Private Sector
- refers to businesses owned by private individuals.
- The main aim of a private sector business is to make profit.
- Other aims include :
- high market share
- high growth
- etc.
- Examples :
- Infosys Limited
- Lenskart Solutions Private Limited
Public Sector
- Refers to businesses owned by the government.
- The main aim of a public sector is to make the product available to as many people as possible at an affordable rate.
- other aims include
- achieving lower cost by high economies of scale.
- taking care of under provision of education and healthcare.
- etc.
- Examples :
- Indian Railways
- Maharashtra State Electricity Distribution Company (MSEDCL)
Types of Organizations
Sole Trader:
- Owns and runs the business completely
- The business and the person are the same legal entity
- The Owner has Unlimited Liability in the business
- Examples :
- Doctor (Physician)
- Lawyer
- Garage Mechanic
Characteristics (generally):
- May be working alone or may have people working under him / her.
- Relatively Small Business and has Low Capital.
- Funds from self, friends and family is used.
- The Owner has Unlimited Liability in the business.
- Most businesses are sole traders.
Advantages:
- Few Legal Formalities to start a business
- Sole trader is the only owner and therefore receives all profits earned by the business which acts as an incentive to work harder
- Owner enjoys “Be your own Boss”
- Personalized service to customers
- Privacy of financial records
- Quicker decision making
Disadvantages:
- Unlimited Liability - No limit on the amount of liability
- Limited Sources of Finance because of small size
- Higher risk of failure
- Lack of skills, ideas, experiences, etc
- Lack of benefits of economies of scale ( ↑ Production of goods ∝ ↓ cost of the production )
Partnerships:
- A Partnership is a private business Owned by tow or more person
- There is a limit on the maximum number of partners in a business. (20 Generally)
- Partners may be working partners or sleeping partners
- The partner jointly have unlimited liability in the business. (Liability & Profit may be shared equally regardless of equity or it may be customised by mentioning it in the partnership agreement)
- Examples :
- CA (Chartered Accountant) Partnership Firms
- Law Partnership Firms
Characteristics (Generally) :
- Partners divide work responsibilities according to their skills
- Relatively small business and has low capital
- Funds from family, friends and self is used.
Advantages:
- Specialization and Division of Labour
- Privacy of financial records
- More financial capital as compared to sole trader
Disadvantages:
- Unlimited Liability - No limit on the amount of liability
- Possible lack of agreement between partners and slower decision making as compared to sole traders.
Privately Held Companies:
Privately held companies are private businesses which are owned by shareholders who can be individuals or other business
- A company is a separate legal entity from its shareholders and has rights to enter into agreements.
- The shareholder have limited liability.
- Shareholders appoint Board of Directors to run the company who make top level decision of the company
- The managers run the company on a day-to-day basis
- Examples:
- IKEA (Sweden)
- ROLEX (Switzerland)
Characteristics (Generally) :
- The owners, directors, and managers are people.
- Management and Labour specialization.
- Relatively larger business than Sole Trader Partnerships
- More compliance as compared to Sole Trader Partnerships
- Funds from Shareholders, friends and family
- Shares are not sold to the general public and need approval of Board of Director
Advantages:
- Specialization of Labour and Management increasing productivity
- Increased ability to raise finance
- Continuity of the business even beyond that of the shareholders.
- Limited Liability
- Benefits of Economies of scale like lower costs.
Disadvantages:
- Loss of control for the owners
- Bureaucracy and slower decision making
- Possible lack of motivation for employees
- Compliance cost
Public Held Companies:
- Publicly held companies are private businesses which are owned by shareholders who can be individuals or other business
- A company is a separate legal entity from its shareholders and has rights to enter into agreements.
- The shareholder have limited liability.
- Shareholders appoint Board of Directors to run the company who make top level decision of the company
- The managers run the company on a day-to-day basis
- The Shares are traded publicly on the stock exchange and any person can buy them
- Examples:
- MRF Tyres (India)
Characteristics (Generally) :
- Large Size business
- More compliance to regulations and paperwork
- Ability to raise large amounts of funds from a vast pool of public
- Loss of control for the founders
Advantages:
- Specialization of Labour and Management increasing productivity
- Increased ability to raise finance
- Continuity of the business even beyond that of the shareholders.
- Limited Liability
- Benefits of Economies of scale like lower costs.
- Large sum of money can be raised using the benefit of economies of scale
Disadvantages:
- Loss of control for the owners
- Bureaucracy and slower decision making
- Possible lack of motivation for employees
- High degree of compliance to regulation
Social Enterprises:
- Social enterprises are business with social objectives, and aim to improve the world and society around them.
- Being a business, their goal is to earn revenue and make a profit, but additionally they have some social objectives
- For-profit social enterprises have an aim to make profits whereas non-profit social enterprises do not aim for profit.
| For-Profit Social Enterprises | Non-Profit Social Enterprises |
|---|---|
| Private Sector Companies | Non-Governmental Organisations (NGOs) |
| Public Sector Companies | Governmental Organisations |
| Cooperatives |
Private Sector Companies :
- These are social enterprises owned by private individuals or firms.
Characteristics:
- They compete in the marketplace with other companies and need to earn profit for the survival
- They reinvest or donate their profits to create a positive social change.
- They use ethical business practices to achieve social aims related to the needs of local communities and societies.
- They use ethical business practices to achieve social aims related to the needs of local communities and societies
- Example - Grameen Bank
Private Sector Companies :
- These are social enterprises owned by the governments wholly or partially
Characteristics:
- They compete in the marketplace with other companies and need to earn profit for the survival
- They reinvest or donate their profits to create a positive social change.
- They use ethical business practices to achieve social aims related to the needs of local communities and societies.
- They use ethical business practices to achieve social aims related to the needs of local communities and societies
- Example - Grameen Bank
Public Sector Companies:
- They are social enterprises owned by the government wholly or partially
- They are revenue and profit generating business but with the social aim of making the service available to as many as possible at a reasonable price
- Government provides them as it feels that that profit-maximizing private firms may not provide enough of that goods or may have a high price for them
- Example - Indian Railways
Cooperatives :
- A cooperative is a business owned and run by its member, who have one vote each.
- The member may be Employees, Customers, or Residents.
- They have a common goal of creating value for their members by operating in a socially responsible way.
- Example - Amul, Lijaat Paapad
Non-Profit Social Enterprises (NGOs):
- A non-governmental organisation (NGO) is a non-profit organisation that focuses on social or political issues but operates independently of any government.
- NGOs may be funded in various ways, including governmental funding or funds from commercial organisation or private individuals.
- NGOs typically promote social causes such as human right, environmental protection, disaster relief or animal rights.
- Example - WWF, UNESCO