Business Structures: Private and Public Sector Entities
Chapter 3: Business Structures
Private Sector Businesses
Private sector businesses are operated and run by individuals.
Sole Traders
Sole traders are the most common business form globally, comprising up to 90% of all businesses in some countries. The business is owned and run by one person, the sole proprietor. They are popular due to minimal legal setup requirements:
- Register with and submit annual accounts to the government Tax Office.
- Register the business name with the Registrar of Business Names.
- Obey all basic trading and commerce laws.
Sole traders are ideal for those who:
- Are starting a new business.
- Require minimal capital.
- Need direct customer interaction.
Partnership
A partnership involves 2 to 20 individuals jointly owning and running a business. They require a Deed of Partnership or Partnership Agreement outlining capital contributions, profit distribution, and other operational aspects. Legal regulations are similar to those for sole traders.
Private Limited Companies
Private Limited Companies (Ltd or Pty Ltd) have a separate legal identity from their owners, offering limited liability. They can sell shares to friends or family with shareholder consent and enter legal contracts.
Public Limited Companies
Public limited companies are similar to private limited companies but can sell shares to the public. To convert a private limited company to a public limited company:
- A statement in the Memorandum of Association must declare it a public limited company.
- All accounts must be made public.
- The company must apply for a stock exchange listing.
Control and Ownership in a Public Limited Company:
The Annual General Meeting (AGM) is held yearly for shareholders to elect the Board of Directors. Directors, often majority shareholders, make key decisions and hire managers for daily operations. This leads to the divorce between ownership and control.
- Shareholders own the company.
- Directors and managers control the company.
Shareholders expect dividends, while directors may prioritize company expansion. Both have distinct objectives.
Co-operatives
Cooperatives are groups pooling resources for bulk purchasing. Key features:
- Equal rights for all members, regardless of capital invested.
- Equal workload and decision-making; a manager may be appointed for larger cooperatives.
- Profits are shared equally.
Joint Ventures
Two businesses collaborate on a project, sharing capital, risks, and profits.
Franchising
A franchisor with a successful brand recruits franchisees (individual businesses) to sell their products or services (e.g., McDonald’s, Burger King).
Public Sector Businesses
Public Corporations
Government-owned businesses run by directors appointed by the government (e.g., water, electricity supply). The government sets objectives:
- Keep prices low for affordability.
- Maintain employment.
- Offer services to the public everywhere.
Municipal Enterprises
Businesses run by local government authorities, often free to users and financed by local taxes (e.g., street lighting, schools, libraries, waste collection). Government subsidies cover losses, but many are being privatized to reduce taxpayer burden.