1.2 Types of Business Entities - 2

DP Hl/ SL Business
Topic Introduction to business Essential Idea : Types of business entities ATL: Thinking and analytical skills
management
Topic 1: Introduction to Business Management
Chapter 1 - Unit 1.2 Types of business entities
Learner profile In this lesson you will strive to be thinkers and inquirers
TOK link / Knowledge questions Reflect on the opportunities for starting up a business.
DP Hl/ SL Business
management
Specification Links Key Vocabulary:

Assessment • Sole trader
Content
objective • Partnerships
Distinction between private and the public sectors AO2 • Privately held
The main features of the following types of companies
organizations: • Publicly held
• Sole traders
AO3 companies
• Partnerships
• Privately held companies • Social enterprises
• Publicly held companies • Profit
The main features of the following types of for-profit • Sales revenue
social enterprises:
• Private sector for-profit social enterprises AO3
• Costs
• Public sector for-profit social enterprises
• Cooperatives
DP Hl/ SL Business
management
Learning Objectives:
Distinction between the private and public sectors
Discuss the main features of the various types of organizations
Discuss the main features of the various types of for-profit social enterprises
Starter:
What is the difference between private and public sectors? Explain.
Extension: Distinguish between customers and

consumers of a business.
Lesson Learning Journey:

• Class discussion on the difference between private and public sectors
• Brainstorming session on the challenges and opportunities faced by entrepreneurs when starting a business
• Feedback as a class on the importance of entrepreneurs in the business world
DP Hl/ SL Business
management
Starter
Consumer Vs. Customer
DP Hl/ SL Business
management
Answer
A customer always purchases a

product or service but might not
be the end user.
A consumer is always the end

user of a product or service, but
might not have purchased it.
DP Hl/ SL Economics
management
3 Minute Ti
mer
What is the difference between private and public sector?
DP Hl/ SL Economics
management
Movie time
https://www.youtube.com/watch?v=NJY6P7t-yD0&t=9s
Watch the video below to compare and contrast the aims of the public and
private sectors. As you watch, think about these questions:
•How are free education and health care provided by the public sector likely to
be different from these services provided by the private sector?
•To what extent is the provision of goods and services for human needs only or
mainly the responsibility of the public sector?
DP Hl/ SL Economics
management
Important terminology
Sales revenue: the money earned from selling a company’s products.
It is calculated using the following formula:
Price x Quantity sold
Costs: production expenditures such as wages and rent
Profit/losses: the money leftover after all expenses have been paid
It is calculated using the following formula:
Total revenue – Total costs
DP Hl/ SL Economics
management
Private vs. public sectors

Businesses can be categorized into
private or public sector organizations
depending on the following
characteristics:
• who owns them.

• their main business objective.
Most businesses are in the private

sector.
DP Hl/ SL Business
management
Features of the private sector

Roles of the private sector
The private sector and its markets play an

important role in the success of any
economy by:
Creating employment
Helping the development and growth of
the economy
Providing a wide variety of goods and
services
DP Hl/ SL Business
management
What businesses in the UAE are owned by the

government?
Complete a mind map and establish at least 10

businesses.
DP Hl/ SL Business
management
Public sector
companies also
known as state-
owned enterprises
DP Hl/ SL Business
management
Reasons for Public Sector businesses

- To ensure that everyone has access to basic services such as education, health care,
museums, public parks and public libraries.
- To avoid wasteful competition as the government is able to achieve huge economies of
scale (cost savings from operating on a large magnitude) in the provision of certain
services, such a postal services and national defense.
- To protect citizens and businesses through institutions such as police and the courts that
govern the country’s law and order system.
- To create employment opportunities, for example governments tend to be a large
employer of teachers, doctors and nurses.
- To stabilize the economy, for example many private sector commercial banks were
nationalized (bought by the government from the private sector) during the global credit
crisis of 2008 to prevent further financial turmoil.
DP Hl/ SL Business
management
More on the public sector
Public sector organizations are created, owned and

controlled by the government. The public sector
provides essential goods and services including health
care, education and emergency services such as the
police and fire services. These services are
underprovided by the private sector since they are not
profitable to provide or are unaffordable (inaccessible)
to some members in society (merit goods). The
government uses tax revenue to provide these
services to the public. Other organisations run by
governments may include museums, hospitals and
mail delivery services, as well as embassies,
consulates, immigration services and customs offices .
DP Hl/ SL Business
management
“Best Books” - Case Study

In the past ten years, the United Arab Emirates (UAE) has built state-of-the-art infrastructure,
health care and education systems. The UAE provides a highly developed health care system
through both the private and public sectors, and the level of care is high. In 2018, a Bloomberg
health efficiency survey ranked the UAE in the top 10 most efficient health care systems in the
world. Technology-advanced medical facilities are of excellent quality. While UAE citizens
receive free health care in the public system, expatriates (people from abroad working in the
UAE) usually receive care in the private sector, where English is commonly spoken and many
of the medical professionals have been trained in other countries.
Distinguish between the private sector and the public sector. [4 marks]
Explain why health care provided by the private sector might be more expensive than
that provided by the public sector in the UAE. [2 marks]
DP Hl/ SL Business
management
Mark Scheme
Question 1
Private sector organisations charge a price for their products. Their products can only be accessed by those who are
willing and able to pay the price. This enables private sector businesses to earn a profit. The case study points out that
expatriates in the UAE usually access private health care services.
Public sector organisations are run and operated by the government. Their services are often free of charge or delivered
at very low fees. In contrast to the private sector, the public sector usually provides a service to the general public.
Public sector businesses aim to provide basic goods and services to society and are usually funded through tax
revenues. The case study points out that citizens are offered free health care in the public sector in the UAE.
Distinguish between is an AO2 level command term requiring that you make clear the differences between two or more
concepts or items.
•Both the private and public sectors need to be described and a contrast clearly highlighted. You should write visibly
separate, short paragraphs, each describing a sector (theory) and uing information from the case study (example) to
support the response.
•Other responses are possible and would be rewarded if appropriate.
•To achieve full marks, you must always include theory and application to the case study in your responses.
DP Hl/ SL Business
management
Mark Scheme
Question 2
Health care provided by the private sector is provided for a price and is offered by private
businesses who aim to make a profit. The private sector may provide greater choice and
quality, and the price of medical care may be higher because the costs of offering care are also
likely to be higher. The case study points out that expatriates, who may have higher salaries or
care financed by employers in other countries, access private health care in the UAE.
Explain is an AO2 level command term requiring a detailed account including reasons or
causes. Explain why, explain how.
• Only one point needs to be made.
• Other responses are possible and would be rewarded if appropriate.
• To achieve full marks, you must always include theory and application to the case study in
your responses.
DP Hl/ SL Business
management
For profit commercial enterprises
These businesses earn profits and distribute them to

the owners of the business, which may be one
person or thousands of people, depending on the
ownership structure. In this subtopic, you will learn
about the four main types of ownership structure in
the context of for-profit commercial activity:
•sole traders
•partnerships
•for-profit privately held companies
•for-profit publicly held companies
DP Hl/ SL Business
management
Sole Trader (or sole proprietor)

• These businesses are owned by individuals who own and
run a personal business.
• Sole trader is the owner who runs and controls the
business and is the only person held responsible for its
success or failure.
• This is the most common type of business ownership as it
is relatively easy to set up.
• Start-up capital is usually obtained from personal savings
and borrowing.
• Sole traders have unlimited liability.
• A sole trader business is unincorporated, meaning that the
owner is the same legal entity as the business itself.
DP Hl/ SL Business
management
Limited liability Vs. Unlimited liability
Why Should I Incorporate - The Company Corporation

– YouTube
When deciding on which type of organization to set up, an entrepreneur

needs to consider whether or not to incorporate the business to benefit
from limited liability.
DP Hl/ SL Business
management
Sole Trader
What are the advantages and disadvantages of being

a sole trader?
DP Hl/ SL Business
management
Side note: An important legal point about sole traders is

that the business is unincorporated. This means the owner
is the same legal entity as the business itself.
DP Hl/ SL Business
management
Partnership
What is a partnership?
Mind map some businesses

in your books and be
prepared to feedback to the
class.
DP Hl/ SL Business
management
Partnership
• Partnerships are owned by two or more persons

(known as partners).
• At least one partner must have unlimited liability.
• Start-up finance is raised mostly by personal funds
which are pooled together by the partners.
• A legal document known as a deed of partnership
is drawn up to formalize agreements such as how
profits and losses are to be shared between
partners.
DP Hl/ SL Business
management
More on partnership
• Ordinary partnerships have a maximum number of

owners as 20 (it can vary from country to country)
• Partnerships can raise money from owners who
do not actively take part in the running of the
partnership but have a financial stake in it. These
investors are called silent partners (or sleeping
partners) and are eligible for a portion of any
profits earned by the partnership. At least one
owner must have unlimited liability, as partnerships
are unincorporated businesses, but typically all
partners share this liability.
DP Hl/ SL Business
management
Deed of partnership
• Deed of partnership is a legal contract drawn up,
known as a deed of partnership (or partnership
deed), then it is likely to include:
• The amount of finance contributed by each partner
• The roles, obligations and responsibilities of each
partner
• How profits or losses are to be shared between
the partners
• Conditions for introducing new partners
• Clauses for the withdrawal of a partner
• Procedures for ending the partnership
DP Hl/ SL Business
management
Partnership Businesses
What are the advantages and disadvantages of being

in a partnership business?
DP Hl/ SL Business
management
Advantages and disadvantages of partnerships
DP Hl/ SL Business
management
What are limited liability companies
DP Hl/ SL Business
management
Limited Liability Companies
These are businesses owned by their shareholders.

Shareholders have invested money to provide capital
for a company.
Companies are incorporated businesses. This means
that in the eyes of the law, the companies are treated
as a legal entities separate from their owners.
This means they have limited liability.
There are two types of companies – privately held and
publicly held companies also known as private limited
company(Ltd) and public limited company (PLC).
DP Hl/ SL Business
management
Private Limited company (LTD)
• A privately held company’s shares are owned

by friends and/or family.
• These shares cannot be traded publicly on
the stock exchange.
• Shareholders can only sell their shares if they
have prior permission from other
shareholders.
• Typically, privately held companies are also
family businesses.
DP Hl/ SL Business
management
Private Limited company – Joint stock companies
Companies are businesses owned by their

shareholders. Shareholders are individuals or
other businesses that have invested money
to provide share capital for a company or
corporation. Corporations are sometimes
called joint-stock companies because the
shares of the business (or ‘stock’ as they
sometimes known) are jointly held by
numerous entities. Joint stock companies
can be publicly held or privately held.
DP Hl/ SL Business
management
Joint stock companies
- A joint stock company is a company which

is collectively owned by its investors.
- Each investor owns a share in the company
based on the percentage of ownership.
- Generally joint stock companies are formed
to finance projects that are too expensive to
be financed by an individual person or
company or even the government on their
own. This is why many investors/businesses
pool their funds and start a joint stock
company.
DP Hl/ SL Business
management
Companies
Companies are incorporated businesses –
there is a legal difference between the
owners of the company (the shareholders)
and the business itself. The company being a
separate legal entity, has its own legal rights
and duties.
For example, the company rather than the
owners, will take those who infringe copyright
and patent laws to court. It also means that
companies have limited liability –
shareholders do not stand to lose personal
belongings if the company goes into
bankruptcy or liquidation.
DP Hl/ SL Business
management
Companies
Companies are incorporated businesses – there is a legal difference
between the owners of the company (the shareholders) and the business
itself. The company being a separate legal entity, has its own legal rights
and duties.
For example, the company rather than the owners, will take those who
infringe copyright and patent laws to court. It also means that companies
have limited liability – shareholders do not stand to lose personal
belongings if the company goes into bankruptcy or liquidation.
All companies must hold an annual general meeting (AGM) to allow the
owners to have a say (or a vote) in the running of the business)
DP Hl/ SL Business
management
Thinking and
reflection time
What do you think
happens at AGM?
DP Hl/ SL Business
management
Answer
Shareholders vote on resolutions (promises or declarations) and the re-

election(or sometimes election) of the board of directors.
Shareholders ask questions to the CEO, directors and the chairperson
about various aspects of the company.
Shareholders approve the previous year’s financial accounts after the
directors and chairperson about various aspects of the company
Shareholders approve the previous year’s financial accounts after the
directors present the annual report containing information about its
financial performance.
DP Hl/ SL Business
management
Advantages and disadvantages of limited liability companies
DP Hl/ SL Business
management
What are two important documents limited liability companies

need to start trading?
DP Hl/ SL Business
management
Two important documents for Limited Liability Companies

Before Limited Liability companies can start trading, two documents must be produced and
submitted to the appropriate authorities:
1. The memorandum of association: a relatively brief document outlining the fundamental
details of the company, such as its trading name, its main purpose, the registered
business address and the amount of share capital invested.
2. The articles of association (articles of incorporation): The longer of the two documents,
stipulating the internal regulations and procedures of the company, such as the rights,
roles and power of the board of directors and shareholders. Administrative issues are
also covered, such as procedures for the appointment of directors and how profits will
be distributed.
Once these 2 documents have been approved a certificate of incorporation is issued to the
company. The license recognizes the business as a separate legal entity from its owners
and allows the business to start trading as a limited liability company.
DP Hl/ SL Business
management
Public limited company (PLC)
• A publicly held company can sell

shares on the stock exchange.
• Shares are held by the general public.
• No prior permission by other
shareholders is required for a
shareholder to sell their shares.
• Stock exchange is a marketplace for
trading stocks and shares of publicly
held companies.
DP Hl/ SL Business
management
Important definitions
• Flotation is the term used to describe when a publicly held company

first sells all or part of its business to external investors.
• This process is called an initial public offering (IPO). An IPO makes the
publicly held company listed (or registered) on a public stock
exchange.
• Flotation helps to generate additional sources of finance for the
company.
• Example in 2019, Saudi Aramco broke the IPO record by raising $25.6
billion on the Tadawul Saudi stock exchange.
DP Hl/ SL Business
management
For profit social enterprises
• These are revenue generating

enterprises with social objectives at
the core of their operations.
• Their aims are to:
• Make a surplus (i.e. earn
revenue greater than costs
incurred).
• Use the surplus for the benefit
of society.
DP Hl/ SL Business
management
The main benefits of social enterprises

• They use financial surplus to benefit others in
society beyond personal rewards for shareholders
and owners.
• They create employment opportunities, thereby
improving the economic and social landscape of
local communities.
• They are run in a transparent way, providing tangible
benefits in addition to having a clean corporate
conscience in the strive to achieve its social mission.
• There are 3 main types of for-profit social
enterprises: private sector companies, public sector
companies, cooperatives.
DP Hl/ SL Business
management
Private sector for-profit social enterprises

• These enterprises operate in a similar way to traditional for-profit businesses. However, they
reinvest or donate any surplus to create positive social change. Furthermore, they use ethical
business practices to achieve their social aims.
• They aim to make a surplus instead of relying on donations (like charities do) to achieve social
aims.
• These firms produce goods and/or services and compete with similar businesses.
• They often use the triple bottom line as an accounting framework for ethical business practices.
DP Hl/ SL Business
management
What is the triple bottom line accounting framework

The triple bottom line framework consists of:
• Economic aims – to earn profit (or surplus) and to
reinvest this surplus back in the business for
societal benefits.
• Social aims – to provide benefits to people in

society, such as job opportunities in the local
community and to support less-advantaged
members of society.
• Environmental aims – to protect the planet, by

operating in environmentally friendly and
sustainably responsible ways.
DP Hl/ SL Business
management
Public sector for-profit social enterprises

• These enterprises are state-owned to operate
in a commercial way.
• They are owned by the government whether
wholly or partially.
• They help to raise government revenues to
provide essential services to society that may
be inefficient and undesirable if left solely to
the private sector.
• Examples:
Australia Post
Egyptian National Railways
DP Hl/ SL Business
management
Cooperatives
• Owners of cooperatives are called members.
• Members own and run cooperatives (i.e. they
are also employees of the organization).
• Their aim is to create value for members by
operating in a socially responsible way.
• All employees have a vote to contribute to
decision-making.
• Any profits earned are shared between their
members.
• There are 3 main types of cooperatives:
consumer, worker and producer cooperatives
DP Hl/ SL Business
management
Consumer cooperatives
• Consumer cooperatives are owned by
the customers who buy the goods and/or
services from cooperatives for personal
use.
• Examples include food, childcare,
housing and healthcare cooperatives. In
most cases members get access to
goods and services at lower prices than
those charged by traditional commercial
businesses.
DP Hl/ SL Business
management
Worker cooperatives
• Worker cooperatives are set up, owned
and organized by their employee
members.
• Examples include cooperatives
involved in production and
manufacturing, printers, cafes, tourism
and communications. By operating as
an enterprise members are also
provided with work opportunities.
DP Hl/ SL Business
management
Producer cooperatives
• Producer cooperatives are cooperatives
that join and support each other to process
and/or market their products.
• For example, a farmer cooperative might
unite to buy equipment, fertilizers and
seeds collectively, by pooling their funds.
This enables all members to benefit from
bulk purchase discounts. Farmer
cooperatives are the most common
example of producer cooperatives.
DP Hl/ SL Business
management
Advantages and disadvantages of cooperatives
DP Hl/ SL Business
management
Study the Steeple Analysis (it can be found in your books on page 617.
DP Hl/ SL Business
management
Non-profit social enterprises
• Non-profit social enterprises are businesses run in a commercial-like manner

but without profit being the main goal. Instead, non-profit organizations use their
surplus revenues to achieve their social goals rather than distributing the
surplus as dividends to its shareholders or owners.
• Examples include public libraries, state-owned schools, museums, government
hospitals and social services.
• Well known examples include Oxfam, the Red Cross and the worldwide fund for
nature.
• The main type of non-profit social enterprise is non-governmental organizations.
DP Hl/ SL Business
management
Non-governmental organizations (NGOs)
• The United Nations (UN) defines non-governmental organizations (NGOs) as

“private organizations that pursue activities to relieve the suffering, promote the
interest of the poor, protect the environment, provide basic social services or
undertake community development”.
• They are private sector not-for-profit social enterprises that operate for the
benefit of others rather than primarily aiming to earn a profit.
• Examples include Doctors Without Borders and Friends of the Earth.
• Read more about NGOs from your book on Page 35.
DP Hl/ SL Business
management
Types of business entities and the key concepts
There are various factors that affect the strategic choice of business entity,
including:
• Amount of finance
• Size
• Limited liability
• Degree of ownership and control
• The nature of business activity
• Change
DP Hl/ SL Business
management
Distinction
Distinction between
between the private
the private andsectors
and public public( 1-2)
sectors
Discuss
Discussthe main
the features
main of theof
features various types of organizations(level
the various 6-7)
types of organizations
Discuss the main features of the various types of for-profit social enterprises(level 6-7)
Discuss the main features of the various types of for-profit social enterprises
Plenary: Home Learning:

Write down 3 things you learnt today
Write down 1 thing you need to work on
Extension: What are the different types of

organizations? 2 Minute Timer

1.2 Types of Business Entities - 2

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DP Hl/ SL Business

Topic 1: Introduction to Business Management

Chapter 1 - Unit 1.2 Types of business entities

Specification Links Key Vocabulary:

Extension: Distinguish between customers and

Lesson Learning Journey:

A customer always purchases a

A consumer is always the end

What is the difference between private and public sector?

Price x Quantity sold

Costs: production expenditures such as wages and rent

Private vs. public sectors

• who owns them.

Most businesses are in the private

Features of the private sector

The private sector and its markets play an

What businesses in the UAE are owned by the

Complete a mind map and establish at least 10

Reasons for Public Sector businesses

More on the public sector

Public sector organizations are created, owned and

“Best Books” - Case Study

For profit commercial enterprises

These businesses earn profits and distribute them to

Sole Trader (or sole proprietor)

Limited liability Vs. Unlimited liability

Why Should I Incorporate - The Company Corporation

When deciding on which type of organization to set up, an entrepreneur

What are the advantages and disadvantages of being

Side note: An important legal point about sole traders is

Mind map some businesses

• Partnerships are owned by two or more persons

• Ordinary partnerships have a maximum number of

What are the advantages and disadvantages of being

Advantages and disadvantages of partnerships

What are limited liability companies

Limited Liability Companies

These are businesses owned by their shareholders.

Private Limited company (LTD)

• A privately held company’s shares are owned

Private Limited company – Joint stock companies

Companies are businesses owned by their

Joint stock companies

- A joint stock company is a company which

Shareholders vote on resolutions (promises or declarations) and the re-

Advantages and disadvantages of limited liability companies

What are two important documents limited liability companies

Two important documents for Limited Liability Companies

Public limited company (PLC)

• A publicly held company can sell

• Flotation is the term used to describe when a publicly held company

For profit social enterprises

• These are revenue generating

The main benefits of social enterprises

Private sector for-profit social enterprises

What is the triple bottom line accounting framework

• Social aims – to provide benefits to people in

• Environmental aims – to protect the planet, by

Public sector for-profit social enterprises

Advantages and disadvantages of cooperatives

Non-profit social enterprises

• Non-profit social enterprises are businesses run in a commercial-like manner

Non-governmental organizations (NGOs)

Write down 1 thing you need to work on