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  1. 1. Business OrganisationBUSINESS ORGANISATION:- Private- and Public-sector FirmThe Private SectorThe economy can be divided into the private and public sectors. Theprivate sector is owned and ran by members of the general public. Thesefirms include sole traders, partnerships, limited companies (owned byprivate shareholders) and Public Limited Companies (Plcs) (also owned byprivate shareholders).The Public SectorThe Public Sector is made up of the central government in London,various local councils, and firms owned by the government (nationalisedindustries) such as the Post Office.Private-sector Firms:- Types of Private-sector FirmThe table below is a summary of the main types of firm owned bymembers of the general public.Type Example Owners Control Advantages DisadvantagesSole trader Corner 1 With sole trader Requires little capital. Incentive to Unlimited liability. Difficult to shop work hard. Regular customers find capital. Long hours known. Owner can make quick worked. Holidays or illness business decisions. cause problems.Partnership Firm of 2 to 20 Shared equally Each partner contributes capital. Unlimited liability. One doctors between Each partner specialises. Regular partners mistake affects all partners customers known. partners. Partners may disagree.Private limited Small 1 or Directors elected Limited liability. Shareholders Still limited capital forcompany (Ltd) family more by shareholders contribute capital. Protected from expansion. Limited economies business takeovers. of scale.Public limited Boots 2 or Directors elected Limited liability. Large amount of Unwanted takeover (plc) more by shareholders capital can be raised. Economies Can be remote from of scale. customers. Potential diseconomies of scale.Co-operative Oxford and 2 or Committee Profits returned to customers. Committee may lack business Swindon more Democratic. experience.GA
  2. 2. Business OrganisationLiabilityThe owners are liable or responsible for the debts of a company. • Unlimited liability means the owner may have to sell some or all of his personal possessions to help pay off the companys debts. • Limited liability means that the owner loses only the money he has put into the company and no more. He does not have to sell personal belongings.Establishing a Limited CompanyLimited companies have their own legal identity. They can sue people andother companies and be sued themselves. Anyone wanting to establish alimited company must issue: • A memorandum of association stating the name, aims and address of the company and the amount of capital to be raised. • Articles of association stating the internal organisation of the company.The Registrar of Companies then issues a certificate of incorporationwhich permits the company to trade.The limited company then prepares a prospectus describing the historyand prospects of the firm and inviting individuals to buy their shares. Onlya public limited company can advertise its prospectus.Each share allows one vote and pays one dividend (profit payment). Eachyear the shareholders elect a chairman and a board of directors whocontrol the everyday running of the firm.GA
  3. 3. Business OrganisationPublic-sector Firms:- Types of Public-sector FirmEach nationalised industry (or public corporation) has its own Act ofParliament and its own government minister. Firms owned by thegovernment aim to operate in the public interest and do not necessarilytry to make maximum profits.Public Limited Companies and Public Corporations (These arecompared in the Table below…Differences between public limited companies and public corporationsFeature Public limited company Public corporationOwnership General Public GovernmentControl Chairman elected by shareholders Chairman selected by the governmentSize Large Very largeCapital Raised by issuing shares Raised by issuing stocksProfits Go to the shareholders Go to the governmentAim Make a large profit Serve the public interestPrivatisationThe Thatcher administration followed a course of selling state-ownedfirms such as British Telecom back to the private sector. This is calledprivatisation.Arguments for Privatisation • Firms operate more efficiently in the private sector because they are trying to maximise profits. • Money can be raised to increase government services or to pay for tax cuts. • Ordinary people become shareholders and take a greater interest in economic matters (peopless capitalism).GA
  4. 4. Business OrganisationArguments Against Privatisation • Public monopolies simply become private monopolies. • Socially necessary but unprofitable services may not now be provided. • Nationalised industries are already owned indirectly by the general public.MultinationalsA multinational corporation is a very large firm with a head office in onecountry and several branches operating overseas.Advantages of Multinationals • Investment by multinationals creates jobs for the host country. • The multinational will introduce new production techniques and managerial skills. • New or better goods may now become available in the host country.Disadvantages of Multinationals • Profits are returned to the overseas head office. • The multinational may operate against the interest of the host country. • The multinational may force its overseas branches to buy supplies from the head office.GA