Types of Organization
What is the difference between the public and private sector?Public sector – organizations that operate
under the ownership and control of the governmentPublic corporations are wholly owned by the
government, such as the US Postal ServicePrivate sector – Businesses that are owned
and controlled by private individuals and organizations
Why do some organizations belong in the public sector?To ensure everyone has access to basic
services, such as health care or educationTo avoid wasteful competition and enjoy the
benefits of economies of scale, such as with energy or national defense
To protect citizens, such as the police or courts system
To reduce unemployment
What is a sole-trader?Sole traders: self-employed business people
who run their own businesses (private sector)Advantages
Few legal formalities Profits don’t have to split Being your own boss
Disadvantages Unlimited liability (meaning the owner can be sued
for all possessions) Limited sources of finance Lack of continuity
What is a partnership?Partnership: business owned by two or
more people (public sector)Advantages
Financial strengthDivision of labor or specialization
DisadvantagesUnlimited liability (though split among
partners)Decision-making takes longerStill may be difficult to raise capital
What is a company or corporation?Company/Corporation: businesses that are
owned by shareholdersNOTE: Do not use the term business and company
interchangeably (See example tip on p.32)Advantages
Lower risk to investorsEconomies of scale due to larger sizeContinuity
DisadvantagesFinancial information must be shared with all
shareholdersMore bureaucracyCommunication problems
How can companies be classified?Private limited companies: Shares are sold to
a private family or friendsDo not have report financial standing of the
companyPublic limited companies: Sells shares of the
company to the publicFinancial information about the company must
be made public
Why do people become shares?To receive dividends (portions of the profits
of the company)For capital growth (prices of the shares
increase)For voting power
What is a non-profit organization?Non-profit organization or not-for-profit
organization: establishment run in a business-like manner, but profit is not the major objectiveBusiness surplus (or profit) is put back into the
business
What is a non-governmental organization?Non-governmental organization: a type of
not-for-profit organization that are run for the benefit of others in society (also called Private Voluntary Organizations)Two types of NGOs
Operational NGOs: established for a given objective Example: Unicef (United Nations Children’s Fund)
Advocacy NGOs: take an aggressive approach to defend a cause Example: Greenpeace
What is a charity?Charity: non-profit organization that collects
donations in support of a causeAdvantages
Provide support for the welfare of societyExempt from paying income tax
DisadvantagesLack of profit motive may cause staff to be
unmotivatedSurvives solely on donations, which may cause
financial problems and decrease quality of talent pool
What is a pressure group?Pressure group: Non-profit organization
established by their members to address a special interest of the groupCovered more in Unit 1.4
HL: Relationship between public and private sector organizationsWhat is the role of the government?
To provide services to the general public that are in its best interest
What options does the government have to provide these services?Supply the services themselvesAllow private firms to supply themForm a public-private sector partnership (such
as Disneyland in Japan)
What is the difference between public and private goods?Private goods: Goods that are excludable;
people who cannot afford them can go without them (such as mobile phones, cars, etc.)
Private goods: Products that are enjoyed by the general public but would probably not be provided without government intervention