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Topic 2
Types of organisation
Public & Private sectors
Free or CommandEverything is
privately ownedThe government has no control
Prices for goods are influenced by
demand
Consumers can buy what they
want
Workers work hard because they
can keep all of their money
Businesses can compete with each
other
The government controls all the
resources
Government decides what to produce and in what quantities
There is very little waste resulting from competing
firmsThere is work for
everybody
The needs of the population are
met, but there are little luxuries
Mixed
Free Command
Mixed EconomiesFree Command
Mixed EconomiesFree Command
Public or PrivatePublic
Private
Public or PrivatePublic
Private
Advantages & Disadvantages of Privatisation
Business ran
efficiently
Competition is
allowed, better for customers
More money can be
invested for improvement
s
Business is ran to make a profit,
not for government popularity
Business is ran for profit, loss making departments will
be closed
Public companies
benefited the majority of population
Starting a business
creat
ivity
Academia
Communicati
on
Independent
Multi-tasking
Prepared
to take
risks
Team
work
Energetic
Problem solving
Leadershi
p
(un) Limited Liability
(un)incorporated
unincorporated1 Legal entity
incorporated2 Legal entities
Unlimited LiabilityThe owners are
responsible for all debts
Limited LiabilityThe owners are not responsible for all
debts
Business ownership
Soletrader
Partnership
ltd
PlcCo-op
1.4 Legal structure
Sole traders
• A sole trader is an individual who owns and runs their
own business.
• The simplest form of business.
• A sole trader has unlimited liability - they are
personally responsible for all debts run up by the
business.
• They could lose their home and all of their assets to
pay off any debts that they are unable to pay.
Soletrader
1.4 Legal structure
Sole tradersBenefits and disadvantages of being a
sole trader
Benefits– Cheap and easy to
set up– All profits go to you!– Competitors can’t
see your accounts– Highly motivated– You are the boss!
Drawbacks– Unlimited liability– Limited finance– Difficult to find cover
when ill
Soletrader
Choosing the appropriate legal structure
1.4 Legal structure
Sarah has always dreamt of being her own boss and at the age of just 22 an opportunity arose. Patricia, the owner of the gift shop where Sarah worked, was due to retire and close the business that she had
operated as a sole trader for over 40 years. Sarah wondered whether she had the necessary skills to run the shop herself and finally plucked
up the courage to talk to her boss about her buying the shop.
Question Time1.What is meant by the term ‘sole trader’. (2 marks)2.Explain one advantage of Patricia running the shop as a sole trade
(2 marks)3.Explain one disadvantage of Patricia running the shop as a sole trader. (2 marks)4.Identify and explain three skills Sarah would need to operate the shop as a sole trader? (6 marks) Soletrader
1.4 Legal structure
Partnerships• A partnership is where 2-20 people run the business• Each partner is equally responsible for debts incurred.• Each partner will take a share of the profits• Each partner usually shares in the decision making. • ‘Sleeping’ partners invest in, but do not run, the business.
Partnership
1.4 Legal structure
PartnershipsBenefits and disadvantages of being
a partnership
• Benefits– Risks and
responsibilities are shared
– More specialist skills– Competitors can’t see
your accounts– Easier to raise finance
than a sole trader
• Drawbacks– Unlimited liability– Arguments can occur
between partners– If a partner dies,
resigns or goes bankrupt the partnership is dissolved
– Trust becomes a significant element between partners
Partnership
Limited companies
Ltd Plc
Only friends & family can buy shares
Any member of the public can buy shares
1.4 Legal structure
Private Limited Companies
• Private Limited Companies have Ltd. after the company name.
• They can have one or more members e.g. shareholders
• The shareholders are often family members and have a say in the running of the company
ltd