2. We would like to thanks Mr. Tarun bharadwaj
(Teacher) for assigning this work & without his
guidance this work is not possible.
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3. Definition: 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.
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4. The private sector – Legal structure
Private sector business
Sole trader Partnerships Limited Cooperatives
companies
Private
limited Franchises
companies
Public limited Joint venture
companies
Holding
companies
Public sector
enterprises
Privatisation
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5. 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
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6. 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.
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7. 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.
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8. 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 UNICEF 8
9. 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.
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10. 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
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11. 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
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12. Private Limited Companies:
Must Register with Registrar of Companies at Companies
House
• Memorandum of Association
Details of the nature, purpose and structure of the
company
• Articles of Association
Details 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
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13. 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
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14. 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
15. Features of cooperatives :→
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. 15
16. 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
17. Franchises: Advantages
• 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
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18. Franchises: Disadvantages
• 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.
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19. Joint venture:
• 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΄. 19
20. The benefits of Joint ventures
• 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’.
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21. The drawbacks of Joint ventures
• 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
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22. Holding companies:
• 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.
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23. Public sector enterprises-:
• 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. 23
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 24
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.
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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,
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