CHAPTER 11 NOTES

The private sector is the part of the economy directly owned and controlled by private individuals

The 6 types of businesses Sole proprietorships Partnerships Joint Stock Companies: Private (Ltd) and Public (Plc) limited companies Holdings companies Multinationals Co-operatives

The aims of the private sector are: Profit maximisation: businesses that have many shareholders are tempted to make as much profit as possible to pay the shareholders dividends. Profit satisficing: some businesses just make enough profit to satisfy their shareholders Growth: only larger firms can exploit economies of scale and make higher profits. Survival: when a business is set up, its less likely to make profit as it will need at least 2 or 3 years to cover its costs and start making a profit. Sales maximisation: when firms try to make as much revenue from sales as possible Social responsibility: when the aim is to act as a good corporate citizen MAIN AIM: PROFIT

Decisions on how resources should be allocated, what to be produced and for whom are taken freely by private individuals or companies.

Unlimited vs Limited Liability Unlimited: means that if a business is not succesful and goes bankrupt the owner/s will have to pay all the business debts. Increases the risk of running a business.(Stand to lose all their personal possesions) Limited: means that if a business goes bankrupt the owner/s will only lose the amount of money they put into the business. Decreases the risk of running a business.

Firm: A unit of managment that trades under a particular name and controls the way in which land, labour and capital are used.

Advantages:+Limited liability: each shareholder is only liable for debts to the equivalent amount of shares they owned+Capital+Seperate legal entity+Continuity of existence: a change in shareholders will bring little or relatively no effect on the running of the company+Economies of scale: limited companies tend to be bigger so they can take advantages trading on a large scale Disadvantages-high cost of formation: the documentation is expensive and difficult to obtain-annual accounts available for inspection: there may be details which the firm wishes to keep private but can't-clash of interest: the interests of the managment may differ from those of the shareholders, the workers or even the government-decision making: the size of the company may lead to a lot of unneccessary rules and regulations. Decision making may be slowed down due to the number of channels and people involved.

Multinationals=International companiesCompanies that own and control enterprises in several different countriesThe condition is to have research development, production, or own marketing/distribution in more than one country. Has to be based in many countries.

Holding CompaniesThese are companies that take control of other companies called subsidiaries by governing more than half of their ordinary shares. Advantages: could prevent competition and form a monopoly, close loss making sectors and concentrate on profit making sectors to rationalise the industry, allow firm to achieve large scale production Disadvantages: could form monopolies, they can gain control of a whole group of companies for a relatively small amount of money, and could create unemployment by firing workers after the take over and furing period of rationalisation

A cooperative is an association of persons who join together to carry on an economic activity of mutual benefit.Owned and controlled by their members (the people who produce, buy their goods or use their services Members (shareholders) have one vote each All the members help in the running of the business A board of directors and a manager might be appointed to run the day to day matters of the business The profits are shared equally among the members Shares are not sold on the stock exchange market If a member wants to quit the cooperative shares have to be sold back to the cooperative society A cooperative combines the equal control characteristics of many partnerships with the legal personality conferred on joint stock companies Consumer cooperatives are owned by the people who buy the goods or use the services of the cooperative+Advantages: Members have limited liability, there are competitive prices because profit is not the main aim, and money can be used for social objectives such as educational grants-Disadvantages: they are not motivated solely by profit making which could lead to inefficiency and is a less vigorous approach to business because they do not aim to make profits Producer cooperatives are when producers join together to produce, package or market a commodity and they are profit motivated Worker cooperatives are owned and governed by the employees+Advantages: workers should have a strong incentive to work hard because they are the owners and are more able to negotiate better working conditions-Disadvantages: its difficult to raise enough money to set up and expand, they lack managment experience, and may lead to inefficiency since profit is not a key aim

Sole proprietorship is when the business is owned and controlled by one person. May have many employees but both ownership and control lies with the sole trader.Ownership: the sole proprietor Control: the sole proprietorFinance: personal savings, loans from family and friends or loans available from the banks, government grants, using profit to invest in business instead of personal needs and wants when business starts being profitable and hire purchase (which allows goods to be purchased and paid for in instalments. it is subject to rate of interest. the good does not become property of the owner until the final instalment has been paid)+Advantages: its easy to set up, easy to make decisions and adjust easily to changing conditions, profits will be kept for the owner and affairs of the business will be kept private, no legal requirements-Disadvantages: it is not easy to raise large amounts of capital, unlimited liability, the trader may be commited to working long hours, lack of new ideas, and the business is dissolved if the sole trader get incapacitated or dies

A partnership is when 2 or more people join to form a business with the aim of making a profit (the maximum number is 20) Ordinary partnershipsUnlimited liability business with 2-20 partners. Found in professions such as medicine, accountancy, and the lawOwnership:the partners are the ownersControl: all partners are entiled to participate in the firm unless the partner is a sleeping partner (limited partner)Finance: personal savings, loans from family and friends or loans available from banks, hire purchase (which allows goods to be purchased and paid in instalments. The good does not become the property of the buyer until the final instalment has been paid. It is subject to a rate of interest) government grants, and using profit to invest in business rather than in personal needs or wants, when business starts being profitable.+Advantages: more money or capital will be available, work can be shared among partners, there will be more new ideas, specialisation can occur whereby each partner concentrates on a particular area of work, business affairs remain private, losses can be shared and its cheap and easy to form, only requiring a legal contract called a Deed of Partnership-Disadvantages:the actions of one partner bind them all, profits have to be shared,all partners have unlimited liability, discussions among them are time consuming, the partnership lacks continuity because if one partner leaves the whole partnership is dissolved and a new one has to be formed. Limited partnershipsThese partnerships have limited liability however at least one partner in a limited partnership must have unlimited liability+Advantages: the limited partner is taking less risk and may contribute more capital, and they still take a share in the profits-Disadvantages: they take no part in decision making or in the runnning of the partnership, and limited partners are unable to withdraw any part of their capital unless the general ordinary partners agreee and the limited partners share of profits will be less than the share of unlimited partners because they are taking less of a risk

Joint stock refers to the fact that a number of people have contributed to a common stock of capital, which is to be used up for setting up and running a companyOwned by the shareholders (must be min 2)There are two types of joint stock companies: Private limited company (Ltd) is an incorporated private business with limited liability and a limited number of shareholders. It does not offer shares to the public-Can have 2-50 shareholders-Shares are not offered to the public on the stock exchange-The transfer of shares can take place only with the agreement of all shareholders-It is often a family run business Public limited company (Plc) is an incorporated business enterprise with limited liability that can be quoted on the stock exchange-Minimum 2 shareholders, no maximum-It issues shares to public on the stock exchange market-It is larger than a private limited company-The publics company's owners are the shareholders-It must issue a capital of at least €50,000 to start a business

Joint Stock Company Formation: Many documents have to be prepared Equity Capital: The monetary value of the shareholdings in a firm at a particular moment Ownership: owned by individuals called shareholdersDividend: amount of a companies profits that a shareholder recieves usually once a year Control: a board of directors Finance:personal savings, loans from family and friends or loans available from bank, hire purchase, government grants, and using profit to invest in business instead of personal needs and wants, when business starts being profitableHOWEVER: Private/Public limited companies can also raise finance from:a) Issuing shares     *ordinary shares: carry earned dividend     *preference shares: carry a fixed dividend and holders have no vote    *cumulative preference shares. holders have no vote and recieve a fixed dividendb) Debenturesc) Ploughed back (retained) profitsd) Borrowing from the bank

THE PRIVATE SECTOR & UNLIMITED AND LIMITED LIABILIBY

CO OPERATIVES

SOLE PROPRIETORS & PARTNERSHIPS

JOINT STOCK COMPANIES

HOLDING COMPANIES, MULTINATIONALS