1.

2: Types of organizations
Definitions

1. Charities are nonprofit social enterprises that provide voluntary support for good causes
from society’s point of view.
2. Cooperatives are for-profit social enterprises set up, owned and run by their members,
who might be employees and/or customers.
3. Company (Corporation) refers to a business that is owned by shareholders. It has been
issued a certificate of incorporation, giving it a separate legal identity from its owners.
4. Deed of partnership is the legal contract signed by the owners of a partnership. The
formal deeds specify the name and responsibilities of each partner and their share of any
profits or losses.
5. Incorporation means that there is a legal difference between the owners of a company
and the business itself. This ensures that the owners are protected by limited liability.
6. Initial public offering (IPO) occurs when a business sells all or part of its business to
shareholders on a stock exchange for the first time.
7. Limited liability is a restriction on the amount of money that owners can lose if their
business goes bankrupt, i.e. shareholders cannot lose more than they invested in the
company.
8. Microfinance is a type of financial service aimed at entrepreneurs of small businesses,
especially females and those on low incomes.
9. Non-governmental organization (NGO) are private sector nonprofit social enterprises
that operate for the benefit of others rather than primarily aiming to make a profit.
10. Partnerships are a type of private sector business owned by 2-20 people. They share the
responsibilities and burdens of running and owning the business.
11. Private limited company is a business owned by shareholders with limited liability whose
shares cannot be bought by or sold to the general public.
12. Private sector is the part of the economy run by private individuals and businesses, rather
than by the government.
13. Public limited company is an incorporated business that allows the general public to buy
and shares in the company via stock exchange. All shareholders enjoy limited liability.
14. Public sector is the part of the economy controlled by the government.
15. Sole trader is a self-employed person who runs and controls the business and is the sole
person held responsible for its success and failure.
16. State-owned enterprises are organizations wholly owned by the government.

17. Social enterprises are revenue-generating business with social objectives at the core of
their operations. They can be for-profit or nonprofit businesses, but all profits or
 surpluses are reinvested for that social purpose rather than being distributed to
shareholders and owners.
18. Stock exchange is a marketplace for trading stocks and shares of public limited
companies.
19. Unlimited liability is a feature of sole traders and ordinary partnerships who are legally
liable for all monies owed to their creditors, even if this means they have to sell their
personal possessions to pay for their debts.

Public Sector vs. Private Sector

Public Sector Private Sector

1. Owned & controlled by private individuals. 1. Owned & controlled by the government.

2. Main aim is to make profit. 2. Main aim is to provide products that aren’t
offered by private sector.

3. Examples include 3. Examples include

Profit Based Organizations

1. Sole Trader/Sole Proprietor

● Individual who runs and owns the business.
● Owner is responsible for success and failure of the business.
● They might work alone or employ other people to help run the business.
● Start-up costs is usually obtained from personal savings and borrowing.
● Advantages:
○ Easy to set up and start up costs are much lower than other type of firms.
○ They receive all the profits earned by the business.
○ They have flexibility in decision making, flexible in their workload and quicker
decisions are made.
○ They can provide personalized service to customers.
○ They don’t have create financial records to the public.

● Disadvantages:
○ There’s no limit to amount of debt the owner is responsible for.
○ They find it hard to obtain other sources of finance other than personal savings
and expansion is challenging due to lack of finance.
 ○ They have the largest risk of failure.
○ They have to do all the main functions of a business → Increased workload
and stress.
○ They have limited economies of scale → Reduces the competitiveness and
profits of the business.
○ Running of a business can be jeopardised if the owner is not present.

2. Partnerships
● Profit-seeking business with 2+ owners.
● Financed mainly through personal funds of each owner.
● Raise money from owners who don’t actively take part in running the partnership.
● Without a contract, profits or losses must be shared with each partner.
● With a contract, called partnership deed, it should include:
○ Amount of finance contributed by each partner.
○ Roles, obligations, responsibilities of each partner.
○ How profits and losses will be shared among the partners.
○ Conditions for introducing new partners.
○ Clauses for withdrawal of a partner.
○ Procedures of ending a partnership.
● Advantages:
○ Have more financial strength than sole traders as many people contribute to
investing in the firm.
○ Benefit from shared expertise, workload and moral support.
○ Don’t have to publish their financial records.
○ Cost-effective as each partner specializes in a part of the firm, which increases
productivity.
● Disadvantages:
○ Unlimited liability.
○ Problems might exist a partner dies or leaves the firm.
○ Decision-making takes a lot of time.
○ Disagreements and conflict are common as all the partners might not agree with
each other.

3. Companies/Corporations
● Firms owned by their shareholders, who invested money to provide capital for the firm.
 ● Two types of limited liability companies:
❖ Private limited company
➢ Cannot raise share capital from general public as they are sold to private family
members and friends.
❖ Public limited company
➢ Sell their shares to general public via stock exchange.
● Private limited company can become public after going through initial public offering.
● Advantages:
○ Raise huge amounts of capital by selling shares.
○ Limited liability.
○ It can continue to operate even if the management changes.
○ Benefit from economies of scale.
○ Increase in productivity due to specialization in different areas of the company.
○ Pay corporate tax on their profits rather than income tax.
● Disadvantages:
○ Communication problems between customers and employees.
○ More bureaucratic and expensive than sole traders and partnerships.
○ High compliance costs add to the price that is sold to customers.
○ Financial data must be shared with all shareholders, which can be time consuming
and expensive.
○ Public limited companies might lose control if a rival companies buy all their
stake in the business.

For-profit social enterprises

1. Cooperatives
● Owned and run by employees or customers.
● Work in a socially responsible way.
● All employees have a say in decision making process and they share profits earned.
● Types of cooperatives:
❖ Consumer cooperatives
➢ Owned by customers who use the product for personal use.
❖ Worker cooperatives
➢ Setup, owned and organized by employee members.
❖ Producer cooperatives
➢ Join and support each other in marketing or process their product.

● Advantages:
○ Employees are interested on how the firm works, which enhances staff motivated
and productivity.
 ○ Employees have a say in how the business runs.
○ More likely to gain members from the society as cooperatives run in a socially
responsible way.
○ They tend to have public support since it benefits the society.
● Disadvantages:
○ Inefficient managers and employees since they don’t provide high pay and
bonuses, which leads to disincentive effects.
○ Limited sources of finance as most of them can’t raise funds through stock
exchange.
○ Slower decision making and limited opportunities in progress in their career.

2. Microfinance providers
● Enables disadvantaged members, like females or people with low income, of society to
gain access to financial services to remove poverty.
● Advantages:
○ Helps people in poverty to become financially independent.
○ Create job opportunities and benefits for society.
○ Better access to education for their children and healthcare.
● Disadvantages
○ Unethical as lenders are taking money from the unprivileged.
○ Limited sources of finance.
○ Limited eligibility to run a provider.

3. Public-private partnerships
● Occurs when governments work with private sector companies to produce certain goods
and services.

Nonprofit social enterprises

1. Non-governmental organizations (NGOs)

● Operates in a private sector.
● Aim is to benefit the society, not profit maximization.
● Two types of NGOs:
❖ Operational NGOs
➢ Involved in relief-based and community projects.
➢ Examples include Oxfam and UNICEF.
❖ Advocacy NGOs
➢ Take direct action, such as protests, to raise awareness about certain issues.
➢ Examples include Greenpeace and Amnesty International
2. Charities
● Provides voluntary support for good causes from society’s point of view.
● They use celebrity endorsements, holding special charity events, promoting their cause in
mass media to persuade people to involve in their cause.
● Examples include Red Cross and other NGOs.
● Advantages:
○ Benefits the society, such as research for curing diseases.
○ Tax exemptions.
○ Donors get income tax allowances for their contribution to charity.
○ Limited liability.
○ People are more confident in donating for their cause.
● Disadvantages:
○ High levels of bureaucracy.
○ Lack of profit motive makes less people want to work for the firm.
○ Charity fraud is likely to occur.
○ People who run charities aren’t personally held for debts that incurred.
○ Only source of finance is donations.