1.2 Types of business entities

Types of organizations

A sole trader is a single person who owns and operates a business. They are personally responsible for all aspects of the business, including its debts. This means their personal assets could be at risk if the business fails.

Advantages:

Disadvantages:

A partnership is a business owned by two or more people who share its profits and losses. Unlike sole traders, partnerships can pool resources and have the potential for more capital. However, all partners are generally liable for the business's debts.

Advantages:

Financial strength: More capital available due to multiple owners.
Specialization: Partners can focus on different areas of expertise.
Financial privacy: Partnership finances are not public record.
Cost-effectiveness: Shared workload and specialized roles can increase efficiency.

Disadvantages:

A privately held company is a business owned by a limited group of individuals, typically family and friends. Unlike publicly traded companies, shares in a privately held company cannot be bought or sold freely.
Whilst a publicly held company shares many similarities with a privately held company, it is able to advertise and sell its shares to the general public via a Stock Exchange. It often carries the letters 'PLC' after its name, but again this practice varies between regions

Advantages:

Large capital: Companies can raise significant funds by selling shares without incurring interest charges.
Limited liability: Investors are protected from personal financial loss, attracting more investment.
Continuity: Companies exist independently of their owners, ensuring business continuity.
Productivity: Specialized management and staff can focus on core business operations.

Disadvantages:

Communication challenges: Growth can lead to impersonal relationships with customers and employees.
Increased complexity and costs: Running a company involves more bureaucracy and expenses compared to sole proprietorships or partnerships.
Disclosure requirements: Companies must share financial information publicly, which is time-consuming and expensive.
Loss of control: Public companies risk being taken over by external investors.

Cooperatives are for-profit businesses owned and managed by their members. These members can be employees, customers, or other stakeholders. The primary goal is to benefit members through socially responsible operations.

Advantages:

Employee motivation: Employees are more invested in the cooperative's success due to ownership.
Democratic decision-making: Employees have a voice in the business, fostering commitment and loyalty.
Public support: Cooperatives often enjoy positive public image and support.

Disadvantages:

Potential inefficiency: Democratic decision-making can be slower and less efficient.
Limited financial resources: Cooperatives may struggle to raise capital compared to traditional businesses.
Lack of incentives: Without traditional performance-based rewards, employee motivation might suffer.

Social enterprises are businesses that prioritize social objectives while also generating profits. Unlike traditional businesses that aim to maximize profits for owners, social enterprises use their profits to achieve social goals.
Social enterprises offer several benefits to society:
Social impact: Profits are reinvested into the community rather than distributed to shareholders.
Job creation: They contribute to economic growth by creating employment opportunities.
Transparency: Their operations are often open and focused on achieving social goals.

Public sector for-profit social enterprises are state-owned enterprises run in a commercial way.
They are formed by the government through legal means and regulated as they participate in commercial business activities for financial gain. These public sector companies are owned by the government, whether wholly or partially.
They help to raise much-needed government revenues yet provide essential services that may be inefficient and undesirable if left solely to the private sector.