Private and public sectors

Partnerships

• A partnership involves two or more owners operating a business together.

• Partners can combine capital, expertise, ideas and workload, giving the business more resources than one sole trader may provide.

• Profits and responsibilities are shared between the partners according to their arrangements.

• Traditional general partnerships can expose partners to personal liability for business obligations.

• Shared ownership can make decision-making slower and may create conflict when partners disagree.

• A clear partnership agreement can establish responsibilities, contributions and how profits are divided.

Publicly held companies

• A publicly held company can offer shares to members of the public; many such companies have shares traded on stock exchanges.

• Shareholders are the owners and normally have limited liability.

• Public share issues can provide access to substantial equity finance, supporting large-scale growth.

• Ownership may be distributed among many shareholders, creating greater separation between ownership and management.

• Existing owners may lose some control as new shareholders acquire voting rights.

• Public companies generally face greater reporting, disclosure and regulatory requirements than privately held companies.

For-profit social enterprises: private and public sector

• A private-sector social enterprise is privately owned but uses commercial activity to pursue a defined social or environmental purpose.

• It can earn profits while prioritizing the mission and directing substantial surplus toward achieving that purpose.

• A public-sector social enterprise is owned or controlled by government and can undertake commercial activity while pursuing public or social objectives.

• Both forms may generate revenue and profit, so the crucial distinction is who owns or controls the enterprise.

• In an exam case, connect ownership, commercial activity and the stated social objective before classifying the organization.

Non-profit social enterprises: NGOs

• A non-governmental organization (NGO) is a non-profit organization that operates independently of government control.

• NGOs may operate at local, national or international levels.

• Their purpose commonly involves addressing social, humanitarian, environmental or community needs rather than distributing profits to owners.

• Income can come from sources such as donations, grants, membership contributions or trading activities.

• Any financial surplus is retained to support the organization’s objectives rather than distributed as owner profit.

• Exam analysis should focus on the NGO’s mission, independence, funding and social impact.

Sole traders

• A sole trader is a business owned and controlled by one individual.

• The owner normally makes the main decisions and keeps the business profits after tax.

• Setup and administration are generally relatively simple, supporting quick decision-making and strong owner control.

• The owner and business are typically not legally separate, creating unlimited liability for business debts.

• Finance and expertise may be limited because the business relies heavily on one owner.

• The structure is often suitable where independence and control are more important than access to large amounts of capital.

Privately held companies

• A privately held company is an incorporated business whose shares are held privately rather than offered to the general public.

• The company has a separate legal identity from its owners.

• Shareholders normally benefit from limited liability, restricting their financial exposure to their investment.

• Shares allow the company to raise equity from private investors while ownership remains within a restricted group.

• The business can continue despite changes in individual shareholders, improving continuity.

• Its ability to raise share capital is more restricted than that of a publicly held company because shares cannot be offered publicly.

Social enterprises

• A social enterprise is a business primarily established to achieve a social or environmental objective through commercial activity.

• It normally earns income by trading goods or services rather than existing solely through donations.

• Profits or surpluses are principally used to support the social mission rather than maximize returns to owners.

• Social enterprise describes an organization’s purpose, not one single legal structure.

• The syllabus includes both for-profit and non-profit social enterprises, so profit-making activity does not automatically prevent an organization having a social purpose.

Cooperatives

• A cooperative is jointly owned and democratically controlled by people who voluntarily unite to meet common needs.

• Members may be workers, customers, producers or users of the organization.

• Primary cooperatives commonly operate using one member, one vote, rather than giving greater voting power to those investing more capital.

• Surpluses may be reinvested in the enterprise or returned to members.

• The structure emphasizes member benefit and participation rather than maximizing returns to outside investors.

• Democratic control can improve member involvement but may make decisions more difficult when members have conflicting priorities.