Topic 2

Types of organisation

Public & Private sectors

Free or CommandEverything is

privately ownedThe government has no control

Prices for goods are influenced by

demand

Consumers can buy what they

want

Workers work hard because they

can keep all of their money

Businesses can compete with each

other

The government controls all the

resources

Government decides what to produce and in what quantities

There is very little waste resulting from competing

firmsThere is work for

everybody

The needs of the population are

met, but there are little luxuries

Mixed

Free Command

Mixed EconomiesFree Command

Mixed EconomiesFree Command

Public or PrivatePublic

Private

Public or PrivatePublic

Private

Advantages & Disadvantages of Privatisation

Business ran

efficiently

Competition is

allowed, better for customers

More money can be

invested for improvement

s

Business is ran to make a profit,

not for government popularity

Business is ran for profit, loss making departments will

be closed

Public companies

benefited the majority of population

Starting a business

creat

ivity

Academia

Communicati

on

Independent

Multi-tasking

Prepared

to take

risks

Team

work

Energetic

Problem solving

Leadershi

p

(un) Limited Liability

(un)incorporated

unincorporated1 Legal entity

incorporated2 Legal entities

Unlimited LiabilityThe owners are

responsible for all debts

Limited LiabilityThe owners are not responsible for all

debts

Business ownership

Soletrader

Partnership

ltd

PlcCo-op

1.4 Legal structure

Sole traders

• A sole trader is an individual who owns and runs their

own business.

• The simplest form of business.

• A sole trader has unlimited liability - they are

personally responsible for all debts run up by the

business.

• They could lose their home and all of their assets to

pay off any debts that they are unable to pay.

Soletrader

1.4 Legal structure

Sole tradersBenefits and disadvantages of being a

sole trader

Benefits– Cheap and easy to

set up– All profits go to you!– Competitors can’t

see your accounts– Highly motivated– You are the boss!

Drawbacks– Unlimited liability– Limited finance– Difficult to find cover

when ill

Soletrader

Choosing the appropriate legal structure

1.4 Legal structure

Sarah has always dreamt of being her own boss and at the age of just 22 an opportunity arose. Patricia, the owner of the gift shop where Sarah worked, was due to retire and close the business that she had

operated as a sole trader for over 40 years. Sarah wondered whether she had the necessary skills to run the shop herself and finally plucked

up the courage to talk to her boss about her buying the shop.

Question Time1.What is meant by the term ‘sole trader’. (2 marks)2.Explain one advantage of Patricia running the shop as a sole trade

(2 marks)3.Explain one disadvantage of Patricia running the shop as a sole trader. (2 marks)4.Identify and explain three skills Sarah would need to operate the shop as a sole trader? (6 marks) Soletrader

1.4 Legal structure

Partnerships• A partnership is where 2-20 people run the business• Each partner is equally responsible for debts incurred.• Each partner will take a share of the profits• Each partner usually shares in the decision making. • ‘Sleeping’ partners invest in, but do not run, the business.

Partnership

1.4 Legal structure

PartnershipsBenefits and disadvantages of being

a partnership

• Benefits– Risks and

responsibilities are shared

– More specialist skills– Competitors can’t see

your accounts– Easier to raise finance

than a sole trader

• Drawbacks– Unlimited liability– Arguments can occur

between partners– If a partner dies,

resigns or goes bankrupt the partnership is dissolved

– Trust becomes a significant element between partners

Partnership

Limited companies

Ltd Plc

Only friends & family can buy shares

Any member of the public can buy shares

1.4 Legal structure

Private Limited Companies

• Private Limited Companies have Ltd. after the company name.

• They can have one or more members e.g. shareholders

• The shareholders are often family members and have a say in the running of the company

ltd