PRIVATE SECTOR AND PUBLIC
SECTOR ORGANIZATIONS
PRIVATE SECTOR
• owned and controlled by private
individuals and organizations
• differ in size, ranging from those owned
and run by just one person to large
multinational companies that operate
throughout the world
• main aim : profit
(Sales Revenue – Total Costs > 0)
• 3 main types of profit-based businesses :
i) Sole traders
ii) Partnerships
iii) Limited Liability Company
*sales revenue= money earned from sales
PUBLIC SECTOR
• under the ownership and control of
the government
• main aim: to provide essential goods
and services that would be provided
inefficiently or underprovided by the
private sector – even if this means the
government makes a loss in doing so
• public corporation (state-owned
enterprise) – wholly owned by the
government
• Eg: UK’s BBC, RTM (M’sia), China’s
Nanjing Automobile
• Through the state intervention and
public sector ownership, the
government is able to affect the level
of economic activity in the best
interest of public
Reasons why some organizations belong in the public sector:

1. To ensure everyone has access to basic services ; education, health care, public
parks and public libraries
2. To avoid wasteful competition since the government is able to achieve huge
economies of scale (cost savings from operating on a large magnitude) in the
provision of certain services; postal services or national defense
3. To protect citizens and businesses through institutions such as the police or the
courts that govern the law and order system
4. To create employment ; eg governments tend to be a large employer of teachers,
doctors and nurses
5. To stabilise the economy eg; Northern Rock and several other banks were
nationalised (bought by the government from the private sector) during the
global credit crisis to prevent further financial turmoil
 Public sector ownership of resources is less common today due to the benefits of
private sector ownership

 Therefore many public corporations and state assets have been privatised (sold off
or transferred to the private sector)

 Regulatory bodies are set up by the government to monitor the conduct and
performance of privatised companies –

1. to influence the standard of customer service and the

pricing policy of the privatised firms to safeguard the
interest of the general public
2. Used for controlling business activity in the public
sector eg: the Office for Standards in Education (Ofsted)
regulates standards in teaching and learning for state
and private schools that follow the British education
system
Benefits of PRIVATISATION :

 Efficiency gains

- Inefficient public sector monopolies are exposed to competitive markets

when privatised. This forces them to improve their efficiency, thereby
benefiting customers (such as improved quality)

 Lower costs of production

- In an attempt to earn profits, coupled with pressure from competitors,

privatised companies will aim to reduce their costs. Customers could benefit
from more competitive prices

 Increased Choice

- Introducing competition to former public sector monopolists gives customers

more choice
 Incentives to innovate
- Competition encourages firms to be more dynamic and innovative (coming
up with new ideas to stay competitive and to continuously improve)

 Less financial burden

- The government can save money by not having to fund public corporations
and their activities. This therefore leads to less financial burden on taxpayers

 Source of government revenues

- Privatisation has raised huge amounts of money for governments that have
sold off their businesses to private investors (only these are one-off gains only)
 STARTING A BUSINESS

New business – a risky project

Most new business fail due to : MISMANAGEMENT

Underestimate the challenges faced

when setting up a business

Demand : insufficient to recoup

a start-up business

The Entrepreneur : A person who takes risks to plan, manage and organize the
other 3 factors of production
 Not yet exist

Legalities Business Idea

Unique selling
point
Things to be considered
Marketing to start a business and Finance
to run it successfully
HR
Customers

Suppliers Entrepreneurial skills

Fixed Assets
Interpersonal Industrial
Are
set
Out
in a

BUSINESS PLAN
FACTORS TO CONSIDER WHEN SETTING UP A
BUSINESS
•BUSINESS IDEA

-setting up a business that does not yet exist by :

(i) identifying and filling a niche (gap) in a market
OR
(ii) providing products that have a unique selling point

•FINANCE

-to fund business activity ; production and marketing

-key barrier to setting up a new business – most entrepreneurs need to borrow
some money
•HR

-needed at all stages of business activity; design and development of a product,

delivering it to the customer
- Have to consider the need for hiring, training, retaining and motivating staff
•ENTREPRENEURIAL SKILLS

-to succesfully plan, organize and manage

-effective leadership and negotiation skills – to deal with stakeholder groups
( employees, suppliers, government

•FIXED ASSETS

-such as premises, capital equipment

•SUPPLIERS
-To provide business with raw materials, stocks, support services
- must have contact with suppliers
- negotiation over issues ; price and delivery times, credit period

• CUSTOMERS
-need to be attracted
- use market research; identify whether or not a product is desirable, sold at the
right prices, in the right places, size of the market
•MARKETING

-to convince customers about a product

-to ensure customer awareness about the existence of a product

•LEGALITIES

-issues need to be considered; consumer protection rights, copyright and patent

legislation, employment law- all must be adhered to
- infringement- problem
START-UP COSTS FOR A BUSINESS

• PREMISES ; purchase costs, mortgage deposit payment or rental deposit costs

• BUILDING ; alterations, fixtures and fittings and insurance costs

• CAPITAL EQUIPMENT ; furniture, computers, machinery, tools, motor vehicles and

stationery

• LEGAL AND PROFESSIONAL FEES ; solicitor costs, licenses, permits and copyright
permission

• MARKETING COSTS ; market research,advertising and promotional campaigns

REASONS FOR SETTING UP A BUSINESS

GROWTH

- Appreciation in the value of assets; property and land  capital growth

EARNING

- returns, profits earned from the business activity

TRANSFERENCE AND INHERITANCE

- to pass on assets to the next generation

CHALLENGE

-setting up s a business is viewed as a challenge

- satisfaction and self-esteem when a businessman managed to be on top of what he is
doing
AUTONOMY

-have control over everything

-have own working hours
- design own business strategy
- freedom and flexibility to run business your way

SECURITY

-become the boss of your own

-easier to accumulate personal wealth (financial security to provide higher funds for
early retirement)

HOBBIES

-To sell a new invention

- to share hobbies and personal interest ; those who love to go for holiday, love flowers
- hobbies which then turn into a business
IDENTIFYING MARKET OPPORTUNITIES

Market The identification of new or unsatisfied consumer needs

Opportunities
To have a better chance of survival and success

Market
Approach to Research
Market
Opportunities

Identifying a gap Developing the

in the market entrepreneurs’
Innovative ideas
& creations
Personal Interests
qualities Skills
 Identifying a gap in the market
•Small business can thrive in niche market (a small or unfilled segment of a market)
•Large organizations often put off from entering the small gap ; too small and limited
profits- unable to cover their costs

Innovative idea and creations

•Come up with new products or processes to meet consumer needs
• key benefit to apply this approach , must have knowledge on; market and products
• not necessary to invent new things, modifying existing products and make them
different will do ; differentiation (appearance, function and taste) and market them as
their unique selling point
•New product designs and processes can be protected via copyright and patent
legislation to prevent others from replicating *costly and take a very long time*

Developing the entrepreneurs’ personal qualities, skills and interests

•Entrepreneurs such as real estate mogul Donald Trump and Russian oil tycoon Roman
Abramoniv have built their business largely on their personal interests
Market Research
•Conduct thorough market research
• allow to better understand the nature of the industry and customers’ needs and wants
POSSIBLE PROBLEMS FACED BY START-UPS

1 LACK OF FINANCE CAPITAL 6 LEGALITIES

2 CASH FLOW PROBLEMS 7 PRODUCTION PROBLEMS

3 MARKETING PROBLEMS 8 HIGH PRODUCTION COSTS

4 UNESTABLISHED CUSTOMER
BASE
9 POOR LOCATION

5 PEOPLE MANAGEMENT
PROBLEMS 10 EXTERNAL INFLUENCES
1 LACK OF FINANCE CAPITAL

• To purchase fixed assets

• Owners do not have credentials
• Owners do not have experience to secure external funding without major difficulties
• Even managed to get loans ;– may insufficient due to high operating costs (certain
businesses) and high interests will affect cash flow
• Have to remortgage own properties; house or land offering collateral to financiers

2 CASH FLOW PROBLEMS

• problem to finance working capital (available cash to run daily business activity)
• might have a lot of stock  cannot be converted into cash easily, raw materials and
semi-finished output
• customers demand lengthy credit period
• have to pay ongoing costs (rent, wages, utility bills, interest payments on bank loan)
• *largest cause of business failure*
3 MARKETING PROBLEMS

• when fail to meet customers’ need resulting in poor sales

•Difficult to supply the right products to the right market – crucial
•The key to succeed : identify a niche (gap) in the market and fill it
• Eg : Amazon and lastminute

4 UNESTABLISHED CUSTOMER
BASE

• problem attracting customers – building a customer base

• problem is intensified when ; there are well-established rivals that already operate in
the market
• customer loyalty is built over a long period of time
• require marketing know-how and large amount of money
5 PEOPLE MANAGEMENT
PROBLEMS

• lack experience in hiring appropriate staff with all the necessary skills
• lead to poor levels of customer service and the need to retrain staff and rehire people
are expensive

6 LEGALITIES

• necessary to comply with all legislation ( company legislation procedures, insurance

cover for staff and buildings, consumer protection laws and copyright rules)
• paperwork and legal requirements of setting up a new business can be tedious,
confusing, time consuming and expensive

7 PRODUCTION PROBLEMS

• difficult to forecast levels of demand

•More likely to under produce or over produce
•Overproduction keads to stockpiling, wastage and increased costs  reduce working
capital
•Underproduction  dissatisfied customers and a loss of potential sales
8 HIGH PRODUCTION COSTS

• New businesses are likely to experience high production costs due to huge amount of
money needed for :
(1) Purchasing assets required for production (equipment, machinery stocks)
(2) Pay for the start-up costs (rent, advertsing, insurance)
• Will be at cost disadvantage as they cannot benefit from ECONOMIES OF SCALE --
ECONOMIES OF SCALE allow a business benefit from lower average costs of
production due to ; larger scale operations, being able to get bulk purchase discounts
from suppliers, being able to borrow money at a lower interest rate because of larger
size

9 POOR LOCATION

• dilemma in choosing location

•Busy areas offer the highest potential number of customers but will cost the most
•Fixed cost : rent or mortgage repayment from a large percentage of total costs
•To break-even, must cut down fixed costs
• that is why many start-ups start at home
10 EXTERNAL INFLUENCES

• All businesses irrespective of size or how long they have been in business are prone to
exogenous shocks  that create a difficult trading environment such as; oil crisis,
economic recession
•More established firms tend to be better resourced to handle these external influences
•New businesses are more vulnurable, potential for failure is greater

Summary: To be their own boss

People set up their own
businesses to satisfy their
personal desires;
To fulfill their personal vision or business opportunity
Opportunity to achieve success
To live more extravagant lifestyle

Significant number of new Management incompetent

businesses fail to survive ; Lack of cash in the business
Poor cost control
PROFIT-BASED ORGANIZATIONS

Business Entities /
Business
structures

Limited Liability
Sole Trader Partnership
Company
 Sole Trader/ Sole Proprietor

• an individual who owns his/her personal business

• runs and controls the business himself/herself
• responsible for its success or failure
• eg: self-employed painter, decorators, plumbers, mechanics, restaurateurs,
freelance photographers
• may work alone or might employ other people
• often small family-run businesses
• can be set up with relatively little capital
• capital usually obtained from ; personal savings and borrowing

IMPORTANT LEGAL POINT : not a corporation/ unincorporated

• the owner is legally the same as the business – treated as a single entity
• no legal difference between the business and the owner
• does not pay corporate tax but pays personal income taxes on the profits made
• no need to worry about double taxation
• could lose personal possessions if the business collapses (because the owner is
personally responsible for all the debts of the business)
Example :
CHANEL
• the French house of high fashion
• set up by Coco Chanel in 1904

TESCO
• the world’s fourth largest retailer, was set up in 1919 as a sole proprietorship by
Jack Cohen

MYDIN
• founded in 1957 by Mydin Mohamed as sole proprietorship
• operated by selling toys from Thailand in Kota Bharu, Kelantan
Advantages :
FEW LEGAL FORMALITIES
• easy to set up
• low start-up cost
BEING YOUR OWN BOSS
• not having to take orders from
others
• having flexibility in decision
making
• decision making quicker- no need
to discuss with others
PROFITS
• owner receives all the profits
from the business
• incentive to work hard
PERSONALIZED SERVICE
• can provide a personalized
service to customers
• have more time to get to know
customers on a more personal
level – lead to better relationship
ENJOY PRIVACY
• do not have to make financial
records available to the public
• enjoy confidentiality
• reduce the costs to prepare
detailed accounting records
Disadvantages :
UNLIMITED LIABILITY
• there is no limit to the amount of debt
• legally responsible to pay if the business
fails
• it is unincorporated, risk losing personal
possessions if the business fails
• if the business is sued, the owner is
personally liable
LIMITED SOURCES OF FINANCE
• difficult to raise finance to establish
• difficult to secure any funds beyond
personal savings
• expand the business can be problematic
due to lack of sources of finance
HIGH RISK
• have the largest risk of business failure
• even the successful ones usually face
intense competition due to the vast
number of sole traders that exist
• the presence of larger and more
established businesses often poses a
huge threat to the survival of smaller
businesses
WORKLOAD AND STRESS
• success largely depends upon the
abilities and commitment of the owners
• the owner must do own accounts,
marketing, human resource management
and operation management – unlikely to
be effective doing many tasks  adding
to workload and stress
• there is a limit to how much any one
person can do
 LACK OF CONTINUITY

• the running of a business can be

jeopardized if the owner if the owner ;
not present, ill, die

HIGHER COST OF PRODUCTION

• not able to exploit the benefit of large

scale production
• the prices offered might be less
competitive compared to those of larger
competitors
• can reduce competitiveness and profits
 Partnership

• profit seeking
• owned by 2 or more persons
• ordinary partnership; maximum member is 20
•Are financed mainly from ; personal fund of each owner
• different with SP : partners can pool funds together to raise more fund
• can also raise money from sleeping partners (who do not take part actively in the
running of the business but have a financial state of the business – eligible for the
portion of the business’s profit)
• is unincorporated, at least 1 partner must have unlimited liability
• but usually all partners share the liability
• formation of partnership : register to the Registrar of Business , FORMULATE THE
LEGAL AGREEMENT (not a legal requirement but most partnership did)
• without a contract/agreement it is understood that :
(i) Profits and losses must be shared equally
(ii) Each partner has the same right of running the business
• with LEGAL AGREEMENT/CONTRACT, the terms of contract are stated in
Partnership Deed :
(i) Amount of finance contributed by each partner
(ii) The roles, obligations and responsibilities of each partner
(iii) How profits and losses will be shared
(iv) Condition for introducing new partners
(v) Clauses for the withdrawal of a partner
(vi) Procedures for ending the partnership

Advantages :
• have more financial strength – because each partner invest in the business, fairly
easy to set up
• can benefit from division of labour and specialisation ; law firm have partners who
specialise in corporate law, divorce law, criminal law- so client base is much larger as
a result of the range of different skills being offered
• do not have to publicise financial records, can enjoy a fair degree of financial
privacy
Disadvantages :
UNLIMITED LIABILITY

• unless for the rare case for limited partners who have been elected to have limited
liability
• legally, partnerships are responsible with their debts, wholly or severally
• WHOLLY :
- The debt can be repaid by one partner
• SEVERALLY :
-The debt can be shared among the partners

• problems can cause major disputes as to which partner’s personal assets should be
used to repay debts
• solution : to have an agreement set out clearly in a partnership deed

DECISION MAKING

• decision making process takes longer

• more owners involved
•Disagreements and conflict might occur
 UNLIMITED LIABILITY

• unless for the rare case for limited partners who have been elected to have limited
liability
• legally, partnerships are responsible with their debts, wholly or severally
• WHOLLY :
- The debt can be repaid by one partner
• SEVERALLY :
-The debt can be shared among the partners

• problems can cause major disputes as to which partner’s personal assets should be
used to repay debts
• solution : to have an agreement set out clearly in a partnership deed

A LACK OF CONTINUITY

• if a partner dies or leave the firm

• because the original partnership deed becomes invalid
• the partnership has to be set up again
• solution : possible to accommodate changes in a partnership deed even though
solicitors will spend time (money) on drafting the new contract
 MUTUAL TRUST

• must be a huge amount of mutual trust within partnership

• each partner is legally and financially answerable to the others
• a mistake made by one person can reduce the profits for all the partners

DIFFICULTY IN RAISING CAPITAL

• still need to seek bank loans and other forms of borrowing

 Limited Liability
Company/ Corporation

• owned by shareholders ; ( individuals, other businesses ) that have invested money

to provide capital in a company

• also called : joint-stock-company because : the shares of the business (stock) are
jointly held by numerous entities
• incorporated  there is a legal difference between :
(i) the owners of the company (shareholders)
(ii) business itself

• is treated as separate entity  has its own legal right and duties. Eg : company will
take those who infringe copyright law to court (company will sue)

• LIMITED LIABILITY - shareholders don’t have to bear the responsibility of

company’s debt and do not stand to lose belongings if the company goes into debt -
to safeguard investors from sharing the debt of a large multinational companies

•2 types of limited companies :

(i) Private Limited Company
(ii) Public Limited Company
PRIVATE LIMITED COMPANY
• cannot raise share capital from the
general public
• shares are sold to private family members
and friends
• shares cannot be traded without the prior
agreement of the BOD  in order the
directors can maintain overall control of the
business
• for this reason, many private limited
companies are run by as family
ADVANTAGEs :
• owners have greater control of the
business because shares cannot be traded
on the open stock exchange
• cheaper to set up
PUBLIC LIMITED COMPANY
• able to advertise and sell its shares to
the general public via stock exchange
DISADVANTAGES :
• when public is allowed to buy shares
in a company, dilution of control
occurs (issuing more shares, company
has more owners and voters)
weakening its ability to control the
business
• exposed to takeover bids from other
investors who seek to purchase a
majority take in the company
 Limited Liability Company/ Corporation

Must present and submit documents to

appropriate authorities before
commence trading

THE MEMORANDUM OF THE ARTICLES OF

ASSOCIATION ASSOCIATION

• a relatively brief document that • (Articles of Incorporation)

outlines the fundamental details of the
company:
-name, main purpose, registered
address, original amount of share
capital invested
• the longer of the two documents
•Stipulates the :
(i) Internal regulations
(ii) Procedures of the company
(rights, roles, power of BOD, SHs,
administrative issues such as the
conduct of AGM, the appointment
of directors and how profits will be
distributed
when the authorities are satisfied with
these docs

The company has paid the application fee

A certificate of Incorporation is issued

(LICENSE)

• the business is recognised as a separate

legal entity from its owners
• the company is allowed to start trading
as a limited company
 AT ION
T
FLO  The process of changing a private company into a public company
by issuing shares and soliciting the public to purchase them
 IPO (Initial Public Offering)
 allows companies to obtain financing from outside the company –
as it can be listed on a stock exchange and generate additional sources
of finance instead of using retained earnings to fund a new project or
expansion
 “flotation” (commonly used in UK) “going public” (used in the USA)
REASONS WHY INVESTORS TEND TO BUY SHARES IN A LIMITED
COMPANY

CAPITAL VOTING
DIVIDENDS
GROWTH POWER

 companies listed on a  over the medium to  shareholders who hold

stock exchange usually long term, shares enough shares in a
pay dividends to outperform the return limited company can
shareholders biannually from savings in a bank become a major
 the dividends account influence in the
represent a share of the  the market price of management and
profits paid on each shares increase over operation of the
share that a shareholder time, shareholders can company
owns- more shares held, sell the shares at a
the higher the total higher price – making a
payment financial gain (capital
growth/capital gain)
 *share prices can fall
due to the volatility of
stock markets
 The largest shareholders of companies tend to be institutional and commercial
investors – means companies have shares in other companies eg : Prudential
(insurance company) is the majority stakeholder of Egg, the world/s largest pure online
bank, Renault owns a significant shares in Nissan, Porsche holds a majority stake in
Volkswagen

POTENTIAL RISKS FACED BY SHAREHOLDERS

(I) When a company’s business is not doing well the dividends received is little or
none
(II) Share price is likely to fall as a result , leading to negative capital growth
(III) Conflict of interest – managers and directors may want to use profits to expand
the business, reward themselves but the shareholders want high dividends
ANNUAL GENERAL MEETING (AGM)
• must be held by all companies
• to allow the owners to have to have a say (or vote) in the running of the business
• 3 main processes at a typical AGM:
(i) Shareholders vote on resolutions (promises or declarations) and the election (or
sometimes re-election) of the Board of Directors
(ii) Shareholders ask questions to the chief executive officer, directors and the
chairperson about various aspects of the company
(iii) Shareholders approve the previous year’s financial accounts
• Limited companies must produce an Annual Report and Final Account. The report
includes:
-profits or losses
-assets of the business
-where cash has been spent during the last 12 months

• These accounts are scrutinised by an external auditor (chartered accountants)

before they are distributed to shareholders
Advantages :
LARGE AMOUNT OF CAPITAL

• able to raise large amount of capital by issuing shares

• money raised through the selling of shares becomes permanent capital, does not have
to be repaid
• shareholders can sell/trade their shares on secondary markets via stock exchange but
the initial money raised from selling the shares remains with the company
• interest does not have to be paid. Instead shareholders are paid dividend if company
makes profits (if the company issues bond, interest is an obligation to be paid to
bondholders whether the company makes profits or losses)
• since companies have limited liability, it is easier to attract private and commercial
investors  the risk is low as shareholders will not be liable for the debt of the
companies- investors are more likely to invest their money

BENEFIT CONTINUITY

• because there is a legal difference between the business and its owners (the divorce of
ownership and control)
• the business does not need to cease trading should anything happens to one of its
owners
 POWER/CONTROL

• the director of a company generally own a large amount of shares in the business
• this gives them significant power (voting right)
•This becomes an incentive for them to work for the best interest of shareholders to
increase the share price in order for shareholders to enjoy higher dividends (expand
capital growth)

ECONOMIES OF SCALE

• due its large size , a company can benefit from economies of scale
• it is cheaper for the company to borrow money because commercial lenders see limited
companies as less of a financial risk
• if they do not offer competitive interest rate, the company will turn or ask loan from
other commercial lenders

HIRE SPECIALISTS

• owners of a company can hire specialist directors and managers to run their business
• this happens when the owners do not want to get involved in the business. Futhermore
there is no need foe owners to get involved
• they more likely to employ specialist staff, marketer, lawyer, accountant  to increase
the productivity of the business due to the advantages of specialisation
 ORGANIZATION
NGO
NON-PROFIT NON-GOVERNMENTAL
ORGANIZATION ORGANIZATION
 an organization run in a business manner  an organization that operates in private
but profit is not its main objective sector
 Main Objective : to provide services or  does not owned or controlled by the
promote a special causes government
 Eg : Public Libraries, Public Schools  does not aim for profit
 Surplus gained from the business is  also known as PVO (Private Voluntary
returned back to the business  reinvested Organization)
to enhance facilities and cover the cost of  set up and run for the benefit of others
activity
QUANGOs
 Quasi Autonomous Governmental Organizations
 semi-NGOs
Funded by the government but run by people independent from the government
 are semi-independent organizations that support certain interests of the national
government
 Eg : National Tourist Board, Environmental Agencies
 Lay people (those who work on ad-hoc basis and might not be paid are appointed by
QUANGOs for their specific expertise in managing particular government iniatiatives
 NON-PROFIT
ORGANIZATION
CHARITIES
• key function : collect donations
from individuals or organizations to
support a cause that is beneficial to
society
• do not necessarily sell anything
• must use refined marketing
strategies to catch attention of
donours ; celebrities endorsement
hold special charity event and in the
mass media, develop online
donations
•Eg ; OXFAM and WWF
• are run by :
(i) Managers
(ii) Trustees (a person who holds
property authority, position or
trust or responsibility for the
benefit of another
PRESSURE GROUPS
• established by their members to
address a special interest of the group :
-Campaign against environmental
neglect
- smoking in public areas
- testing substances on animals
• Eg : Trade Unions, Animal Right Activist
Group, Environmental Protection Groups
• Aim : to win public and media support
from their actions to influence
government legislation, such as the
introduction of national minimum wage
laws – to support low-income earners
• ADVANTAGE : from society’s point of
view: force businesses and governments
to take account of the true costs of
business activity, such as pollution and
environmental damage
 CHARITIES

ADVANTAGES DISADVANTAGES

Financial support Lack profit motives

Tax exemption No benefits for trustees

Tax rebate for donours Bureaucracies

Can be registered as LC Financial activities

Source of finance
 ADVANTAGES

Financial support

 charities provide financial support for the welfare of society:

-Domestically
- internationally
 raise fund for medical research
 raise fun for worthy causes ;
-protection of children
-Prevention of cruelty to animals

Tax exemption

 charity bodies are exempted from income tax/ corporation tax

 they are also concessions for other taxes; stamp duty and capital gains tax

Tax rebate for donours

 donours will enjoy income tax allowance/ rebate on the fund that have been donated to
the charity
 this raises incentive for donours to give money to charities
 Can be registered as LC

 charity bodies can be registered as limited company to protect the interest of employees
and managers who will have limited liabilities
DISADVANTAGES

Lack profit motives

• since the nature of charity operation is not a profit-based, there is no monetary reward
for those who get involved and staff / people may become de-motivated
• volunteers also cannot continue to offer their services for extended period of time –
have another commitment

No benefits for trustees

• trustees are not allowed to receive any financial benefits

• may cause motivational problems

Bureaucracies

• charity bodies must be registered

• involves restrictions and bureaucracies
• Eg: UK Charity must register with Charity Commission, Australia – Taxation Office,
Malaysia – Registrar of Societies
• governing bodies places restrictions on what charities can and cannot do
 Financial activities

• must be recorder and reported to the governing bodies

• to protect the interest of donours and prevent charity fraud

Source of finance

• source of finance is crucial because most charity bodies only survive by depending on
one source of finance
• there are huge number of rival charities and limited finance for donours  have to
compete for donations
• a positive weak correlation between the level of income and donations
 NON-GOVERNMENTAL
ORGANIZATION

OPERATIONAL NGOs ADVOCACY NGOs

 an organization established from a

given objective or purpose
 tend to be involved in relief-based
and community projects ; Oxfam and
UNICEF
 an organization set up to take more
aggressive approach to promote or
defend a cause
Greenpeace and Amnesty
International are striving to raise
awareness through direct action;
;lobbying, public relations and mass
media

The greatest strength of NGO : Run and supported by highly committed

people
RELATIONSHIP BETWEEN ORGANIZATIONS IN THE PRIVATE AND
PUBLIC SECTORS

 Public sectors provide services to the general public rather than selling products for
profit
 There are 3 options in the provision of essential services:
(a) Supply the service themselves – legal system & emergency service
(b) Tender (bid) – give it to be handled by private firms ( street cleaning and transport
services)
(c) Partnership (Public-Private Sector Partnership)
PRIVATE GOODS
• provided by only private sectors
•Eg: cars, phones, cinemas, salons
• those who cant afford to pay simply go
without
• most goods and services are private
goods
• certain goods and services might be
under provided if there is no government
intervention ; public goods and merit
goods
GOODS
PUBLIC GOODS
• products that are enjoyed by the general
public but are unlikely to be provided
without government intervention
• not necessarily produced by the public
sector, but are funded by the government
to benefit its people
- fresh air, knowledge, light-house,
national defense, flood control system,
street lighting
• available everywhere

MERIT GOODS
• goods and services that the government feels that people will under-consumed and
which ought to be subsidised or provided free at the point of use so that consumption
does not depend primarily on the ability to pay for the good service
•goods that provide higher social benefits; education, training, public libraries, health
care, inoculation(vaccination) for children
• should be provided in greater quantities
• provided by both private and public sector- complement to benefit the society
 3 key characteristics of public goods

NON-RIVALRY NON- NON-

EXCLUDABILITY REJECTABLE
• consumption of a public • public cannot simply reject
• no one can be excluded
good by one person does the provision to public
from consuming the goods
not reduce the availability goods once provided
even if they do not pay
of a good to everyone else because they are provided
• nobody is prevented from
• therefore, everyone for everyone
enjoying the goods
consumes the same amount
of public goods even though
everyone’s tastes and
preferences for these goods
might differ ( valuation of
benefits from goods)
 PUBLIC PRIVATE ENTERPRISE

When the government creates partnerships with the

private sector to provide certain goods and services

BENEFIT: the government can benefit from the

dynamics, finance and efficiency of the private sector
alongside the benefits of public sector funding and
support

EXAMPLE:
In some countries, the private sector runs public sector
hospitals and schools without the service being actually
privatised
- Hong Kong Disneyland is a theme park with two on-
site hotels owned jointly by the HK government and
the Walt Disney Company
TYPES OF ORGANIZATION AND BUSINESS STRATEGY

FACTORS AFFECTING THE CHOICE OF BUSINESS ORGANIZATION

1. Amount of Finance
 Sole traders less capital
2. Size
 The larger the business operation, unaffordable to hire many workers
3. Limited Liability
 Desire to have limited liability to protect the personal possessions of the owner

4. Degree of ownership of control

 Those who prefer to retain controland ownership of a business – sole trader

5. Types of business activity

The nature and scale of business activity
 mass market manufacturers ( personal computer, motor vehicle) are likely to rely
heavily on external sources of finance  are likely to form as PLC
 The Main cause of business
failure :
Business Strategy
Plan
•to survive during the
period of negative
cash flow
• to look into causes
of business failure –
try to devise strategy
to avoid and deal
with any
contingencies
Poor Cash Flow Management
Overcome business failure :
Do not Careful Planning
underestimate/overlook
external factors
•Even the best of
business plan can fail
• observe market
conditions (recession,
strike, change in
fashion; taste,
preferences)