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Types of organizations

Two big splits in organizations one is Public the other is Private

Public companies tend to be wholly owned and run by the government. They tend to be less efficient in general and many countries have tried to reduce the number of Public companies they have through privatization.

Private organizations are owned and run by individuals. They tend to be in business for a profit.

Regulatory bodies exist to make sure private businesses perform the functions they promise safety. (Very important for things like hospitals).

(note in China this line can be very hard to see)


Public sector companies exist to:

  • To ensure people can access basic services such as education, health care, parks and libraries.
  • In some cases a public company can better take advantage of economies of scale. (If competition exists it can be wasteful like a water department)
  • Some things like police and roads are merit goods which are hard to exclude people from using them. (Non-rival, non-excludable, non-rejectable)
  • Public companies tend to have more employees than private institutions which reduces unemployment.
  • Name two industries that are run by the public sector in China__________________________

Starting a business can be a risky affair an entrepreneur has to be careful to make sure that a need exists in a market.

  • Making decisions on when and how to enter a market can be one of the hardest things an Entrepreneur can do.

Some examples of start up costs of a business can include:

  • Premises – either buying or renting a space (not usually necessary for e-commerce)
  • Fixtures and equipment depending on the business
  • Legal fees or licensing fees
  • Marketing costs

Factors a business needs to consider when setting up a business

  • Finance– the key to most business failure is not proper finance planning. Having to borrow can be a huge burden for a new business.
  • An idea – it can either be a me too product or better yet fill in a niche that is not being met by the market.
  • H.R. needs have to be considered when starting up a business
  • Leadership skills - will need to be considered one overlooked fact is that a charismatic leader has a greater chance to succeed.
  • Location is extremely important
  • Suppliers of raw materials and possibly wholesalers if it’s a retail shop will need to be considered
  • Customers taste/marketing – is there really a need for a product and how can we tell the customers this is what they need.
  • Legalities
  • Homework explain how your business idea will be affected by these factors______________________________

Reasons for setting up a business

  • Growth – gaining money over time through appreciation
  • Earnings - Making money
  • Transference and inheritance – The business can be left to children
  • Challenge – It is hard to start up a business so some people want to see if they can make it work.
  • Autonomy – not having to answer to someone else
  • Security – do not have to worry about getting fired
  • Hobbies – doing something you have a passion for

There are a few ways that new businesses can fit into a market:

  • Look for a gap in the market (niche) especially for small businesses.
  • Innovation – make something new and creating a want through marketing
  • Developing around your personal
  • No mater how the market opportunity is found market research is still essential.

Possible problems faced by start ups.

  • Lack of finance because new businesses may have a hard time securing loans.
  • Cash flow problems - businesses can have a hard time working a budget that allows proper working capital.
  • Over and under production
  • Marketing problems – advertising can be expensive and new businesses may not know how to do it properly.
  • No customer base – new business can have trouble getting people to trust them especially if competitors already exist.
  • Managers may lack experience
  • Lack of economies of scale because a business is so small
  • Location problems – good locations can be expensive and small business may not have the money to invest in the best location.
  • External shocks can be hard for a new business to deal with
sole traders
Sole Traders
  • Are unincorporated businesses that are owned by one person.
  • They may have people that work for them.
  • They must pay taxes and in some cases have a license.
  • Many times family run businesses
  • Have unlimitedliability because there is no separation between the business and the owner. They can lose their house if sued.
  • Two or more owners sharing responsibility and sharing profit.
  • Have unlimitedliability because there is no separation between the business and the owners. They can lose their houses if sued.
  • Partners should have a partnership deed.

Deed of partnership includes:

  • Amount of money contributed by each partner
  • Roles and obligations of each partner
  • How profits will be shared
  • Conditions for introducing new partners
  • Clauses for the withdrawal of a partner
  • Procedure for ending partnership

Companies/corporations/joint-stock companies

  • These are incorporated businesses so it is treated as separate entity away from it’s stock holders.
  • Corporations stock holders have limited liability
  • Capital is divided into shares
  • Each shareholder owns a percentage of the company
  • If something happens then the company not the owners would go to court.
  • Each corporation will elected by a board of directors to run the day to day operations of the business. They are accountable to shareholders. Annual general meetings are expected.
  • The maximum a stockholder can loose is the amount they have invested.
  • Setting up a company can be an expensive proposition because of lawyers and fees.
private limited companies
Private limited companies
  • Cannot sell shares to the general public
  • Usually raises money from family and friends
  • Run as a family business in many cases
  • Used to protect shareholders but insures that control cannot be lost.
public limited company
Public limited Company
  • Larger, publicly traded companies
  • Must submit memorandum of association, Articles of association and statutory declaration
  • Must also publish a prospectus advertise the company and invite investors to buy shares.
  • Can raise huge amounts of money by selling shares to the public
  • Must have shareholder meetings

What happens when a business becomes public

  • Flotation/initial public offering is when a business offers shares of it’s company to the public.
  • Even though many members of the board own shares of the company they serve the corporation does not raise more money when a stock goes up!!!!!
  • Many times major investors in corporations tend to be other businesses.
  • All corporations will need to produce final accounts and an annual report which will be audited and then distributed.
  • Stakeholder conflicts can be a major problem for corporations.

Expectations of shareholder

  • Dividends which are a percentage of profits paid out per share.
  • Capital growth – Many people buy shares (stocks) of a corporation in order to sell them for more later.
  • Voting power – Shareholders have the right to vote on who the leaders of a corporation will be.
  • The major risk that shareholders take is that the business may not be very profitable leading to low dividends or capital loss.
  • Also there is no set amount that a business has to pay to share holders.

Non-profit and non-governmental organizations

  • Non-profit organizations NPOs operate not for money but to provide a service or to promote a cause.

Note just because it is non profit they still try to make a surplus if possible to help with growth.

  • Non governmental organizations NGO are set up for the benefit of society and operate in the private sector

Operational NGOs are set up to offer relief in times of crisis

Advocacy NGOs take a cause and strive to make change in the world through lobbying, public relations and mass demonstrations.

Quasi-autonomous non governmental organizations (QUANGO) operate in the private sector but receive funding from the government.


Charities are a type of non-profit that specialize in collecting money from people in order to help the world.

  • They use celebrities and marketing in order to raise money to help their cause
  • Charities are usually managed by a group and some employees will be paid while others will not.

Advantages of charities

  • They tend to try and make the world a better place
  • Usually do not pay taxes
  • Donors usually get a tax break
  • Can register to be limited companies to protect employees and managers.

Disadvantages of charities

  • Because profit is not a focus it can cause demotivation and staff tends to be paid less and volunteers do not last long. Directors cannot receive money.
  • Registration can be expensive and time consuming
  • Charity fraud can be a huge problem
  • Charities are dependent on donations so competition can be very intense.

Factors that influence what style of business a(n) owner(s) will choice

  • Amount of finance – Sole traders need less money to start than a public limited company.
  • Size – The larger the business the more likely it is to be limited (for the owners protection)
  • Degree of control – If the owner wishes to keep control then they will not become a public limited company
  • Type of business activity – Major manufactures will tend to need to be public limited companies in order to raise large amounts of money.
  • For your business idea what business setup would make the most sense__________________________________