1.2 Types of business entities

The private sector is owned and controlled by private individuals or organisations; the public sector is owned or controlled by the state. The distinction is about ownership and accountability, not simply whether a service charges money.

Private organisations usually raise finance and answer to owners or investors, while public organisations are accountable through public authorities and use public budgets or mandates. Both sectors can provide goods or services, and either can face efficiency, access or quality trade-offs.

Classify an organisation by asking who owns it, who controls major decisions, where its finance comes from and to whom it must report. Do not infer the sector from the product alone.

A city bus operator funded and overseen by a municipal authority is public-sector even if passengers pay fares. A privately owned ride-hailing firm is private-sector even if it receives a government contract. The contract changes revenue, not ownership.

Public does not automatically mean free or inefficient, and private does not automatically mean profit-maximising in every choice. Explain the ownership and accountability evidence before judging performance.

For-profit legal forms differ mainly in who owns and controls the business, how it raises finance, whether the owners are personally liable, and how easily the business continues if an owner leaves.

A sole trader keeps control but usually bears unlimited liability and has limited finance. Partnerships share control and resources but require agreement. Companies are separate legal persons: limited liability protects owners in normal circumstances, while public companies can raise equity from a wider market and face stronger disclosure pressures.

Choose the form by matching the founder's priorities: control, risk protection, growth finance, continuity and reporting obligations. There is no universally best form.

A designer testing a low-risk local service may accept sole-trader simplicity. A manufacturer borrowing heavily may prefer a company because limited liability reduces personal exposure, but it accepts setup, reporting and governance costs.

Limited liability is not immunity from every loss or unlawful act, and public company does not mean state-owned. Keep legal form, ownership sector and funding source separate.

A privately held company has separate legal identity and limited liability, but its shares are owned privately and are not offered to the general public; this can preserve concentrated control while limiting access to public equity. A publicly held company may sell shares on a stock exchange, expanding finance and liquidity but increasing disclosure, governance pressure and possible separation of ownership from control. Both differ from a public-sector organisation: 'publicly held' describes share ownership, not state ownership.

A for-profit social enterprise trades commercially while deliberately pursuing a social or environmental aim. Profit supports continuity and investment; it is a means that must coexist with the stated mission.

The enterprise earns revenue like a business, then allocates decisions, products or surplus toward a social outcome. Tension appears when a cheaper or more profitable choice would weaken the mission; governance and impact measures make that trade-off visible.

Check both sides: what commercial activity funds the organisation, and what measurable social or environmental result is protected? Calling a business 'ethical' without showing the mission or trade-off is insufficient.

A clothing company sells at market prices but designs a verified living-wage supply chain. Paying more may reduce short-term margin, yet it supports the mission and can strengthen retention or brand trust. The commercial model and social aim are analysed together.

A donation or one-off campaign does not by itself create a social enterprise. The social aim must be built into ongoing business decisions, and profit does not prove that the mission has been achieved.

Apply the three syllabus forms. A private-sector company with private owners can embed a mission in products, employment or profit use; a public-sector company owned or controlled by government can trade commercially while pursuing a public objective; a cooperative is owned and democratically controlled by members—such as workers, consumers or producers—who share benefits. Compare who owns and votes, who receives profit or surplus, how capital is raised and what happens when commercial returns conflict with the social mission.

A non-profit social enterprise exists to pursue a social, humanitarian or environmental mission rather than distribute profit to private owners. It still needs resources, controls and evidence that its work creates the intended impact.

An NGO may combine grants, donations, membership income or earned revenue. Any surplus is reinvested in the mission, so managers must balance reliable funding, operating costs, donor conditions and service quality rather than treat 'non-profit' as 'no revenue'.

To evaluate an NGO, identify its mission, funding mix, accountability to beneficiaries and donors, and how surplus is used. Ask whether the activity improves the target outcome, not just whether money was spent.

An NGO receives a grant to improve clean-water access. It can buy filters, train local technicians and publish maintenance data; using the surplus to expand those services is consistent with non-profit status, while distributing it to owners would not be.

Non-profit does not mean unpaid, loss-making or automatically effective. The defining test is the mission and non-distribution of surplus, followed by evidence of accountability and impact.