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Which of the following is NOT a type of business in the private sector?
In a partnership, profits are always kept by the individual partners without sharing.
False
What is one advantage of being a sole trader?
The owner keeps all the profits.
A business owned and managed by 2-20 people is called a __________.
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Match the types of businesses with their characteristics:
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Which of the following is a disadvantage of being a sole trader?
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Public sector organizations aim to maximize profits like private sector businesses.
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Name one type of business found in the third sector.
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A __________ is an organization that helps communities by sharing resources.
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Which characteristic is true about a Public Limited Company (PLC)?
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What is one key advantage of being a public limited company (PLC)?
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A private limited company can sell shares to the general public.
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What must a public limited company produce as part of its legal requirements?
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A business agreement that allows the use of an established brand name is called a ______.
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Match the following terms with their definitions:
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One disadvantage of owning a franchise is:
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Charities are required to pay full VAT and corporation tax.
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What is a primary motivation for a social enterprise?
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The ______ allows members to share ownership and control of a business.
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Which type of company is owned by a minimum of one individual and cannot sell shares publicly?
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Study Notes
Economy Sectors
- There are three sectors of the economy: private, public, and third.
Private Sector
- The private sector aims to maximize profits, turn innovative ideas into successful businesses, fill market gaps, and expand.
- Private sector organizations include sole traders, partnerships, private limited companies, public limited companies, franchises, and multi-national companies.
- Private sector organizations are owned by private individuals and are financed by bank loans and government grants.
- Private sector organizations are controlled by a board of directors.
Sole Trader
- A sole trader business is owned and run by one person.
- Advantages: Relatively easy and cheap to set up, the owner makes all decisions, the owner keeps all profits.
- Disadvantages: Difficult to obtain loans, unlimited liability, long working hours, sole responsibility, problems if the owner is ill.
Partnership
- A partnership is a business owned and managed by 2 to 20 people.
- Advantages: Workload can be shared, partners can specialize, more money can be invested.
- Disadvantages: Unlimited liability, arguments can occur, profits are shared, partners may leave.
Limited Companies
- A private limited company (Ltd) is owned privately, with shares not available to the public on the stock market.
- A public limited company (PLC) is owned by the public, with its shares available for purchase on the stock market.
- Both are owned by shareholders and controlled by a board of directors.
- Both must produce a memorandum and articles of association.
Private Limited Company (Ltd)
- Advantages: Control of the company isn’t lost to outsiders, more finances can be raised, experience is brought in by the board of directors.
- Disadvantages: Profits are shared, shares can’t be sold publicly, must abide by the Companies Act.
Public Limited Company (PLC)
- Advantages: Huge amounts of finance can be raised, often dominates the market, easy to borrow money, limited liability.
- Disadvantages: Set up costs are high, no control over who buys shares, annual accounts must be published, must abide by the Companies Act.
Franchise
- A franchise is a business agreement that allows the use of an established brand's name and products or services.
- It’s not a separate business, but a way a business can be run.
- Example: A sole trader can have a Burger King franchise.
Franchisee (Who operates the franchise)
- Advantages: Reduced marketing costs, reduced risk due to an established brand, franchiser provides training and administrative support
- Disadvantages: Products, prices, and store layout may be dictated, royalty payments are required, initial costs are high.
Franchisor (Who owns the brand)
- Advantages: Fast expansion without heavy investment, steady cash flow from royalties, shared risk with franchisee.
- Disadvantages: Only receives a share of profits, a poor franchisee can damage the company's reputation, a weak franchisee may not return much profit.
Multinational Corporations
- Multinational corporations (MNCs) have branches (subsidiaries) in multiple countries.
- Key characteristic: Setting up production facilities in multiple countries.
- Reasons for expansion: To increase market share, cheaper labor and production, take advantage of government grants, avoid or reduce taxes, save on transport costs, avoid trade barriers.
Public Sector
- The public sector aims to provide high-quality services to everyone in a country and make good use of taxpayer money to provide needed services.
- Public sector organizations include police, schools, hospitals, fire brigade, army, and the BBC..
- Public sectors organizations are owned by local government, controlled by local or national governments, and financed by taxes
Third Sector
- The third sector aims to provide support for worthy causes, promote awareness of good causes, and provide the best possible service.
- Third sector organizations include charities, voluntary organizations, social enterprises, and cooperatives.
Charities
- Charities are set up to help others.
- They raise funds through donations, sponsorship, and fundraising.
- They may also have a trading arm (like a shop) to raise funds.
- They are set up as a trust.
- They rely heavily on volunteers.
- Advantages: Exempt from paying some taxes, low wage costs due to volunteers, private companies are more willing to donate to sponsor charities as it is good PR.
- Disadvantages: Difficult to compete with the large marketing budgets of private sector organizations, charities rely on volunteers who may leave for paid work.
Voluntary Organizations
- Voluntary organizations aim to provide a service for their members and the local community.
- They raise funds through membership subscriptions.
Social Enterprise
- Social enterprises aim to generate profits to benefit a specific group or cause.
- They operate more like private sector organizations even though their profits benefit a cause.
- Advantages: Social aims attract customers, high-quality employees with a belief in the social mission are attracted, likely to receive government grants due to positive impact on society, “asset lock” ensures that profits and asset sales benefit their causes.
Cooperatives
- Cooperatives are democratic enterprises.
- They aim to provide quality service for members and customers.
- They invite customers and employees to become members who share ownership.
- They subscribe to a set of internationally agreed values and principles that define their ethical approach.
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Description
This quiz explores the private sector of the economy, covering its types such as sole traders and partnerships. It highlights key characteristics, advantages, and disadvantages of different private sector organizations. Test your knowledge on how these entities operate and their role in the economy.
