1.2: Types of Organisations
1.2: Types of Organisations
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)
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.
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.
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.
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.