PRIVATE SECTOR – BUSINESS ORGANIZATION:

SOLE TRADERS:

• Business owned and operated by 1 person
• Common due to few legal regulations

ADVANTAGES	DISADVANTAGES
1. Few legal regulations	1. Unlimited liability
2. Complete control over the business	2. Lack of capital
3. Freedom to choose holidays and working time	3. Likely to remain small
4. Close contact with customers	4. No continuity if the trader died (the business wouldn’t legally exist)
5. Receives all profit

PARTNERSHIPS:

Agreement between 2 or more people to own, run, and finance a business jointly

ADVANTAGES	DISADVANTAGES
1. Easy to set up	1. Unlimited liability
2. More capital than sole traders	2. Unincorporated business
3. Responsibility is shared	3. Partners disagree
4. Partners share losses	4. If a partner is inefficient, the business could lose money
	5. Business growth is limited to capital of 20 investing people

NOTE: an incorporated business is:

• A company that exists separately from owners and continues even if 1 died
• A company can make accounts or legal agreements
• Company accounts are separate from owner’s accounts

PRIVATE LIMITED COMPANY:

Shareholders: people that buy shares in the company and appoint directors to run business

ADVANTAGES	DISADVANTAGES
1. Shares sold to people known by shareholders	1. Shares can’t be sold unless other shareholders agree
2. Make money to expand more rapidly	2. Less secret due to the annual register of companies
3. All shareholders have limited liability	3. Cannot offer shares to the public
4. People who started the company can keep control as long as they don’t sell too many shares

FRANCHISES:

• A franchise is granted by the owner of a firm (the franchisor) to another individual or business (the franchisee) to use their business idea. Examples include McDonald’s, Sephora, Carrefour, etc.

ADVANTAGES
To the franchisor	To the franchisee
1. The franchisee buys a licence from the franchisor to use the brand name	1. The chances of business failure are much reduced because a well-known product is being sold
2. Expansion of the franchised business is much faster than if the franchisor had to finance all new outlets	2. The franchisor pays for advertising
3. The management of the outlets is the responsibility of the franchisee	3. All supplies are obtained from a central source – the franchisor
4. All products sold must be obtained from the franchisor	4. There are fewer decisions to make than with an independent business – prices, store layout and range of products will have been decided by the franchisor
	5. Training for staff and management is provided by the franchisor
	6. Banks are often willing to lend to franchisees due to relatively low risk
DISADVANTAGES
To the franchisor	To the franchisee
1. Poor management of one franchised outlet could lead to a bad reputation for the whole business	1. Less independence than with operating a non-franchised business
2. The franchisee keeps profits from the outlet	2. May be unable to make decisions that would suit the local area, for example, new products that are not part of the range offered by the franchisor
	3. Licence fee must be paid to the franchisor and possibly a percentage of the annual turnover

Credits of the table: Cambridge IGCSE and O Level Business Studies 5th edition (Karen Borrington  Peter Stimpson)

JOINT VENTURE:

• It is an agreement between two or more businesses to work together on a project
• Example: Microsoft and General Electric
• Advantages:  

1. Each company adds a unique set of skills to the joint venture
2. The market potential of all joint venture enterprises is expanded
3. Lowers risks and costs
4. Businesses can profit from the sharing of market and product expertise.

• Disadvantages: 

1. If 1 of the companies does a mistake this will reflect badly on all businesses involved (can lead to bad reputations)
2. Due to different backgrounds of each business, this can lead to ineffective/slow decision-making and disagreements

PUBLIC SECTOR ORGANIZATIONS:

• They are owned by the government and their main aim is not profit (unlike private sector businesses)
• They aim to provide services to people such as healthcare, education, etc., keep prices low in order for everyone to afford the services, and employ people
• Advantages: 

1. Provide essential services
2. Rescue important failing businesses
3. Cuts waste in an industry
4. Owns industries that are too important to be controlled by private people (like water/electricity)

• Disadvantages: 

1. No competition
2. Employee motivation is low since profit is not the main aim
3. Subsides can lead to inefficiency