1.2: Types of Organisations (Factors Influencing Strategic Choice: (Amount…
1.2: Types of Organisations
The private sector is owned and controlled by individuals rather than the government, and has the main aim of turning over profit (revenue - production costs = profit)
The public sector is owned and operated by the government, and aims to supply products which are undersupplied by the private sector, or which are provided insufficiently. State-owned enterprises are wholly owned by the government.
Reasons for public sector activity:
Protect citizens + businesses through law + order
To avoid wasteful consumption; govt. can achieve huge economies of scale
Ensures equal access to basic services
Stabilise the economy (e.g. nationalising banks during the GFC to minimise further financial turmoil)
Profit-Based Organisations (private sector):
Sole traders/proprietors are individuals who own and operate unincorporated businesses. Most common type of profit-based organisation. Start-up capital from personal savings, borrowing.
Partnerships are unincorporated businesses most often owned/operated by 2-20 partners. Silent partners only invest; active partners invest + run a business. Most partnerships have a deed of partnership drawn up.
A Deed of Partnership is likely to include (per partner): $ contributed; roles/responsibilities/obligations; profit/loss share; conditions for introducing new partners; clauses for partner withdrawal; procedures for ending the partnership.
Companies/corporations are incorporated businesses owned by their shareholders (joint-stock companies). Elect a BOD to run the business on their behalf - elected due to their skills/qualifications/experience. Shareholders do not want to run the company. The most they can lose is their investment in the company. Large institutional companies + directors hold most of share; worth most votes. 1 share = 1 vote(most often). Private and public limited companies
Private limited companies (Ltd.) can only sell their shares to family members + friends; must gain permission from the BOD. Cannot sell on a stock market. Public limited companies (PLC) can sell shares on a stock market + to the public with no need for BOD approval.
Memorandum of Association (fundamentals) + Articles of Association (internal regulations + admin details) must be submitted + fees are paid to the appropriate authorities before a Certificate of Incorporation can be issued to the company, which allows it to operate as an incorporated company.
Floatation of a PLC occurs when it first sells part or all of its shares on a stock market to external investors (shareholders), a process known as an initial public offering (IPO). Largest shareholders = institutional + commercial investors.
Despite limited liability, shareholders can still suffer as: dividends cannot be distributed and negative capital growth (the devaluation of share prices) can occur. Shareholder conflicts may also often conflict.
Annual General Meetings (AGMs):
Allow shareholders to have a say in running the business
Consist of three main parts: the election/re-election (by vote) of the BOD; Q&A session with the CEO + chairperson; approval of year's financial accounts following the presentation of an annual report outlining company performance.
For-Profit Social Enterprises
For-profit social enterprises use capital raised for social benefits/causes, rather than to supplement their personal income.
Two main objectives which they use their surplus funds on: achieve social goals and ensure self-preservation and growth of the business.
Three main types of for-profit enterprises: cooperatives, microfinance providers and public-private partnerships. All cooperatives are: democratically run + owned (one vote per person for most); owned + operated by its members; have even profit distribution; common goal of creating value for members through acting in a socially responsible way. Distribute profits made between members.
Consumer cooperatives: are owned + operated by and for the benefit of the consumer. (Mostly) members have cheaper access to wholesale purchases made by the business.
Worker cooperatives: the employees of the business are also the owners and operators; provided with work.
Producer cooperatives: where producers join together for their mutual benefit (sharing storage/marketing).
Microfinance providers provide start-up capital to the disadvantaged/poor at extremely low interest rates.
Public-private partnerships/enterprises occur as the government partners with the private sector to provide a good or service which is under- or poorly-provided. It benefits both the govt./economy and the private party. Dynamics, finance + efficiency of priv. and funding/support from govt.
Non-Profit Social Enterprises:
Operate like a commercial business, however use their surplus funds to achieve social goals rather than to distribute as profits/dividends. All $ is kept within the business for its self-preservation and growth.
NGOs/PVOs are 'private organisations that pursue activities to relieve suffering, promote the interests of the poor, protect the environment, provide basic social services or undertake community development. Operational = hands-on work. Advocacy = promote/defend a cause with displays; more aggressive.
Charities provide voluntary support + raises funds from individuals and organisations to support a cause beneficial to society. Do not sell products - use refined methods of marketing. Run by managers + trustees in place of BOD. Most are volunteers; few are paid v. little.
Factors Influencing Strategic Choice:
Amount of finance
Limited liability (wanted/unwanted?)
Degree of ownership + control
Type of business activity (nature + scale)
Change (growth - requires additional resources)