IBBM

Topic 1.2
Content Objectives
Nitish Aggarwal
11/6/15
1st Business Management

➔ Distinguish between the private and the public sectors.

1. Differentiate between the private sector and the public sector.
Public sector is comprised of organizations that are accountable to and controlled by central or
local government (state).
Private sector is comprised of businesses owned and controlled by individuals or groups of
individuals.
2. Describe a mixed economy.
A mixed economy is where economic resources are owned and controlled by both private and public
sectors.
3. Describe a free-market economy.
A free-market economy is where economic resources are owned largely by the private sector with very
little state intervention.
4. Describe a command economy.
A command economy is where economic resources are owned, planned, and controlled by the
state.
5. State some industries that are often considered too significant to be provided by private sector businesses.
● Health and education services
● Defiance and law and order (police force)
● Energy, telecommunications, and public transport
6. Define privatization.
The sale of public sector organizations to the private sector.
7. Define public corporation. State a few examples of public corporations.
Public corporation: A business enterprise owned and controlled by the state -- also known as
“nationalized industry” or “public sector enterprise”
8. Explain why the term 'public' can cause confusion when used in a business organization context.
Because public limited companies are owned by shareholders in the private sector of the
economy. Thus, public limited companies are in the private sector. However, in every country,
there will be some enterprises that are owned by the state → These organizations are therefore in
the public sector and they are referred to as public corporations.

● Public limited companies are in the private sector of industry -- but public corporations are not.
➔ Outline the main features of the following types of for-profit (commercial) organizations: sole
traders, partnerships, and companies/corporations.
9. Define sole trader.
A business in which one person provides the permanent finance and, in return, has full control of
the business and is able to keep all of the profits.
10. List some advantages to organizing a business as a sole trader.
● Easy to set up
● Owner has complete control
● Owner keeps all profits
● Able to choose working times and patterns
● Able to establish close personal relationships with staff
● The business can be based on the interests or skills of the owner -- rather than working as an
employee for a larger firm
11. List some disadvantages to organizing a business as a sole trader.
● Unlimited liability -- all of owner’s assets are potentially at risk
● Faces competition from bigger firms
● Owner is unable to specialize in areas of the business that are most interesting => responsible
for all aspects of management
● Lack of continuity
12. Define partnership.
A business formed by two or more people to carry on a business together, with shared capital
and investment and, usually, shared responsibilities.
13. Explain why it is important to choose business partners carefully. State some issues that would be agreed
upon in a deed of partnership.
The errors and poor decisions of any one partner is the responsibility of all partners.
“Deed of partnership” provides agreement on issues such as voting rights, distribution of profits,
and management role of each partner and who has the authority to sign contracts.
14. List some advantages to organizing a business as a partnership.
● Partners may specialize in different areas of business management
● Shared decision-making
● Business losses shared between partners
● Fewer legal formalities (easy to set up)
15. List some disadvantages to organizing a business as a partnership.
● Unlimited liability for all partners
● Profits are shared
● All partners are bound by the decisions made by any of them
● Not possible to raise capital from selling shares
● Lose independence in decision-making
16. Define limited liability.
The only liability -- or potential loss-- a shareholder has if the company fails is the amount
invested in the company, not the total wealth of the shareholder.
17. Define share.
A certificate confirming part ownership of a company and entitling the shareholder to dividends
and certain shareholder rights.
18. Define shareholder.
Shareholders are individuals or institutions that buy/own shares in a limited company.
19. Explain how the death of an owner or director of a company does not lead to its break-up or dissolution.
All that happens is that ownership continues through the inheritance of the shares, and there is
no break in ownership at all.
20. Define private limited company. Identify what word indicates that a business is a private limited company.
A private limited company is a small to medium-sized business that is owned by shareholders
who are often members of the same family ; this company cannot sell shares to the general
public
21. List some advantages to organizing a business as a private limited company.
● Shareholders have limited liability
● Continuity in the event of the death of a shareholder
● Original owner is still often able to retain control
● Greater status than unincorporated business
22. List some disadvantages to organizing a business as a private limited company.
● Legal formalities involved in establishing business (harder to set up)
● Capital cannot be raised by sale of shares to general public
● Difficult for shareholders to sell shares
23. Define public limited company. Identify what abbreviations are used after a company name to distinguish
a public limited company.
A public limited company is a limited company, often a large business, with the legal right to sell
shares to the general public; its share price is quoted on the national stock exchange.
Public limited companies can be recognized through use of “plc” or “Inc.”
24. Identify what a stock market flotation accomplishes.
Converting a private limited company to public limited company (plc) status is referred to as a
stock market flotation.
25. List some advantages to organizing a business as a public limited company.
● Limited liability
● Separate legal entity
● Continuity
● Ease of buying and selling of shares for shareholders -- this encourages investment in plcs
● Access to substantial capital sources due to the ability to issue a prospectus to the public and
to offer shares for sale
26. List some disadvantages to organizing a business as a public limited company.
● Legal formalities in formation
● Cost of business consultants and financial advisers when creating a plc
● Share prices subject to fluctuation -- sometimes for reasons such state of the economy
● Risk of takeover due to the availability of the shares on the stock exchange
➔ Outline the main features of the following types of for-profit social enterprises: cooperatives,
microfinance providers, and public-private partnerships (PPP).
27. Define for-profit social enterprise.
Social enterprise: A business with mainly social objectives that reinvests most of its profits into
benefiting society rather than maximizing returns to owners.
28. Identify common features of for-profit social enterprises.
● They directly produce goods or provide services
● They have social aims and use ethical ways of achieving them
● They need to make a surplus or profit to survive as they cannot rely on donations as charities
do
29. Define triple bottom line.
The three objectives of social enterprises: economic, social, and environmental
30. Outline the main features of a cooperative. List some examples.
A cooperative is a group of people acting together to meet the common needs and aspirations of its
members, sharing ownership and making decisions democratically; have unique character, values, and
principles

Cooperatives tend to fall into one of these three groups:

● Retail cooperative
● Agricultural cooperative
● Worker cooperative
31. Outline the main features of a microfinance institution.
Microfinance is the lending of small amounts of money at low interest to new businesses in the
developing world.
32. Identify a main condition that justifies microfinance.
Developing, low-income countries that need finance.
33. Outline the main features of a public-private partnership (PPP).
PPP is the involvement of the private sector, in the form of management and expertise and/or
financial investment, in public sector projects aimed at benefiting the public.
➔ Outline the main features of the following types of non-profit social enterprises: non-governmental
organizations (NGOs) and charities.
34. Outline the main features of a non-profit organization (NPO).
A non-profit organization is any organization that has aims other than making and distributing
profit and which is usually governed by a voluntary board.
35. Outline the main features of a non-governmental organization (NGO). List some examples. A non-
governmental organization is a legally constituted body (with no participation or representation of any
government) which has a specific aim and purpose.
● Ex: supporting disadvantaged groups in developing countries ; advocating the protecting of
human rights

36. Outline the main features of a charity. List some examples.

A charity is an organization set up to raise money to help people in need or to support causes that require
funding.
● Ex: prevention or relief of poverty ; advancement of education; advancement of religion