Economic sectors and Legal structures | My Assignment Tutor

1Session 3: Economic sectors and Legal structures(P1- part 2)1P1: Explain different types and purposes of organisations; public,private and voluntary sectors and legal structures.Prepared by: Dr Gilbert ZvobgoDr Reza Aboutalebi2Three Sectors of the EconomyThe Economy Private SectorPublic SectorVoluntary Sector Economy of any country has three main sectors. Thesethree sectors are Private Sector, Public Sector, and Voluntary(Not-for-profit) Sector. Each of these sectors has its ownsub-sectors or industries.1 22 The Private Sector includes businesses owned andcontrolled by individuals or groups of individuals. Inmost countries, the majority of business activity is inthe private sector. The Public Sector includes organisationsaccountable to and controlled by central or localgovernment. These usually include: Health and education services Defense Law and order Welfare and social services.3 The Voluntary Sector includes organisations that areshaped by group of people who work for free to makepositive and humanitarian changes in local, national orinternational communities. Some forms of voluntaryorganisations are: Charities Doctors without Borders Local voluntary to help homeless people or animals43 43 Private SectorBusinesses SoleTraderPartnership LimitedCompaniesCooperatives PrivateLTDPublicPLC5 The EconomyPublic SectorVoluntary Sector This is one of the common forms of businessorganisation. One person provides thefinances and in return, has full control ofthe business and is able to keep all theprofits.65 64 Easy to set up Owner has complete control –not answerable toanybody else. Owner keeps all profits. Able to choose times and patterns of working. Able to establish close personal relationshipswith staff (if any are employed) and customers. The business can be based on the interest andskills of the owner7 Unlimited liability – all of the owner’s assets arepotentially at risk. Often faces intense competition from biggerfirms, for example, food retailing. Difficult to raise additional capital. Long hours often necessary to make businessprofitable. Lack of continuity- as the business does not haveseparate legal status, when the owner dies, thebusiness ends too87 85Partnerships are agreements between two ormore people to run a business together.The Deed of partnership establishes the rightsand privileges of the partners. This documentincludes issues such as voting rights,distribution of profits, the managementfunction of each partner and who has theauthority to sign contracts.9Advantages of Partnership Partners may specialise in different areas ofbusiness management. Shared decision making. Additional capital injected by each partner. Business losses shared between thepartners. Greater privacy and fewer legal formalitiesthan corporate organisations (limited orcooperative companies)109106 Unlimited Liability for all partners. Profits are shared. There is, as with sole traders, no continuity andthe partnership will have to be reformed in theevent of the death of one partner. All partners are bound by the decision of anyone of them. Not possible to raise capital from sellingshares. A sole trader, taking on partners will loseindependence of decision-making11Characteristics of Limited Companies Limited Liability Legal personality Continuity Capital is divided into shares Companies are run by directors1211127 Tend to be relatively small companies. Their business name ends in Limited or Ltd. Shares can only be transferred privately and allshareholders must agree to the transfer. Private Limited Companies are often family businessesowned by members of the family or close friends. The directors of these companies tend to beshareholders and are involved in the running of thebusiness. Many manufacturing firms are Private LimitedCompanies rather than Sole Traders or Partnerships13 Shareholders have limited liability. More capital can be raised as there are no limits on thenumber of shareholders. Control of companies cannot be lost to outsiders. Business will continue even if one of the owners dies.14Disadvantages of LTDs• Profits have to be shared out amongst a much largernumber of members.• There is a legal procedure to set up the business. Thistakes time and costs money.• Firms are not allowed to sell shares to the public. Thisrestricts amount of capital that can be raised.• Financial information filed with the Registrar can beinspected by any member of the public. Competitorscould use this to their advantage.13148 A plc first must get permission to start its InitialPublic Offering. Then should publicly sale itsshares on the Stock Exchange. A plc cannot begin trading until it has completedthese tasks and has received at least 25% paymentfor the value of shares. It will then receive a Trading Certificate and canbegin operating. The shares will be quoted on the Stock Exchange The Stock Exchange is a market where shares arebought and sold.15Advantages of PLCsHuge amounts of money can be raised fromthe sale of shares to the public.Production costs may be lower as firms gain‘economies of scale’.Because of their size, a PLC can sometimesdominate the market.It becomes easier to raise finance asfinancial institutions are more willing tolend to PLCs.1615169Disadvantages of PLCs•Setting up costs can be very expensive.•Since anyone can buy shares, it is possible for anoutside interest to take control of the company.•All company accounts can be inspected by memberof the public.•Because of their size they cannot always deal withcustomers at a personal level.•The way they operate is controlled by variouscompany acts which aims to protect shareholders.•There is separation of ownership and control whichmight lead to the interest of owners being ignored tosome extent.•PLCs can be inflexible due to their size.17An organization which is owned and run jointlyby its members, who share the profits orbenefits.Features All members can contribute to the running ofthe business, sharing the responsibilities, workload and decision making. All members have one vote at importantmeetings. Profits are shared equally among members.18171810Disadvantages Poor management skillsunless professionals areemployed. Capital shortages becauseno sale of shares to thenon-member general publicis allowed. Slow decision making if allmembers are to beconsultedAdvantages Lower cost for buying in bulk Working together to solveproblems and makedecisions. Good motivation of allmembers to work hard asthey will benefit from sharedprofits.19The Public Sector is made up of organisations whichare owned and controlled by central or localgovernment or public corporations. They are fundedby government and in some cases from their owntrading ‘incomes’ such as NHS, BBC, TFLAttention: Public Limited Companies (PLC) is one formof Private Sector organisation. So, a PLC has nothingto do with Public Sector.20 The EconomyPrivate SectorPublic SectorVoluntary Sector 1920


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