Types of business: sectors, ownership and purpose

Private and public sector

• Private sector: businesses owned by individuals or shareholders, from sole traders to multinational public limited companies.
• Public sector: organisations owned or controlled by the state. A state-owned enterprise (SOE) is a business the government owns that sells goods or services, for example a national railway, post office or energy company.

SOEs may be asked to pursue social aims (a universal service at a uniform price, keeping jobs in a region) as well as, or instead of, profit.

For-profit and not-for-profit

• For-profit organisations aim to make a surplus for their owners, who receive it as dividends or drawings.
• Not-for-profit organisations (charities, many social enterprises, some clubs) may still make a surplus, but it is reinvested in the organisation's purpose rather than paid out to owners. Their objectives are often measured by social outcomes: meals served, patients treated, people trained.

Co-operatives and joint ventures

• A co-operative is owned and controlled by its members, who each usually have one vote whatever their stake. A worker co-operative is owned by its employees; a consumer co-operative by its customers. Profits are shared among members, often in proportion to their purchases or work.
• A joint venture is a new business set up and owned by two or more existing firms, which share the costs, risks and profits. Firms use joint ventures to enter a foreign market with a local partner, to share the cost of research, or to combine complementary skills.

Why it matters in Unit 3

The standard theory assumes firms maximise profit. A charity, a co-operative or an SOE may not. In essays, ask 'what kind of organisation is this?' before assuming MC = MR behaviour. That question is a ready source of evaluation.

Worked example

A government owns 100% of a national rail operator that is told to keep fares low on rural routes even where they lose money. Classify the business and explain one way its behaviour may differ from a private firm.

1. Owned by the state, so it is a public sector organisation: a state-owned enterprise.
2. It is set a social objective (rural service at low fares) rather than pure profit.
3. So it may produce where price is below average cost on some routes, which a profit maximiser would not do.

Answer: A state-owned enterprise; it may run loss-making routes for social reasons rather than cut them.

Check yourself

1. Which is the best description of a state-owned enterprise?
   • A charity funded by donations
   • A company whose shares are traded on a stock exchange
   • A firm owned by its employees
   • A business owned by the government that sells goods or services
   Show answer

   A business owned by the government that sells goods or services. SOEs are in the public sector and trade in goods or services.

2. What distinguishes a not-for-profit organisation from a for-profit one?
   • It is never allowed to make a surplus
   • Any surplus is reinvested in its purpose rather than distributed to owners
   • It must be owned by the government
   • It cannot employ paid staff
   Show answer

   Any surplus is reinvested in its purpose rather than distributed to owners. Not-for-profits may make a surplus; they just do not pay it out to owners.

3. In a typical co-operative, voting rights are
   • in proportion to shares held
   • held only by the chief executive
   • held by the government
   • one vote per member
   Show answer

   one vote per member. Democratic control, one member one vote, is a defining feature.

4. Two car makers set up a new jointly owned company to develop batteries. This is
   • a joint venture
   • a horizontal merger
   • a conglomerate merger
   • a co-operative
   Show answer

   a joint venture. A new business owned by two parents that share costs, risk and profits is a joint venture; the parents remain separate firms.

5. Which is the most likely reason for a firm to form a joint venture with a local firm when entering a foreign market?
   • To avoid paying any tax
   • To guarantee monopoly power
   • To gain local knowledge and share risk
   • To remove the need for any capital
   Show answer

   To gain local knowledge and share risk. Local partners bring knowledge of customers, rules and distribution, and share the risk.

6. Explain why a state-owned enterprise might not aim to maximise profit.
   Show answer

   The government may set it social objectives, such as providing a universal service at an affordable price or protecting jobs, so it may produce more or charge less than a profit maximiser would, accepting lower profit or a loss.. Mention who sets the objective (government), what the objective is (social), and the effect on output, price or profit.

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Sources

• Pearson Edexcel International Advanced Subsidiary/Advanced Level in Economics specification (XEC11/YEC11), Unit 3 Business behaviour and Appendices 6 and 7

Last updated 8 November 2026. Spotted a mistake? Tell us.