Unit 1.2 - Types Of Organization

Front 1

Section 1 - Business Organization and Environment
Unit 1.2 - Types of Organizations

Back 1

Section 1 - Business Organization and Environment
Unit 1.2 - Types of Organizations

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What is the public sector?

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Business organizations owned by the government.

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What is the private sector?

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Business organizations owned by private individuals and businesses.

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What are public corporations?

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Organizations that are wholly owned by the government

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Why do some organizations belong in the public sector?

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1. To ensure that everyone has access to basic services such as education, health care, public parks, and public libraries.
2. To protect citizens and businesses through institutions such as the police or the courts that govern the law and order system
3. To create employment
4. To stabilize the economy

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What does it mean when a public corporation gets privatized?

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It has been sold off or transferred to the private sector

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What are the factors to consider when setting up a business?

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1. Finance
2. Human resources
3. Entrepreneurial skills
4. Fixed assets
5. Suppliers
6. Customers
7. Marketing
8. Legalities

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What is a business plan?

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A document that sets out what a business proposes to do, how it intends to achieve this, the cost implications and the expected financial returns.

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What are the reasons for setting up a business?

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1. Growth
2. Earnings
3. Transference and inheritance
4. Challenge
5. Autonomy
6. Security
7. Hobbies

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What are some possible problems faced by start-ups?

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1. Lack of finance capital
2. Cashflow problems
3. Marketing problems
4. Unestablished customer base
5. People management problems
6. Legalities
7. Production problems
8. High production costs
9. Poor location
10. External influences

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What is an unincorporated business?

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This means that the owner is legally the same as the business - he/she is treated as a single legal entity.

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What is unlimited liability?

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This means that there is no limit to the amount of debt that a sole trader is legally responsible to pay if the business fails.

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What is a sole trader?

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A sole trader is an individual who owns his/her personal business. Sole traders are unincorporated businesses.

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What are the advantages of the sole trader?

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1. Few legal formalities
2. Receives all profits
3. Being your own boss
4. Provision of personalized service
5. Enjoy privacy

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What are the disadvantages of a sole trader?

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1. Unlimited liability
2. Limited sources of finance
3. High risks
4. Workload and stress
5. Lack of continuity
6. Higher costs of production

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What is a partnership?

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A partnership is as profit seeking business that is owned by two or more persons. It is an unincorporated business.

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What are silent partners?

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Also known as sleeping partners, they are investors who have a financial stake in the firm but do not actively take part in the running of the business.

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What is a Deed of Partnership and what does it include?

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1. The amount of finance contributed by each partner
2. The roles of each partner
3. How profits/losses will be shared
4. Conditions for introducing new partners
5. Clauses for the withdrawal of a partner
6. Procedures for ending the partnership

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What are the advantages of partnerships?

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1. More financial strength
2. Benefit from division of labor and specialization
3. Enjoy privacy

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What are the disadvantages of partnerships?

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1. Unlimited liability
2. Longer decision making time
3. Lack of continuity
4. Need for huge amount of mutual trust
5. Difficulty of raising capital

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What are shareholders?

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Individuals or other businesses hat have invested money to provide capital for a company.

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What are incorporated businesses?

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Businesses in which there is a legal difference between the owners of the company and the business itself.

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What is limited liability?

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When shareholders do not have to bear the responsibility of a company's debts and do not stand to lose personal belongings if the company goes into debt.

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What is the Stock Exchange?

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The market place for trading stocks and shares of public limited companies.

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What are Companies/Corporations?

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Businesses that are owned by their shareholders. They are incorporated businesses.

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What is a Private Limited Company?

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A company that cannot raise share capital from the general public.

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What is a Public Limited Company?

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A company that is able to advertise and sell its shares to the general public via the stock exchange.

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What two documents must be produced by both private and public limited companies before they can commence trading?

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1. Memorandum of Association - brief, outlines fundamental details
2. Articles of Association - longer, stipulates internal regulations and procedures

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What is a Certificate of Incorporation?

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A licence that recognizes the business as a separate legal entity from its owners and allows the business to start trading as a limited company

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What is Flotation or Initial Public Offering (IPO)?

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Flotation occurs when a business first sells all or part of its business to external investors.

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What is Divorce of Ownership and Control?

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When there is a legal difference between the business and its owners.

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What are the main reasons for investors buying shares in a limited company?

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1. Dividends
2. Capital growth
3. Voting power

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What are the three main processes at a typical Annual General Meeting (AGM)?

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1. Shareholders vote on resolutions and the election of the Board of Directors
2. Shareholders ask questions to the CEO,

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What are the advantages of companies?

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1. Money raised through selling shares becomes permanent capital, meaning it does not have to be repaid, unlike loans
2. Limited liability making it easier to attract investors
3. Benefits of continuity
4. Benefits of Economies of Scale due to large size

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What are the disadvantages of companies?

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1. No privacy
2. More bureaucracy involved
3. Communication problems due to large size

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What is a non-profit organization?

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An NPO is an establishment run in a business-like manner but without profit being the major objective. NPOs aim to provide a service or to promote special causes

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What is a non-governmental organization?

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An NGO is a type of NPO that operates in the private sector that runs for the benefit of others in society.

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What is a charity?

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A charity is a type of NPO with the key function of collecting donations from individuals and organizations to support a cause that is beneficial to society.

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What are the advantages of charities?

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1. Provide financial support for the welfare of society
2. Exempt from paying income tax
3. Donors may get tax allowances on funds they donated to charity, which is an incentive for donors to donate.
4. Charities can register as limited companies to protect the interest of employees who have limited liability.

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What are the disadvantages of charities?

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1. Lack of profit motive can cause staff demotivation
2. Trustees are not allowed to receive any financial benefits
3. Charities must be registered before they can operate
4. Financial activities must be recorded
5. The limited liability factor can cause inefficiencies
6. Can only survive with donations

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What are pressure groups?

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Pressure groups are NPOs established by their members to address a special interest of the group.