Types of for-profit organisations
Unincorporated businesses businesses where there is no legal distinction between the owner of the business and the business itself–everything is carried out in the name of the owners.
E.g., sole traders and partnerships.
Incorporated businesses businesses that have a separate legal entity from their owners.
E.g., private limited companies and public limited companies.
- Unincorporated.
- Individual who owns a personal business.
- Responsible for success or failure.
- May work alone or employ others.
- Startup capital usually includes personal savings and borrowing.
- Fewer legal formalities.
- Profit goes directly to one owner(direct).
- Autonomy.
- Personalised service.
- Privacy of financial accounts.
- Setup costs are inexpensive and time-saving.
Disadvantages
- Unlimited liability (unincorporated).
- Limited sources of finance (hard to obtain bank loans).
- High risk.
- Workload and stress.
- Limited economies of scale.
- Lack of continuity.
- Unincorporated.
- Ordinary partnerships have a maximum of 2–20 people.
- Money can be pooled from partners’ personal funds which have financial stake but don’t actually make decisions (silent partners).
- At least one partner must have unlimited liability.
Advantages
- Set up costs are inexpensive and quick.
- Financial strength (more partners means more personal funds).
- Specialisation and division of labour due to multiple partners.
- Financial privacy (no need to publish accounts).
Disadvantages
- Unlimited Liability (unincorporated).
- Prolonged decision making.
- Lack of harmony.
- Profits must be shared among multiple partners.
Private Limited Company (Ltd.) a company that cannot raise share capital from the general public. The shares are sold to private family members and friends.
E.g., IKEA, Lego, Rolex, Chanel, etc.
Advantages
- Limited liability.
- No limit on the number of owners.
- Shares can only be sold privately.
- Better decision making.
- Easier to raise additional funds.
Disadvantages
- Profits have to be shared among much larger number of members.
- Setting up business takes time and it’s costly.
- Company’s financial accounts are public.
- No member has full control of the company.
- Firms are not allowed to sell their shares to the public.
Public Limited Company (PLC) Often big, multinational companies boasting large numbers of employees that are able to advertise and sell its shares to the general public via the stock exchange.
E.g., China mobile, HSBC, Samsung, Nike, etc.
Flotation occurs when a business first sells all or part of its business to external investors (shareholders). This process is known as an initial public offering (IPO).
Advantages
- Shares can be sold to the public.
- Efficient sources of finance are more available (bank loans).
- Limited Liability.
- Possibility of market dominance.
- Economies of scale.
- Tax benefits.
Disadvantages
- Takes time due to bureaucratic nature of big companies.
- Communication issues due to size.
- Final accounts are public.
- Less able to offer personal services to customers.
- Compliance costs.
- Loss of control.
Commercial vs. Non-Commercial Organizations
A commercial organisation, often referred to as a business or for-profit entity, is one whose primary goal is to generate profit or financial gain for its owners, shareholders, or members.
These organizations typically provide goods or services to customers in exchange for money, operating within the private sector. Examples include corporations, partnerships, sole proprietorships, retail stores, manufacturing companies, banks, etc.
A non-commercial organisation is one whose primary purpose is NOT to make a profit for distribution to owners or shareholders. Instead, their goal is typically to fulfill a specific mission or purpose.
Any surplus revenue generated by non-commercial organizations is reinvested back into the organization to further its mission. Examples include charities, non-profits (like foundations, public universities, public hospitals), social clubs, and government agencies (public sector entities).
The fundamental difference lies in their **primary objective**:
- Commercial: Profit generation and distribution to owners.
- Non-Commercial: Achieving a stated mission or purpose (social, charitable, educational, public service, etc.).
While non-commercial organizations need to be financially sustainable and manage money effectively, profit is a means to an end (funding the mission), not the end goal itself.
