1.

2 Types of
Business
Entities
IB Guide Connections

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 4
Minutes Activity
Look at the following businesses and divide them into groups. You can use whatever
characteristics you like to divide them, but there has to be an explanation for your categories.

Spanish postal
service

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Types of Business Organizations
Public sector Private sector

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Public vs Private
Sector
The differences between each sector
Types of Business Organizations
Public sector Private sector

► Run and controlled by the ► Run and controlled by

government individuals

► Funded by the government ► Funded by individuals

► Provide essential services ► Provide products and

services that fulfil wants
► Usually have a social and needs
purpose (benefits citizens
in some way) ► Are focused on profit, but
can also have a social
purpose
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 4
Minutes Activity
Divide the following businesses into public, private or both. If you say both,
explain your choice.

Healthcare Primary school Postal service Dress shop

Coffee shop Waste Hair salon Bank

management

Public Transport Sports center Football club Fire services

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 Answers
Public sector Both Private sector

Healthcare Primary school Coffee shop

Waste Postal service Dress shop

management

Public Transport Bank Hair salon

Fire services Sports center Football club

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Types of business
entities
The differences between each sector
 Types of Business Entities
For profit Not for profit
For profit
SOCIAL social
enterprise
enterprise enterprise

Sole Trader* Cooperatives NGO

Partnership* Public sector

company

Privately held
companies*

Publicly held
*Can also be for profit social
companies* 10
enterprises
 Limited vs Unlimited Liability
Limited Unlimited
Government
Government

Bank

Bank

Lawsuits

Lawsuits
Investors can only lose the money they invested, but not Investors can lose their personal property and money to help
personal property or money. pay the debts of the company. 11
Key
Word
Individuals who own and run their own business, but can have
employees.
Advantages
• The owner has complete
control over all of the
important decisions
• Flexibility in terms of
working hours and days
• Usually easy to set up and
legal obligations to the
government
• Close contact with
customers
Sole Trader
Disadvantages
• Unlimited liability
• Sources of finance are
limited
• Usually long working hours
and limited vacation
• Lack of continuity if
something happens to the
owner
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Key Partnership
Word
A group of two or more people who run a business together. It could be friends, associates or
people with similar skills. Usually a deed of partnership is written before the business starts.

Advantages Disadvantages

• Unlimited liability
• Partners bring in different
• Must share profits (however,
skills and specialties that can
it is not always done
help the business
equally)
• Partners can cover each
• Responsible for their
other in case of illness or
partners’ actions
holidays
• May disagree over business
• More access to finance
decisions

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Explain it to me like I’m…
7
Split into pairs and one person is going to explain the concept of
limited and unlimited liability to their partner like the were the age
listed above. Remember to change your language and depth based
on the age. Once finished, the other partner will explain the
similarities and differences between the public and private sectors.

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 Company/Corporation

Privately held Publicly held

General Characteristics

• Businesses and owners are legally separate (limited liability)

• There are shareholders
• The company employs people/executives to manage the business and
employees to handle the day-to-day activities of the business

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Key Privately held company
Word
A company in which a number of shareholders exchange money in return for
ownership in the business. The number of shareholders is limited.
Advantages Disadvantages

• Shares cannot be sold on the

• Limited liability stock exchange
• Easier to raise finance as • A limited number of shares
shares can be sold to friends, can be sold
family and acquaintances • Can be expensive to set up
• Management is shared and • More information needs to
experts can be hired be shared with the
(specialization) government and published
for others to see
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Key Publicly held company
Word
A company in which a number of shareholders exchange money in return for
ownership in the business. The number of shareholders is unlimited.
Advantages Disadvantages

• Profits are shared with

shareholders via dividends
• Limited liability
• Records need to be
• Easier to raise finance as
published annually for
shares can be sold on the
everyone to see
stock exchange
• Company is vulnerable to a
• Management is shared and
takeover
experts can be hired
• Large businesses can have
(specialization)
communication issues
(diseconomies of scale)
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 Caution
Publicly held companies and public sector companies are not
the same thing.

What are the differences between these two key words? Can
you give examples of each?

Past paper question: Define public sector (2)

Answer: A sector where organizations are funded and controlled by

the government. They offer good and services to citizens that might
not otherwise be available/produced.
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Change:
The modification of
Key Concepts
a business, its
products, service or
goals over time due
to internal or
external factors Over time, businesses may want or need to
change legal structures. A sole trader might
change to a privately held company or a
privately company might “go public” and
convert into publicly held company.

Research TWO businesses that have gone

public this year or will do so by the end of the
year.
 5
Minutes Activity
1. Using the worksheet given, read each characteristic, advantage
or disadvantage and decide which type of business it is. It is
possible that it is more than one type of business.
2. Now, work with a partner to see if you have the same answers
and correct any mistakes you have.
3. We will review it as a class to check the answers

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For-Profit Social
Enterprise
Businesses that don’t soley focus on profit
Key
Word
Social Enterprises
Social enterprises focus on more than just business profit. Through their business,
they try to improve society, the environment, employ people. Some of the profit
generated is also used to invest in social goals like charitable donations and social
programs.

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 Real-life
Business Love Your Melon was founded in an entrepreneurship class
at the University of St. Thomas by people who wanted to

Spotlight
start a business with a meaningful and positive social
impact. On a mission to improve the lives of children battling
cancer since October 22nd, 2012, Love Your Melon began
with the simple idea of putting a hat on every child battling
cancer in America.
After achieving the original goal of giving 45,000 hats
—— Love Your Melon set a new goal of giving one
million dollars to pediatric cancer research and
providing immediate support to children and their
families. To date, we have given over 9.4 million dollars
to the fight against pediatric cancer and over 230,000
hats to children battling cancer.
Fifty percent (50%) of net profit from the sale of
all Love Your Melon products is given to nonprofit
organizations around the world that lead the fight
Taken from loveyourmelon.com/pages/thestory against pediatric cancer.
Exam Spotlight
In high level, Paper 3 is based on a social enterprise.
You will answer ALL questions. Usually this is broken
into a 2, 6 and 17 mark question.

Students are given multiple sources of information like

news articles, online reviews, internal company
communications, interviews with employees/managers
to get a well-rounded view of the organization. All
points of view need to be taken into account and
business theory needs to be used to answer the
questions.

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 Key
Word Cooperatives
Cooperatives are owned and run by their members. These members can be
employees, customers, residents depending on the type of cooperative or co-op it is.

Watch the following video and write down

pros, cons and important ideas about
cooperatives that you learned. Next, we
will share them as a class and then add
them to your notes on the following slides.

Cooperative Video

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 Key
Word Cooperatives

Advantages Disadvantages Other information

• Decision making is
• Cooperatives are more • Types of co-ops include
time consuming and
democratic than other workers, financial,
difficult
organizations producer, housing,
• It may be difficult to
• Social aims take consumer, etc.
raise capital to fund
precedence over profit • Co-cops are common
growth
• Benefits the members and many people
• There can be
and the local around the world are a
disagreements amongst
community part of them
members
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Key
Word Public Sector Company
Sometimes this is done in partnership between the government/state and a private business.
This is called a public-private partnership.

► This business is operated for the good of society such as mail service,
public transport, education and more
► Usually in a public-private partnership, the government relies on the
expertise and efficiency of private businesses to run and execute projects
► An example could be a highway- the private business provides the funding
to build the road for the government, but the business is allowed to collect
tolls on the road
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Non-profit social
enterprise
Organizations that do not seek profit
Discussion
► What are social causes that you care about?
► Have you ever volunteered or donated money to an organization?
► If you were given 1 million dollars, which charity or non-
government organization (NGO) would you donate it to?

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Key Non-governmental
Word
organization (NGO)
Organization that is not owned or operated by the government and has a
social cause. Charities are a type of NGO.

General Features:

• Profits are not generated, but surpluses are used to advance the cause of the organization
• NGOs can be political or non-political. They can be created for single-events or long-term
projects
• Donations are very important and sometimes infrequent
• Ownership is unclear and can cause unclear direction in the business
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Chapter Review
Using the video below, review the concepts we have studied
about types of businesses before doing the review case
study. Ask any questions that you might have about what we
have studied.

Types of Business review

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Case study
practice

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 Plant Kingdom
Marco has loved plants since he was a child. He loved studying biology and after high school he
decided to start a small plant business in his back yard. In his spare time, he cared for the plants and
went to farmers markets. Marco continued to work at his full-time job. He started to have a lot of
success at the markets, so he decided to set up as a sole trader and call his business Plant Kingdom.
His business was growing quickly and to fund his expansion, he needed more money. He talked to
several banks, but they did not want to loan him the money.

After a year of great success, Marco decided to quit his job and run Plant Kingdom full time. He
needed more ideas for marketing his business, new plants to include in the inventory, and places he
could expand, which was not possible when working 40 hours a week.. To meet these objectives,
Marco is considering becoming a privately held company or possibly joining a cooperative of plant
growers in his area.

a. State two features of a sole trader (2)

b. Describe one feature of a cooperative. (2)
c. With reference to Plant Kingdom, explain one advantage and one disadvantage of
operating as a privately held company. (4) 33
 Markscheme
a. Has one owner, owner has full control, unlimited liability, keeps all of the profits, has full responsibility of
the business

b. Profits are shared amongst members, decision making is shared, members own part of the business, they
operate in the private sector

c. Mark as 2 + 2

One advantage would be that private limited companies have an easier time raising finance. Marco has already
been denied by banks, so this will allow him to ask friends and family to buy shares in his business. This will
help Marco expand his business and gain more profits.

One disadvantage is that privately held companies can be difficult and expensive to set up. Marco has quit his
full time job, so he does not have the extra time or money to set it up. He could use his time to search for new
locations or studying marketing tactics which are top on his priority list.

Accept any other answers like:

Adv: specialization, limited liability
Dis: share more information with the government, limited number of shareholders 34
IB Guide Connections

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