Unit 1.2 Types of Organizations IB Business PDF

Unit 1.2 Types of Organizations Ms Diz IB Business Unit 1.2: Types of Business Organizations In this chapter you will learn how to: Distinguish between the private and public sectors Outline the main features of: sole traders; partnerships; privately held companies,...

Unit 1.2 Types of Organizations Ms Diz IB Business Unit 1.2: Types of Business Organizations In this chapter you will learn how to: Distinguish between the private and public sectors Outline the main features of: sole traders; partnerships; privately held companies, and publicly held companies. Outline the main features of these for-profit social organizations: private sector organizations, public sector organisations, cooperatives Outline the main features of these non-profit social organizations; NGO’s (Non governmental organizations. TOK Discussion 2 Public vs Private Sector ○ What is a Public Sector Business? ○ What is a Private Sector Business? 3  Public Sector vs. Private Sector When a company is in the public sector it is controlled and run by the government. These are usually companies that offer basic goods or services, such as; Hospitals, Schools, the Police, or Transportation. When we refer to a private sector companies we are talking about those that are not under government control. Examples are; Coca-Cola, Amazon, Apple. 4 Public Sector vs. Private Sector 5 Public Sector vs. Private Sector: TOK Debate “Is it better to have some services managed by public or private sector organizations?” 6 Types of Business Organizations ○ For Profit Organizations: Sole Trader Partnership Privately held companies Publicly held companies 7 For-Profit Organizations All of these organizations have the objective of making a profit. Profit = Total Revenue - Total Cost. Revenue = Money made from selling your product. Also known as sales or sales revenue. Revenue = (Price x Quantity) during a period of time. Cost = Costs incurred by a business during the production period. 8 For-Profit Organizations Different types of Profit Based organizations are: - Sole Traders - Partnerships - Privately Held companies - Publicly Held companies - For Profit Social Enterprises - Cooperatives - Public sector companies - Private sector companies 9 Sole Trader There is NO Legal Distinction between Owner and Business (Unlimited Liability) Owns Privacy business Limited Limited Finance Accountability Easy and Close to Cheap to set Customer up 10 Sole Trader Advantages Disadvantages Keeps all Profits Hard to compete vs. Larger Organizations Has Complete control over business One person has all responsibility Flexibility and Privacy Death of owner could result in the end. Minimal Legal Formalities No room for growth Close ties to Customers Unlimited Liability 11 Partnerships There is NO Legal Distinction between Owner and Business (Unlimited Liability) Owned by: “Silent” 2-20 people Partners Joint More Variety Decisions than Sole Traders Better Financing Stability Opportunities 12 Partnerships Advantages Disadvantages More Skills brings more Efficiency Less access to loans than Companies More Areas of Expertise Sharing of Profits amongst partners Greater Stability and Lower Risk Disagreements could end the partnership Greater Chance of Continuity Unlimited liability for each partner 13 Partnerships: Case Study Brown Brothers Harriman. Brown Brothers Harriman (BBH) is one of the largest and oldest private banks in the United States. Usually, the bank operates as a partnership. Businesses legally organized as partnerships are usually relatively small, but BBH, headquartered in New York City, has approximately 6,000 employees and offices around the world. Founded in 1931, the bank has grown and has revenue in excess of $1.3 billion. Despite this growth and size, the owners of the business have decided to remain a partnership. Why do you think they have done that? Source: Business Management Course Companion 2022, by Lominé, Loykie; Muchena, Martin; Pierce,14 Robert A. Oxford University Press, 2022 Edition. Companies / Corporations/ Incorporated Businesses There IS Legal Distinction between Owner and Business → Limited Liability privately held Company There are Multiple Owners each owning fractions (shares) of the business. publicly held Company 15 Privately held companies: DOCUMENTS When you create a company you receive a CERTIFICATE OF INCORPORATION. Memorandum of Association Articles of Association 16 COMPANIES: Publicly vs Privately held Companies Publicly vs Privately held companies: 17 COMPANIES: Privately and publicly held Comp. Privately held Companies Publicly held Companies - Not traded in the stock - Traded Freely in the stock market, shares owned by market. private individuals - Anybody can buy and sell - Shares are sold after shares. agreement by the parties. 18 Publicly Held vs Privately Held Companies Shares and the Stock Market: 19 COMPANIES: Features Shareholders own, Higher Degree of but don’t run the Accountability business. Greater Stability and Greater Financing Chance of Success Opportunities 20 Companies / Corporations Advantages Disadvantages Easier access to finance Setting up is Timely and Costly Investor has Limited Liability Owners risk partial or total loss of control Continuity Loss of Privacy Greater Possibilities of expansion No control over stock market Established Organizational Structure No control over who buys the shares. 21 Companies / Corporations: Going Public Going Public: IPO (Initial Public Offering): It is the first sale of stock by a private company to the public. 22 Activity Let’s look at things through the lens of CHANGE: Sometimes business entities change their legal status. Do some research and If and try to find examples of such changes of legal status. They may be businesses around you. 23 Case Study: The GOOGLE Phenomenon Read the case study below and then answer the questions that follow. Source: Business and Management,for the IB Diploma by Stimpson, Peter; Smith, Alex. Cambridge 24 University Press, 2011 Edition. Social Enterprises For Profit Non For Profit 25 Types of For Profit Social Enterprises Private Sector Companies Public Sector Companies Cooperatives 26 For-Profit Social Enterprises (FPSE) Main Examples of Profit Based organizations are: - Sole Traders - Partnerships - Privately Held companies - Publicly Held companies - For Profit Social Enterprises - Cooperatives - Public sector companies - Private sector companies 27 For-Profit Social Enterprises - Cooperatives - Public sector companies Social Purpose - Private sector companies Some social enterprises operate in the public sector. Example: https://www.toms.com/us/impact.html 28 For-Profit Social Enterprises (FPSE): FEATURES Cooperatives are more democratic Profit: important but not a priority than other FPSE High degree of collaboration [Business - Local Community] Same functions as other businesses 29 For-Profit Social Enterprises Advantages Disadvantages Favorable Legal Status Achieved Decision Making is Timely and Costly Strong Communal Identity Insufficient Capital for required growth Communities are benefited Insufficient Capital for financial strength. 30 Types of FPSE: COOPERATIVES 31 Types of FPSE: COOPERATIVES Workers Financial Producer Housing Consumer 32 For-Profit Social Enterprises - Micro-Financiers Provide small Money is lent with sums of money specified conditions Help those who previously would Economic not have had Independence and access to Empowerment money 33 Non-Profit Social Enterprises (NPO) 34 Non-Profit Social Enterprises Profit is not their main aim, but to provide a service or promote a cause Total Revenues - Total Costs = SURPLUS Non-profit does not mean they don’t make a surplus, but that they re-invest their “profit” into the business to serve their purpose. Non-Profit Social Enterprises Non-Governmental Organizations Charities (Philanthropic Focus) 35 Examples of NPO’s 36 Non-Profit Social Enterprises (NPOs) FEATURES: - No profit is generated but SURPLUSES - Donations are important - Unclear Ownership and control 37 Non-Profit Organizations (NPOs) Advantages Disadvantages Help people or causes in need Lack of Control and Intense lobbying could lead to undesired outcomes. Foster a philanthropic spirit in the community Irregular Funding Ability to Innovate Passionate(radical) employees could be counterproductive to the cause. 38 Practice Question Off2SchoolSupplies Off2SchoolSupplies (O2S) is an office supply company that for years sold exclusively to small, privately held companies located in the region where O2S was located and with which O2S had strong relationships. O2S never tried to sell to state schools, the government, or large publicly held companies. O2S’s approach worked. The company saw its sales revenue grow year in year for two decades. With the arrival of the internet, however, O2S has experienced slowing sales revenue growth. More and more small businesses now purchase their office supplies from online sellers. To generate additional sales revenue to offset the slowing growth in the private sector, O2S has started trying to reach public sector organizations. a) With reference to O2S, distinguish between the private and the public sectors. [4 marks] Source: Business Management Course Companion 2022, by Lominé, Loykie; Muchena, Martin; Pierce, 39 Robert A. Oxford University Press, 2022 Edition. Activity: NPOs Look at the websites for two NGO’s - one local and one international. Make notes about when they were established, the work they do, and any recent news articles about them. Can you find any information about their funding and organization? What are the main similarities and differences between the two NGO’s? Source: Business Management Course Companion 2022, by Lominé, Loykie; Muchena, Martin; Pierce,40 Robert A. Oxford University Press, 2022 Edition. TOK Discussion 1. Is the label “social enterprise” appropriate? 2. Can businesses be separated from a profit motive? Can any business be separated from a social purpose? 3. Is it better to have some services managed by public or private sector organizations? 41