The Private Sector - Business Environment

ASSIGNMENT COVER SHEET

PLEASE NOTE:

YOU SHOULD INCLUDE THIS INFORMATION WITH EVERY ASSIGNMENT

HND in Business and Management – Level 5

Unit 1 – Business Environment

Section 1 – Understanding the organisational purposes of businesses

Introduction

This part of the assignment will identify the purposes of different types of organisations, describe the extent to which an organisation meets the objectives of different stakeholders and explain the responsibilities of an organisation and strategies employed to meet them. Reference and examples will be made based on research carried out into well-known businesses.  

Identify the purposes of different types of organisations

Businesses in the UK are split into three sectors or categories: The Public Sector, The Private Sector and The Voluntary Sector.

The Public Sector

This encompasses all businesses owned by the state on behalf of the country and run by either central government or local authorities. The purpose of this type of organisation is to provide services for the country and its people. Funding comes from the treasury or by collection of revenue such as council tax in the case of local authorities. The aims are not to maximise profit but to provide a needed service whilst keeping costs under control. Any profits are paid back to the treasury as will the treasury be liable for any deficit.

An example of an organisation within this sector is the Bank of England. Previously within the private sector it was moved into the public sector in 1946 with the main objective to act as a central bank and maintain financial stability, regulate the commercial banks and to determine the level of interest rates in the UK. This is still largely its role today.

Another example is the British Broadcasting Corporation (BBC) whose objective is to educate, inform and entertain people through radio and TV programmes and services. The BBC operates under an agreement with the Secretary of State for Culture, Media and Sport. A fee which is set by the government called the TV licence is chargeable to all households and organisations using equipment to receive broadcasts. This revenue is the main source of income and is used to fund the BBC.  

The Private Sector

Unlike the Public Sector, the Private Sector comprises of companies which are owned, funded and controlled by private individuals (or those appointed to do so) often through shareholdings. The main purpose of this type of organisation is to maximise profits through the provision of services and/or products to customers, other companies and the public. Within the Private Sector organisations are also categorised dependant on business entity. The different types are: Sole Trader; Partnership; Limited Liability Partnership (LLP); Private Limited Company (Ltd); Public Limited Company (Plc), Franchise and Co-operatives.

A Sole Trader is a company owned by one person. Easy to set up with no legal formalities and little funding required with the owner keeping all profit (or losses) after tax. This type of business is unincorporated meaning the law does not distinguish between the owner and the business and means the liability is unlimited and the sole responsibility of the owner. Example of sole trading businesses would be roofers, hairdressers, plumbers and small shops.

A Partnership is a company that consists of between 2 and 20 partners. As with the sole trader this type of business is easy to set up and has no legal formalities. The main difference is that all partners will be subject to the Partnerships Act, 1890 whereby they will have an equal share in responsibility, business decisions and profit (unless otherwise dictated in a Partnership Agreement). This type of business is also unincorporated with the unlimited liability shared between partners. However, due to the Limited Liability Partnership Act, 2000 a company can now be set up similar to a Partnership in that partners have equal responsibility in business decisions and profit share but the company is incorporated as opposed to unincorporated. This means that the business has a separate legal identity which limits the partners from any liability from debts incurred. Examples of a Partnership or Limited Liability Partnership (LLP) business would be Accountants, Estate Agents and Solicitors.    

Private and Public Limited Companies are both incorporated meaning the liability of the shareholders is limited to the value of the shares owned (or also by guarantee in the case of a Private limited company).    

Private Limited Company (Ltd) – The business is owned by the people who set it up and/or are invited to own shares and run by a board of Directors who may or may not own shares.  An example of a Private Limited Company is Virgin Atlantic Airways Limited. Founded in the 1980s is the second largest long haul airline. Their main purpose is to provide a public international flight service and to “embrace the human spirit and let it fly”^[1].