WHY DO BUSINESSES EXIST?
There are 4 main reasons why businesses exist.
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Enterprise – to develop a new idea
Charity – to help those in need and raise funds to help
Profit – to earn more money than is spent
Public Service – the government provides essential
services such as Health and Education
There are 3 main types of Organisation – they are owned in
different ways and have differing objectives:
PUBLIC SECTOR ORGANISATIONS
The UK has a mixed economy – this means that it has privately
owned business and others are run by the government.
The organisations in this sector are owned and run by
the government on behalf of the public.
The Public Sector is made up of
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Central Government (in London)
Local Government (Local Councils)
Scottish Parliament
Public Corporations eg BBC
Nationalised Industries
Central Government
This provides services to the public for no charge or a small
fee. The National Health Service is available to everyone and
is funded by taxation. Defence, motorways and education are
all provided for in this way.
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Local Government
These services are provided by the local
councils eg West Lothian Council, they provide services to the
community who live within that area. Examples of these
services are libraries, refuse collection, leisure centres, street
lighting, schools etc. The local councils get funds from Central
Government, council taxes and business taxes.
Public Corporations
these are businesses set up and run by the government on
behalf of the people. a public corporation is set up by an Act
of parliament. Examples of public corporations include the
Bank of England and the BBC.
Nationalised Industries
In the past many industries were nationalised eg coal, steel,
gas, electricity communications. In the 1980s many of these
industries were privatised, shares were sold on the stock
market and so went into private ownership with the aim to
make a profit.
The aims of public sector organisations
 To provide the best possible service
 To spend funding wisely
 To break-even
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PRIVATE SECTOR ORGANISATIONS
Private Sector organisations range from very small
organisations to very large organisations. These
organisations are owned and run by individuals or groups of
individuals.
SOLE TRADERS
A sole trader is the most common form of
business ownership and the easiest to set up. A sole trader
is a business owned by one person – though this business may
employ many people.
Advantages of being a sole
Disadvantages of being a
trader
sole trader
 Easy to set up as no legal
 Finance can be difficult
documents required
to raise
 Smaller size means less
 Won’t benefit from bulkcapital required
buying discounts
 Decisions are quick to
 Ill-health, holidays et
make
can affect the business
 Personal attention given
 Unlimited Liability –
to all business matters
where you may have to
 Get to know your
sell off your personal
customers well
possessions to pay any
 Profits do not need to be
debts.
shared
 You don’t need to publish
your accounts
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PARTNERSHIPS
A Partnership is an organisation which is set up with
between 2-20 partners – there are some exceptions
eg solicitors and accountants.
Under the terms of the Partnership Act 1890 people starting a
partnership are encouraged to draw up a Deed of Partnership
which sets out the following conditions:
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How much capital is to be invested by each Partner
Each partners roles and responsibilities
Each partners share of the profit
Procedure for introducing a new partner
Procedure for settling disputes between partners
Advantages of Partnerships
 Increased money
available
 Opportunity to increase
size of business
 Affairs can be kept
private
 Risks spread amongst
partners
 Responsibility shared
amongst partners
Disadvantages of
Partnerships
 Unlimited liability
 Disagreements can occur
 Profits must be shared
PRIVATE LIMITED COMPANIES (Ltd)
Limited Companies are owned by several shareholders, each of
whom own a portion of the business in the form of a certain
number of shares, their share entitles them to vote at
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meetings. Private Limited Companies shareholders tend to be
family members or friends who set up the
business and formed a Ltd Co.
Shareholders receive their share of profits in
the form of a dividend.
The owners of limited companies benefit from limited liability
– this means that if the company collapses the owners only lose
the money they invested – not their personal possessions.
Limited companies do not have the advantage of privacy as
their company accounts must be sent to the Registrar of
Companies each year and anyone can apply to see them.
Advantages of Private
Limited Companies
 Money comes from
shares
 Limited Liability
 Specialist Managers can
be employed
Disadvantages of Private
Limited Companies
 Cannot sell shares on the
Stock Market
 Accounts not private
 Limitations on capital
 A lot of administrative
work is required
 Legal requirements to be
met
 Not allowed to advertise
the sale of shares
publicly
 Shareholders have to
agree on allowing a new
shareholder into the
company
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PUBLIC LIMITED COMPANIES (Plcs)
Plcs have the opportunity to become very large organisations.
they are allowed to raise capital through
the Stock Exchange, where shares are
bought and sold.
Only 2 people are needed to form a public
limited company and there is no legal limit
on the number of shareholders.
Advantages of Public Limited
Companies
 Money comes from
shares – opportunity to
raise large amounts of
money
 Limited Liability
 Specialist Managers can
be employed
 Shares can be sold on
the stock market
 Opportunity to become
very large organisations
 Easier to raise finance
from banks
Disadvantages of Public
Limited Companies
 Accounts not private
 Legal requirements to be
met
 Can become too big and
difficult to manage and
control
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The aims of private sector organisations include:
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to make a profit
to survive
to grow
to satisfy consumers
Create a good image
Maximise sales
VOLUNTARY SECTOR ORGANISATIONS
We tend to know these organisations as Charities
they provide a service to specially chosen sections
of the community. Examples: Shelter, Oxfam, Help
the Aged, Save the Children.
Many of the employees are volunteers and don’t get
paid for their work there will be some people such as the
managers and administrators who will be paid.
Charities are financed mainly from donations or they may
receive funds from the National Lottery, businesses and
government contributions.
The aims of charities:
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To help those in need
To raise as much money as possible
To break-even
To create a good image
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Other types of business organisations include:
FRANCHISES
A franchise could be seen as a “business marriage” – between
an existing, proven, well-known business and a newcomer.
The newcomer known as the franchisee – buys the permission
to copy or use the business idea of the established company –
the franchisor.
The franchisee is given a licence to copy the franchisors
business system and products in return for a cash payment plus
the promise to pay them a percentage of their profits.
The franchisee may also have an obligation to purchase certain
raw materials from the franchisor.
Franchising is common in service industries and fast- food
industries.
Examples: Pizza Hut, McDonalds and the Body Shop.
CO-OPERATIVES
Co-operatives are business which are owned and managed by
the workers. Each worker has shares based on how much they
contribute. All workers benefit from any profits made and are
involved in decision making. There is no limit to the number of
members
Customers of co-operatives can also be shareholders in the
organisation eg customers of Co-op supermarkets used to get
discounts for however much they spent in the shop as long as
they were a member of the Co-op.
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Examples: The Co-op, John Lewis Partnership, and any firm
that is closed down and bought by its employees.
PUBLIC SECTOR ORGANISATIONS
The UK has a mixed economy – this means that as well as
having privately owned organisations they also have others
which are run by the state. These state-controlled
enterprises make up what is known as the public sector.
The public sector is made up of:
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Central Government
Local Government
Public Corporations
‘Nationalised’ Industries
CENTRAL GOVERNMENT
This provides services to the public for nothing or a small fee
The National Health Service is available to all and is paid for
by paying tax and National Insurance contributions. Defence,
road building, education are all services provided in this way.
LOCAL GOVERNMENT
This is run by local councils providing services to the local
community eg street lighting, rubbish collection, libraries etc
are provided by local government (our Local Council). This is
funded by Council Tax, business tax and funds from the
Central government also fees charged to the public eg for
using the local swimming pool.
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PUBLIC CORPORATIONS
These are organisations set up and run by the government on
behalf of the people. a public corporation is set up by an Act
of Parliament. Examples of public corporations include the
Bank of England and the BBC.
NATIONALISED INDUSTRIES
In the past the main features of the public sector were to:
 to provide the public with essential services
 to prevent exploitation by private ownership
 to protect key industries in the public interest
In the late 20th Century nationalised industries which were
owned by the government eg coal, steel, gas, electricity, water,
rail, telephone communications etc were sold into the private
sector. This was called privatisation. The selling off of those
industries raised finance for the government – the government
still supervises the running of these organisations eg OFCOM
supervises the telecommunications industries.
In recent times due to the credit crunch we have seen the
government step in and nationalise some institutions in the
banking sector to protect the public from losing their money eg
Northern Rock, RBS and to try and stabilise the economy.
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Advantages of Public Sector
Organisations
 Do not aim to make a
profit at all costs
 want to provide a service
for those who need it
most
 want to provide a service
to the whole nation
Advantages of Privatisation
 profit motive means
more attention to
customer needs
 more aware of the
market for the
product/service
 have to compete for
business so may be more
efficient
 answerable to their
shareholders
Disadvantages of Public
Sector Organisations
 provide a service at as
low a cost as possible and
quality may suffer
 they can become
complacent and
inefficient
 may lead to poor
management
 depend on government
funding and this may be
cut, so the service may
suffer
Disadvantages of
Privatisation
 higher prices
 plcs may abuse their
power if they become
too big
 promises of quality are
not always followed
through
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CHARITIES
These organisations provide a service to specially chosen
sections of the community eg Shelter, Help the Aged, Save the
Children.
While many charity employees are volunteers, the managers
are often paid professionals. Finance can come from the
National Lottery, public donations, business donations and
government contributions.
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