PRINCIPLES OF BUSINESS

SUB-TOPICS: Private and Public Sectors

Forms of Businesses
Differentiate between the private and public
sector

WHAT IS THE PRIVATE SECTOR?

The private sector is that part of the economy that is owned
and controlled by private individuals and firms. Therefore it
encompasses all for-profit businesses whether small,
medium-sized or large-scale that are not owned or operated
by the government. The main aim of the private sector is to
make a profit.
WHAT IS THE PUBLIC SECTOR?

The public sector is that part of the economy that is owned

and controlled by the government. It comprises all
government owned and operated businesses. The main aim
of the public sector is to provide essential goods and
services at the lowest possible cost.
PRIVATISATIONS V.S. NATIONALISATION

Privatisation - A business that was once owned and

operated by the government is now privatively
owned.
Movement from Public Sector → To private Sector
Nationalisation - A business that was once privately
owned is transferred into government or public ownership

Movement from Private Sector → To Public Sector

DESCRIBE THE VARIOUS FORMS OF BUSINESS
ORGANISATIONS

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Sole Trader/ Sole Proprietor
Definition of a Sole Trader

A Sole trader is a person who has total ownership and

responsibility for managing his or her own business. He/
she bears the entire risk of the business all debts incurred
by the business are the responsibility of the owner alone
and thus he/she is entitle to all the profits. He/she generally
provides the capital from personal savings, private loans or
loans from financial institutions.
Characteristics of a Sole Trader

 He or she manages the business but may have the

services of family and friends.
 He or she enjoys all profit and bears all the risks.
 Capital is limited since savings of the owner funds the
business.
 He or she has personal contact with client.
 He/she performs a large variety of tasks related to the
operations of the business.
 ADVANTAGES

1. The business is simple to start and usually requires only

a small amount of capital.
2. Profits are not shared.
3. The business tends to remain small and more
manageable and the owner retains personal contact with
his client.
4. Decisions can be made more promptly and the new
ideas put in place quickly.
ADVANTAGES - Cont'd

5. Many persons find personal satisfaction in working for

themselves.
6.The organization structure is simple, usually the owner
and one or two employees, who may be a relative or friend.
7. There is no need to disclose business affairs, except to
the tax authorities and to creditors when seeking loans.
Minimum accounting is necessary only to satisfy the income
tax office.
Disadvantages of Sole Trader

1. Capital is harder to access. Business expansion may

only be possible by ploughing back profits.
2. Unlimited Liability. In the case of bankruptcy he may
lose his personal belongs like his car or his house.
3. There is a lack of continuity if the owner dies.
4. The sole trader may find himself working long hard hours
because there is no one to share the burdens with.
Disadvantages - Cont'd

5. Lack of funds may prevent the sole trader from utilizing

technology to advance the business.
Review Questions

a) Give six (6) examples of sole trader busineses.

b) (i) Identify at least five industries in your country that is in
the private sector and
(ii) four that is in the public sector.
c) Identify two businesses that have been privatised
or nationalised in the last ten years.