Econ unit 3
Chapter 1: Types of business
a) Private sector organisations
- owned by individuals or companies
- Aim to make a profit
- Objective: profit maximisation
sole trader
Advantage Disadvantage
- Easy to set up (little capital and few - Same legal entity
legal requirements) - Unlimited liability
- Financial conditional remains - Narrow source of income
confidential - Lack of continuity (business dies
- Close contact with customers and when owner dies)
workers
- Owner keeps all profit + makes all
decision
partnership
-formed by two or more people
-Risk and capital shared by partners
-liable for actions of other partners
-Unlimited liability
Limited company
-a business that has gone through a legal registration process
-owners and limited companies are separate legal entities
-limited liability
-shareholders receive dividends
Private limited (LTD) Public limited (PLC)
- shares privately transferred - Shares freely traded on the
- restriction in the number of shares that stock market
can be held by one shareholder - Costly to set up
- Longer decision-making time - Many legal requirements and
financial accounts have to be
made public
b) State-owned enterprises
- Created by a country’s government to carry out commercial activities
- Separate legal identity
Advantage Disadvantage
- Economic stability: provide essential - Inefficient
goods neglected by private sector - Lack of transparency
- Employment and social welfare: job - Lack of innovation
opportunities - Limited consumer choice and quality
- Long-term investments: - Political interference
infrastructure, public utilities, - Inflexibility: slow to adapt to
undertake large-scale projects that changing market conditions
might be risky for private sector - Lack of expertise and specialisation
- Revenue generation
c) For-profit and not-for-profit organisations
- Not for profit: does not earn profit for its owners
- Does not have shares but has benefits of corporate status
- Limited liability + can enter into contract
Advantage Disadvantage
- Social impact and community - Limited financial resources
benefit: support underserved - Depends a lot on external funding
populations - Competition for resources
- Tax benefits and exemptions - Limited compensation: hard to
- Innovation: not solely driven by attract highly skilled workers
financial returns, more creativity and - May be perceived as less
freedom to tackle social issues professional
- Mission drift
d) Co-operatives
- Owned and run by the members - the people who benefit from the co-operative’s
service
- Each member has one vote on major business decisions
- Objective: provide service rather than profit
- Members have limited liability
Advantage Disadvantage
- democratic control: decisions made - limited capital
collectively - Decision-making challenges
- shared risks and rewards eg. delays
- Economic benefits - Potential free-riding
- Access to resource - Limited specialisation
- knowledge sharing - Conflict between individuals’ interest
- flexibility - Competitive disadvantage
- empowerment and social equality - Lack of innovation
- Environmental sustainability - Corruption
e) joint ventures
- Two or more parties who pursue a common project
- Separate legal identity
- Sharing ownership, returns and risk
- Improve distribution of income
- Transfer of knowledge
Advantage Disadvantage
- Access to new market and resource - lack of control and autonomy
- Risk sharing: pool financial - Misalignment of objectives
resources, reduce burden borne by - Trust issues: info asymmetry
one party alone - Conflict of interests
- Cost sharing: achieve economies of - Competitive threats and info leakage
scale - Limited flexibility
- Access to expertise and knowledge
- Reduced barriers and regulations:
overcome trade restrictions
- Risk diversification
