1.2 Types of Business Entities

• The public sector is government owned, distribute common goods and work for the public good.
• The private sector is privately owned and sells goods and services with the motivation primarily for profit.
• Sole traders are individuals who own a business. Advantages include few legal formalities, profit taking, autonomy, privacy and quicker decision making. Disadvantages include unlimited liability, limited sources of finance, stress, high risk and low economies of scale.
• Unlimited liability means that shareholders and owners are personally liable.
• Limited liability means that the organisation (not the shareholders or owners) are held liable.
• A partnership is a business owned by 2 or more people referred to as partners. At least one partner has unlimited liability with partners sharing profits and losses as stipulated in the deed of partnership. Advantages include financial strength, specialisation of labour, financial privacy and cost-efficiency. Disadvantages include unlimited liability, lack of continuity, in-efficient decision making and disputes.
• A limited liability company is owned by shareholders. Advantages include raising finance, limited liability, economies of scale, productivity and tax benefits. Disadvantages include communication issues, complexities, compliance costs,information disclosure, bureaucracy and loss of control.
• A privately held limited liability company is owned by friends and/or family privately with shares unable to be sold on a public stock exchange.
• A publicly held company sells shares on a public stock exchange with no permission needed from other shareholders for shareholders to sell their shares.
• For-profit social enterprises generate a profit and use surplus to fund social causes emphasizing a triple bottom line (CSR included in results).
• Private sector for-profit social enterprises have a triple bottom line using surplus to achieve its social aims.
• Public Sector for-profit social enterprises are state owned but operate in a commercial way helping raise government revenue for essential services.
• Cooperatives are organisations composed of members/employees where profit is shared between members with all motivated to act in a socially responsible way. Advantages include the incentive to work, decision making power, social benefits and public support. Disadvantages include disincentive effects, limited finance, inefficient decisions etc.
• Non-governmental organisations operate in the private sector providing goods expected of the public sector when underprovided by governments.
• A deed of partnership is a legal document that sets the terms of a partnership.