PRIVATE SECTOR ORGANIZATION

BY-: Yugank Gupta Ⅺ {IGCSE}

1

We would like to thanks Mr. Tarun bharadwaj (Teacher) for assigning this work & without his guidance this work is

not possible.

2

ACNOWLEDGEMENT

PRIVATE SECTORDefinition: The private sector comprises business and controlled by individuals or groups of individuals. In nearly every country, most business activity is in the private sector.

Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners.

3

The private sector – Legal structure

4

Private sector business

Sole trader Partnerships

Limited companies

Private limited

companies

Public limited

companies

Cooperatives

Franchises

Joint venture

Holding companies

Public sector

enterprises

Privatisation

Sole Trader:One person managing his or her own business.This person can employ as many workers as he or she

wishes. Owned, financed and controlled by one individual but can

employ other staff.Common in local building firms, small shops, restaurants,

butchers, etc.Although there is a single owner in this business

organisation, it is common for sole traders to employ others, but the firm is likely to remain very small.

All sole traders have unlimited liability.The example is Health scope Direct in Aberdeen Scotland

5

Sole Traders: Advantages

• Easy to set up• Personal incentive –

• keep all the profits • make key decisions• high degree of control

• Flexibility• Ability to offer personal service.• The business can be used on the interests or skills of the owner- rather than working as an employee for a larger firm.

6

Sole Traders: Disadvantages

• Unlimited Liability• Limited access to capital• Potential for long hours• Pressure of being solely responsible• Lack of continuity – business ceases once

owner dies.• Difficult to raise capital.• Long hours often necessary to make

business pay.

7

Partnerships:

Owned, financed and controlled by upwards of 2 partners.

Legally a partnerships must consist of between two and 20 partners.

Common in professions – lawyers, accountants, architects, surveyors, estate agents, vets, etc.

How long the partnership is expected to last. Arrangements about holidays, time off and

illness. Dissolving a partnership. A partnership usually

automatically dissolves on the death or bankruptcy of a partner.

The example of partnerships is UNICEF8

Partnerships: Advantages

• Greater access to capital.• Shared responsibility.• Greater opportunity for specialisation.• Easy to set up.• Responsibilities and decision making

are shared.• More finance is available because all

the partners can contribute.• Shared decision making.

9

Partnerships: Disadvantages

• Unlimited Liability (However since 2001, Partnerships can apply to be Limited Partnerships)

• All partners liable for the debts of the others • Partnership dissolved on death of one partner• Potential for conflict• Decisions of one partner binding on the rest• Limited access to capital• Profits are shared• Partners have unlimited liability

10

Limited companies:Private Limited Company (Ltd)

Owned by between 1 and 50 shareholders

A statement of the amount of the share capital.

Details of the company director and the company secretary.

Public Limited Company (PLC) Owned by minimum of 2 but no maximum number of shareholders

Has a separate legal identity – the company can sue and be sued

11

Private Limited Companies:Must Register with Registrar of Companies at Companies House

• Memorandum of AssociationDetails of the nature, purpose and structure of the company

• Articles of AssociationDetails of the internal rules of the company

• Certificate of Incorporation – allows the company to trade • Shareholders have limited liability – can only lose what they agreed to put into the company – no personal liability• PLCs – shares traded on Stock Exchange• LTDs – shares only bought and sold with agreement of existing shareholders.• Examples is BMW, Coca-Cola

12

Public Limited Companies -Issues

• Divorce between ownership and control• Potential for diseconomies of scale –

communication, decision making, etc.• Must publish accounts• PLCs – shareholders may be large institutions –

pension funds, insurance companies, etc.• PLCs - Share value subject to volatility – affects

company value• PLCs – can be large, complex, possess market

power• MARKS & Spencer are the most large retails

chains

13

Cooperatives:Ownership, finance and control in hands of ‘members’

•Exists for the benefit of ‘members’•Consumer co-ops – members buy goods in bulk, sell to members, divide profits between members

• Worker co-operatives – workers buy the business and run it – decisions and profits shared by members

• Producer co-operatives – producers organise distribution and sale of products themselves

14

Features of cooperatives :→

15

All members can contribute to the running of the business, sharing the work load, responsibilities and decision making, although in larger cooperatives some delegation to professional managers takes place;All members have one vote at important

meetings;Profits are shared equally amongst

members.The cooperatives are World Health

Organisations, United nations.

Franchise: Method of business ownership backed by established ‘brand’ name

• Owner gets to run a business with less ‘risk’• Owner buys the right to use the established company’s name, format products, logos, display units, methods, etc.

• Speedy way for business to expand• Become very popular• Owner – (Franchisee) responsible for debts, pays a royalty to owners of the brand, keeps any remaining profit

• Franchisee – pays a fee for the purchase of the franchise• Common franchises – Body Shop, McDonalds, Costa Coffee, Subway etc. 16

Franchises: Advantages

17

• Franchisors Benefit as they are able to expand their business with limited finance.• Franchisors receive a proportion of income

from the franchisee in the form of a licence.• Franchisees are often starting a business

already has a well-known name and has been tried and tested in other areas. It is therefore less risky

Franchises: Disadvantages

18

• Popular Franchises can be very expensive• Franchisees are often restricted to a specific site and for a specific time.• A royalty has to be paid to the franchisor, even when a loss has been made.• If franchisees set up as sole traders, or partnerships, they face unlimited liability.

Joint venture:

19

• These occur when two businesses agree to work closely together on a particular project and create separate business division to do so.• This is not the same as a mergers• (Joint venture) a venture by a partnership or

conglomerate designed to share risk or expertise;"a joint venture between the film  companies to produce TV shows“• The another example is΄Mitsubishi Nissan΄.

The benefits of Joint ventures

20

• Costs and risks of a new business venture are shared• Different companies might have different

strengths and experiences and they therefore fit well together• They might have their major markets in

different countries and they could exploit these with the new product more effectively than if they both decided to ‘go it alone’.

The drawbacks of Joint ventures

21

• Styles of management and culture might be so different that the two teams do not blend well together,• errors and mistakes might lead to one blaming

the other for mistakes;• the business failure of one of the partners

would put the whole project at risk

Holding companies:

22

• This is not a different legal form of business organisation.• A holding company is one that owns and

controls a number of separate businesses• Often the separate businesses businesses are

in different markets al together and this would mean that the holding company had diversified interests.

Public sector enterprises-:

23

• The use of the term ΄public΄ in two ways often causes confusion. We have already identified public limited companies as being owned by shareholders in the private sector of the economy• These organisations are therefore in the public

sector and they are referred to as public corporations . • The public sector examples is DHL courier

services.

24

Privatisation :

• Selling state-owned and controlled business organisations to investors in the private sector is called privatisation. • Privatisation is the transfer of ownership of

business, enterprise, agency or public service from the public sector (the state or government) to the private sector (businesses that operate for a private profit) or to private non-profit organizations.• Microsoft is the leading examples

25

Arguments for privatisation:•The profit motive of private sector businessses will lead to much greater efficiency than when a business is supported and subsided by the state.•Decision making in state bodies can be slow and bureaucratic.•.Improve incentives for productive efficiency.It makes managers accountable to shareholders.•2. Pre-commitment by government not to interfere for political reasons.• Increased share ownership.

26

Arguments against Privatisation:

•Through State ownership, an Industry can be made accountable to the country.•Many strategic industries Could be operated as private monopolies if privatised and they could exploit consumers with high prices.•Privatization will encourage infrastructure construction and reduce congestion Since traffic congestion is caused by there being more traffic than the highway can handle,

27

THE END