franchisor.
Less need to market the products and name
of the business
General National Economic Benefits
Promotes varying sectors within the economy
Reduces unemployment
DISADVANTAGES
For the Franchisor
The reputation of the franchisor
maybe ruined
Loss of control over the brand and image
of the business as the number of
franchisees increase
For the Franchisee
Must pay royalties to the franchisor, this
reduces the franchisee’s profits
There is no complete control over the
business, must adhere to regulations
stipulated by the franchisor
Cannot change/enhance the product
General Drawbacks of Franchises
May result in loss of culture
Local companies may not be able to compete
with franchise and may be forced to close.

ACTIVITY
► F
 ind out which entity is responsible for registering a company in Jamaica.
► R
 esearch the legal documents required to form a company.

For reference please use YouTube video entitled different types of business entities.

Next Lesson will be on Economic Systems and Functional Areas of a Business.

Treisa Cornwall is on the staff of St Andrew Technical High School.

 E-mail: treisa_cornwall@yahoo.com/treisacornwall@gmail.com