BUSINESS ORGANIZATION

AND ENVIRONMENT
1.2 TYPES OF ORGANIZATIONS
 • Organizations are owned and controlled by private
individuals and businesses.
PRIVATE • Ranging from those owned by one person to large
SECTOR multinational companies.
• The main aim is to make profit, positive difference
between sales revenue and its costs.
PUBLIC SECTOR

• Organizations that operate in the

public sector under the ownership and
control of the government.

• Health care, education, emergency

services.
• Organizations wholly owned by the
government are called state-owned
enterprices.
REASONS FOR PUBLIC SECTOR BUSINESS ACTIVITY

1 2 3 4 5
Access to Create Stabilise the Avoid Protect
basic services employment economy wasteful citizens and
competition businesses
PROFIT-BASED ORGANIZATIONS

Sole traders Partnerships Corporations

 • Sole trader is an individual who runs and owns a
personal business.
• The owner is held responsible for its success or
SOLE TRADERS failure.
• Often small family-run businesses with little capital.
• Start-up is obtained from personal savings and
borrowing.
 Unincorporated business –
owner is the same legal entity
as the business.

SOLE TRADERS Sole trader bears full

responsibility for all
losses/liabilities.

Restaurateurs, decorators,
photographers.
SOLE TRADERS

ADVANTAGES DISADVANTAGES
• Few legal formalities • Unlimited liability
• Profit taking • Limited sources of finance
• Being your own boss • High risks
• Personalised service • Workload and stress
• Privacy • Limited economies of scale
• Quicker decision-making • Lack of continuity
PARTNERSHIPS

• A partnership is a profit-seeking
business owned by two or more
persons.
• Maximum number of owners is 20.
• Mainly financed by personal funds of
each owner.
• Can raise money from silent partners
who do not take part in the running
of the partnership but have a financial
stake.
DEED OF PARTNERSHIP

• Legal contract signed by the owners of a

partnership.
• Includes:
- Amount of finance contributed by each
partner
- Roles and responsibilities
- Share of profits or losses
- Introduction of new partners
- Withdrawal of a partner
- Procedures for ending the partnership.
PARTNERSHIPS

ADVANTAGES DIASDVANTAGES
• Financial strength • Unlimited liability
• Specialisation and division of labour • A lack of continuity
• Financial privacy • Prolonged decision–making
• Cost-effective • Lack of harmony
 • Businesses owned by shareholders – individuals or
businesses that have invested money to provide capital
COMPANIES for a company.
(CORPORATIONS)
• Often called joint-stock companies because the shares
are jointly held by numerous entities.
COMPANIES (CORPORATIONS)

Incorporated business – legal difference between the owner and

the business itself.

The company has its own legal rights and duties.

Limited liability – maximum shareholders can lose is the value

of their investment if company goes into debts.
 • Group of people elected by shareholders to run the
company on their behalf.
BOARD OF • Responsible for the running of the company but is held
DIRECTORS accountable to the shareholders.
 Private limited company – limited liability
company that cannot raise share capital
from the general public via a Stock
Exchange.

PRIVATE LIMITED
COMPANIES Shares are sold to private family
members and friends

The shares cannot be bought or sold

without the prior agreement from the
BOD, so that the directors can maintain
overall control of the company.
STOCK EXCHANGE MARKET
DOCUMENTS NEEDED TO START TRADING

• Memorandum of Association – a brief

document outlining the fundamental
details of the company.
• Articles of Association – a document
stipulating the internal regulations and
procedures of the company; rights,
roles and power of the BOD and
shareholders.
CERTIFICATE OF
INCORPORATION

• Issued to the company as soon as

authorities are satisfied with previous
documents.
• Licence that recognises the business as a
separate legal entitiy from its owners
and allows the business to start trading
as a limited liability company.
 • Shareholders vote on resolutions and the re-election
of the Board of Directors.
• Shareholders ask questions to the Chief Executive
ANNUAL Officer (CEO), Directors and the Chairperson about
GENERAL various aspects of the company.

MEETING (AGM) • Shareholders approve the previous year's financial

accounts after the Directors present the annual report
containing information about its financial performance.
PUBLIC LIMITED COMPANIES

• Shares many similarities with a

privately held company.
• It is able to advertise and sell its
shares to the general public via a
Stock Exchange.
 • Flotation occurs when a business first sells all or part
INITIAL PUBLIC of its business to external shareholders, a process
OFFERING (IPO) known as an initial public offering (IPO).
• Helps to generate additional sources of finance.
COMPANIES (CORPORATIONS)

ADVANTAGES DISADVANTAGES
• Raising finance • Communication problems
• Limited liability • Added complexities
• Continuity • Compliance costs
• Economies of scale • Disclosure of information
• Productivity • Bureaucracy
• Tax benefits • Loss of control
 DIFFERENCES

INCORPORATED (LIMITED LIABILITY) UNINCORPORATED (UNLIMITED LIABILITY)

• PRIVATE LIMITED COMPANIES • SOLE TRADERS

• PUBLIC LIMITED COMPANIES • PARTNERSHIPS
-> owners and business are different -> owner and business is the same legal
entities; entity;
-> shareholders losses are limited to how -> owner is responsible for all debts the
much they invested into the company. business incurs.
 • Revenue-generating businesses with social objectives
at the core of their operations.
SOCIAL • Main goals: to achieve social objectives and to earn
ENTERPRISES revenue in excess of costs.
• Non-profit and for-profit social enterprises.
BENEFITS OF SOCIAL ENTERPRISES:

They create employment

They are run in a
They use any financial opportunities, improving
transparent way in the
surplus to benefit others the economic and social
strive to achieve its
in society. landscape of local
social mission.
communities.
FOR-PROFIT SOCIAL ENTERPRISES

Private
Public sector
sector Cooperatives
companies
companies
 Reinvest or donate any surplus to create
positive social change.

PRIVATE SECTOR
Use ethical business practises to achieve
COMPANIES their social aims related to the needs of
local communities and societies.

Produce goods or provide services in the

same way as for-profit commercial
organizations.
CAFEDIRECT

• Cafédirect uses half of its profits to

donate to the farming community.
• Cafédirect has invested more than
£6 million to improve the
sustainability and livelihoods of
coffee producers worldwide.
 • State-owned enterprises run in a commercial way.
• Help to raise much-needed government revenues yet
provide essential services that may be inefficient and
PUBLIC SECTOR undesirable if left solely to the private sector.
COMPANIES • National airline carriers, airport authorities, transport
operators and telecommunications companies.
 Economic aims

AIMS OF PUBLIC
AND PRIVATE Social aims
SOCIAL
ENTERPRISES:

Environmental aims
 COOPERATIVES

• For-profit social enterprises owned and

run by their members with the common
goal of creating value for their members
by operating in socially responsible way.
• All members have a vote contributing to
decision-making.
• Profits are shared between members.
COOPERATIVES

Consumer cooperatives – owned by the customers who buy

the goods or services for personal use.

Worker cooperatives – set-up, owned and organized by their

employee members.

Producer cooperatives – join and support each other to

process or market their products.
COOPERATIVES

ADVANTAGES DISADVANTAGES
• Incentives to work • Disincentive effects
• Decision-making power • Limited sources of finance
• Social benefits • Slower decision-making
• Public support • Limited promotional opportunites
NON-PROFIT SOCIAL
ENTERPRISES
• Businesses run in a commercial-like manner
but without profit being the main goal.
• Use their surplus revenues to achieve social
goals rather than distributing dividends to
shareholders.
• Public libraries, state schools, museums.
NON-PROFIT SOCIAL ENTERPRISES

Non-governmental
Charities
organizations (NGOs)
 • Private sector non-for-profit social enterprises that
operate for the benefit of others rather than primarily
NON- aiming to make a profit.
GOVERNMENTAL
ORGANIZATIONS • Any kind of organization that is independent of the
government or direct public sector influence and is
not-for-profit.
TYPES OF NGOS

Advocacy NGOs – more

Operational NGOs –
aggressive approach to
involved in relief-based
promote or defend a
and community projects,
cause through direct
UNICEF.
action, Greenpeace.
CHARITIES

• Non-profit social enterprise that

provides voluntary support for good
causes, such as the protection of children
and animals.
• Key function is to raise funds from
individuals and organizations to support
a cause that is beneficial to society.
CHARITIES

ADVANTAGES DISADVANTAGES
• Social benefits • Bureaucracy
• Tax exemptions for NPOs • Disincentive effects
• Tax incentives for donors • Charity fraud
• Limited liability • Inefficiencies
• Public recognition and trust • Limited sources of finance
 • Amount of finance
• Size
FACTORS
AFFECTING THE • Limited liability
CHOICE OF • Degree of ownership and control
BUSINESS • Type of business activity
ORGANIZATION • Change