Within a mixed economy like
Ireland, there are numerous organisations that have been created with the
objective of satisfying demands for goods and services. Within the private
sector the organisation can take one of several forms, for example, sole
trader, partnership, co-operative or company. The public sectorís commercial
activities i.e. transport, power etc is normally undertaken by state-sponsored
bodies or state companies.
This is a one person owned
business and is the simplest form of business unit. It is the most popular
form of business unit because of the ease in which it can be set up. Examples
of sole traders include retail outlets, farmers and solicitors.
Characteristics of a
Advantages of a Sole Trader
They provide the capital to
set up and run a business.
They take all the risk or success
of the business venture.
They work in the business by
themselves, though they may have paid assistance.
They make their own decisions
and are their own boss.
Disadvantages of a Sole
Few legal formalities have
to be complied with when setting up as a sole trader.
It is an attractive business
unit for an individual who wants to retain ownership and control of his/her
own business. You can be your own boss.
Once the necessary premises
and equipment have been obtained, trading can commence.
This business structure suits
an individual who wants to start and remain small.
The small scale of the venture
helps the business to adapt quickly and build good personal relationships.
Accounts do not have to be
A sole trader has unlimited
liability which means that if the business fails, the sole trader is liable
for itís losses.
Availability of finance can
often be a problem
Nobody to share the losses
and decision making with
Problems can arise with continuity
of existence when the owner dies.
There is a long tradition
in Ireland of this type of business activity particularly in agribusiness.
It involves a group of individuals coming together, sharing their ideas
and capital for business purpose. The members are generally workers, customers
or suppliers of the co-operative. There are three main types of co-operatives:
Characteristics of Co-Operatives
manufacturing produce with the raw materials supplied by the members e.g.
Worker Co-Ops (A group
of workers might pool their redundancy money together to get a business
Service Co-Ops (Members
provide a service e.g. Credit Unions.
Advantages of Co-Operatives
They can be formed by a group
of eight or more people.
Annual accounts must be sent
to the Registrar of Friendly Societies.
Members have limited liability.
Each shareholder has only one
vote regardless of the amount of shares held.
Disadvantages of Co-Operatives
Members have the benefit of
They can encourage enterprise
in local communities.
Each individual has an equal
opportunity regardless of wealth.
Private Limited Company
Not practical business units
today as there are limitations to expansion.
They often suffer from lack
They may not always be able
to afford the best management.
This form of business unit
is owned by shareholders and managed by directors who are elected each
year at the annual general meeting. Unlike a sole trader it is regarded
in the eyes of the law as a separated legal entity from the owners. A company
may be set up from scratch, or an off shelf company can be bought from
a registration agent. A private limited company has the letters ltd after
its name to illustrate that the company has limited liability. This means
in the event of the company failing, it is only the assets of the company
that are available for the payment of the creditors debts. The liability
of the shareholders is limited to the capital they invested in the business.
A private limited company is unable to sell its shares on the stock market
unlike a public limited company.
Characteristics of a
Private Limited Company
Advantages of Private Limited
Shareholders have limited liability.
Legal formalities have to be
complied with, such as the registration of documents like the Memorandum
and Articles of Association. Also accounts have to be filed annually.
There is a restriction on the
transfer of shares.
The number of shareholders
can range from 1 to 50.
Shareholders elect a Board
of Directors to manage the firm on their behalf.
Disadvantages of Private
The company has limited liability,
so the most the shareholders can lose is what they invested in the business.
Private Limited Companies have
certain tax advantages.
It can be easier to raise finance
compared to a sole trader.
Ownership is spread among shareholders
thereby reducing risk.
There is a cost in setting
them up i.e. solicitorís fees, registration etc.
A number of legal formalities
have to be complied with such as filing returns.
Private Companies are unable
to raise funds on the Stock Market.
Problems can arise if there
are disputes between the shareholders.
The essential features
of state owned bodies are that the assets of the industry have been taken
over by the state, so that the industry is owned, managed and controlled
by agents of the state for the general public. In Ireland, the state has
been very actively in state enterprise for over 60 years. Each state owned
business is responsible to a government minister. For example Aer Lingus
is accountable to the Minister for Public Enterprise. The relevant minister
appoints a Board of Directors to run the state enterprise. The Board then
decides upon the policy of the enterprise and place executives in charge
of day to day business.
Reasons for State Intervention
Classification of State
The need to provide essential
services such as water and electricity.
The financial requirements
may be too great for private enterprise i.e. Aer Lingus.
To develop natural resources
such as Bord Gais and Bord na Mona.
To foster economic development
e.g. Bord Failte.
The state may feel it necessary
to control key industries such as utilities like water and electricity.
|Bord na Mona
|| Aer Lingus
|| Bord Glas
This involves the sale
of a state asset to the general public. With the emergence of a European
Single Market, there is less need for member states to be involved in commercial
business. Telecom has recently been privatised, as the telecommunications
market has been opened up to competition. There is also far more capital
available today to help such businesses to expand. The government has announced
that Aer Lingus will also be privatised, which will probably mean that
more capital will be available for expansion than if it remained in the
Problems on Forms of
1. Explain the reasons
for state involvement in commercial enterprise.
2. Outline the advantages
and disadvantages for the government in selling Telecom Eireann.
3. Explain why Co-operatives
are no longer seen as a popular business unit.
4. Compare and contrast
a sole trader with a private limited company under the following headings:
5. 1. Ownership 2. Control.
3. Risk. 4. Continuity of Existence 5. Legal Requirements.
6. Outline the main characteristics
of a private limited company.
7. Explain the concept
of limited liability.