Types of business: private, state-owned, for-profit, not-for-profit, co-operatives and joint ventures
This is A Level (IA2) content: it opens Unit 3, Business behaviour, which is examined in paper WEC13, and it assumes the AS Units 1 and 2 (WEC11 and WEC12), especially demand, supply and the price mechanism and the role of government.
In WEC13 the types of business mostly appear in Section A, where a multiple-choice question describes an organisation and asks you to name it, and as context in Section B and the essays, where who owns a firm decides what it is trying to achieve.
- Paper: 2 hours, 80 marks answered. Section A: six multiple-choice questions, 1 mark each, key only (no working or explanation is credited). Section B: one data-response question on a Source Booklet, (a) Calculate 2, (b) Explain what is meant by 4, (c) Analyse two 6, (d) Examine 8, (e) Discuss 14. Section C: two 20-mark Evaluate essays from a choice of three.
- Point-marked parts print a split line (for example Knowledge 2, Application 2, Analysis 2, Evaluation 2): one mark per (1), labelled (1K), (1AP), (1AN); "/" separates alternative wordings. The two Application marks need two separate pieces of the source the stem names.
- Calculate 2: one mark for the working, one for the answer with its unit or sign (%, billions, a minus sign on a fall); a bare correct answer earns both, and non-whole answers go to two decimal places.
- Examine 8: two points, each named (1K) and developed one step (1AN), two data points (1AP), and evaluation "2+0 or 1+1". With a diagram cue, the K and AN marks are the costs and revenues diagram: original equilibrium, original profit area, MC and AC (or AR and MR) shifted, new equilibrium and area.
- Discuss 14: levels, KAA 8 (1-3, 4-6, 7-8) and Evaluation 6 (1-2, 3-4, 5-6); no judgement required. Evaluate 20: KAA 12 (1-3, 4-6, 7-9, 10-12) and Evaluation 8 (1-3, 4-6, 7-8); the top evaluation level needs an informed judgement.
- Essay caps (KAA no higher than Level 3): no diagram; no named industry or context; only one of the two agents the question names (businesses and consumers, firms and workers).
- Best two points: examiners reward two developed points, each followed by its own evaluation, over a list of short ones.
The idea: who owns a business, and why it matters
Every business has to answer three questions.
Who owns it?
Who controls it day to day?
And what is it trying to achieve?
The answers are not the same everywhere.
A family bakery, a giant listed company, a national railway, a medical charity, a farmers' dairy and a car project run by two rival manufacturers are all businesses, but they are owned by different people and they chase different goals.
This matters for the whole of Unit 3.
Market structures, pricing and growth are usually analysed by assuming firms maximise profit.
That assumption is reasonable for a private, for-profit firm.
It is much weaker for a state-owned enterprise that has to keep fares low, a not-for-profit that exists to treat patients, or a co-operative whose owners are also its suppliers.
When you evaluate in an essay ("the firm may not raise prices, because it is a co-operative owned by its customers"), you are using the ideas in this section.
Private sector organisations and state-owned enterprises
The first split is by sector.
Private sector organisations are owned by private individuals or groups: sole traders, partnerships, private limited companies and public limited companies whose shares are traded on a stock exchange.
They raise finance from their owners and from lenders, and they answer to their owners.
State-owned enterprises (public sector) are owned, wholly or mainly, by the government on behalf of the public.
Many run industries that governments see as strategic or as natural monopolies: railways, postal services, water, electricity grids, national airlines.
Ethiopian Airlines, for example, is owned by the Ethiopian government but sells tickets in a competitive international market like any private airline.
Why would a government own a business?
There are several economic reasons, and each one links to market failure:
- Natural monopoly. Where one firm can supply the whole market at the lowest average cost (a rail network, a water grid), a private owner could charge a monopoly price. State ownership lets the government set prices nearer to cost.
- Public service. A state-owned bus company may run a route to a remote village that would never pay its way, because the government values access for everyone.
- Strategic control. Energy, defence and ports may be kept in public hands for security.
The cost is weaker pressure to keep costs down.
A state-owned enterprise rarely goes bankrupt, because the government can cover its losses, so managers may tolerate waste.
This is X-inefficiency, which you will meet in market structures, and it is one of the main arguments for privatisation.
For-profit and not-for-profit organisations
The second split is by purpose.
A for-profit organisation aims to make a surplus of revenue over costs for its owners, who may take it as dividends or reinvest it.
A not-for-profit organisation may still make a surplus, but it does not distribute it to owners: every surplus is put back into the organisation's purpose, such as a charity, a social enterprise, a university or a sports club owned by its members.
Médecins Sans Frontières, the international medical charity, is a not-for-profit: it must cover its costs, but its aim is to treat patients, not to pay shareholders.
Notice the trap.
"Not-for-profit" does not mean "makes no surplus" or "loses money".
A not-for-profit that runs a loss year after year will close just like a for-profit firm.
The difference is what happens to the surplus, and therefore what the organisation maximises: a for-profit firm usually maximises profit (see business objectives), while a not-for-profit may aim to serve as many people as possible while covering its costs, which looks more like sales volume maximisation.
The two splits cut across each other.
A state-owned railway is public sector and may be run on a not-for-profit basis; a state-owned oil company may be run to make large profits for the treasury.
A private charity is private sector and not-for-profit.
Co-operatives
A co-operative is a business owned and controlled by its members, who use its services or work in it, and who share its benefits.
There are three main kinds:
- Worker co-operatives, owned by the people who work in them. The Mondragon Corporation in the Basque Country of Spain is a federation of 81 self-governing co-operatives that employed 70 085 people in 2024.
- Producer co-operatives, owned by the suppliers, usually farmers, who pool their output to process and sell it. In India the Gujarat Cooperative Milk Marketing Federation, which sells under the Amul brand, works with about 3.6 million farmer members and reported a turnover of about Rs 65 911 crore in 2024-25.
- Consumer co-operatives, owned by their customers, such as many co-operative retailers and credit unions.
Two features set a co-operative apart.
First, control is usually one member, one vote, however much each member has put in, unlike a company, where votes follow shares.
Second, any surplus is shared among members in proportion to how much they use the co-operative (milk supplied, goods bought, hours worked), not in proportion to capital.
The economics follows from this.
A producer co-operative gives small farmers bargaining power they would lack alone: one farmer with three cows cannot negotiate with a supermarket chain, but three million farmers selling through one organisation can.
It also gives them economies of scale in processing, chilling and marketing.
The weaknesses are slower decisions (one member, one vote means long meetings), difficulty raising large amounts of finance (outside investors get no control), and a risk that members vote for higher payments to themselves over investment.
Joint ventures
A joint venture is a separate business set up and owned jointly by two or more existing firms, which share its costs, risks, control and profits, while each parent firm stays independent.
Sony and Honda set up Sony Honda Mobility as a 50:50 joint venture in 2022 to develop electric cars under the Afeela brand: Sony brings software, sensors and entertainment; Honda brings car design and manufacturing.
Firms choose a joint venture when a project needs skills or assets that neither has alone, when the cost and risk are too large for one firm, or when entering a foreign market where local law or local knowledge makes a local partner essential.
A joint venture is not a merger: the parents do not combine, and the venture can be closed or sold without either parent losing its identity.
It is often a step short of full integration, and it can be an early form of growth for firms that are not ready to merge.
The risks are disagreements between parents with different objectives, unclear lines of control, and the chance that one partner learns the other's technology and becomes a stronger rival.
Comparing the types
Type
Owned by
Main aim
Typical strength
Typical weakness
Private sector, for-profit
Private shareholders or owners
Profit for owners
Strong pressure to cut costs and innovate
May use market power against consumers
State-owned enterprise
Government
Public service, strategic control, sometimes profit
Can price near cost; serves unprofitable areas
X-inefficiency; political interference
Not-for-profit
Members, trustees or no owners
A social purpose; surplus reinvested
Trust of donors and users
Finance limited to donations and surpluses
Co-operative
Members (workers, producers or consumers)
Benefit to members
Bargaining power; loyalty
Slow decisions; hard to raise capital
Joint venture
Two or more parent firms
A shared project
Pooled skills; shared risk
Conflict between parents
- Types of business: Types of businesses: private sector organisations; state-owned enterprises (public sector); for-profit and not-for-profit organisations; co-operatives; joint ventures.
- Private sector organisation: a business owned by private individuals or groups, not by the government.
- State-owned enterprise: a business owned, wholly or mainly, by the government on behalf of the public, so it is part of the public sector.
- Not-for-profit organisation: an organisation that reinvests any surplus in its purpose instead of distributing it to owners.
- Co-operative: a business owned and controlled by its members (workers, producers or consumers), who share its benefits, usually with one member, one vote.
- Joint venture: a separate business set up by two or more firms, which share its costs, risks, control and profits while remaining independent.
Learn each definition in two parts: who owns or controls it, then what it does with its surplus or how it works.
In WEC13 a term like these is set as "explain what is meant by" for 4 marks: the two halves earn the two Knowledge marks and two pieces of the extract earn the two Application marks.
Classify each organisation: (a) a bus company owned by a city council that runs routes at a loss, covered by a council grant; (b) a group of 400 coffee growers who own a roasting plant together, each with one vote, and share its surplus by the weight of beans supplied; (c) a mining company and a steelmaker that set up a new, separately owned firm to build a railway to a port, sharing its costs and profits 50:50; (d) a hospital run by a charity that reinvests every surplus in new wards.
1. (a) Owned by government: a state-owned enterprise in the public sector, run as a public service (not-for-profit in practice).
2. (b) Owned and controlled by suppliers with one member, one vote, and surplus shared by use: a producer co-operative.
3. (c) A separate firm owned by two parents that stay independent: a joint venture (not a merger, because the parents do not combine).
4. (d) Surplus reinvested, no owners taking profit: a not-for-profit organisation in the private sector.
Answer: (a) state-owned enterprise; (b) co-operative; (c) joint venture; (d) not-for-profit organisation.
The clue each time is who owns it and where the surplus goes.
A milk co-operative has 1 200 member farmers.
In one year they deliver 9.6 million litres.
After paying all costs the co-operative has a surplus of $1.44 million.
Members vote to keep 25% for a new chilling plant and share the rest by litres supplied.
Calculate the payment per litre and the payment to a farmer who supplied 12 000 litres.
1. Surplus shared = 1.44 million × 0.75 = $1.08 million.
2. Payment per litre = 1 080 000 ÷ 9 600 000 = $0.1125 per litre.
3. Farmer's payment = 0.1125 × 12 000 = $1 350.
Answer: $0.1125 per litre; $1 350 for the farmer.
In a company the surplus would be shared by the number of shares held; here it follows use, so the farmer who supplies most gains most, which gives every member a reason to sell through the co-operative.
Two firms own a joint venture 60:40.
In its third year the venture's total revenue is $420 million and its total costs are $335 million.
Calculate each parent's share of the profit.
1. Profit = total revenue − total cost = 420 − 335 = $85 million.
2. 60% share = 0.6 × 85 = $51 million; 40% share = 0.4 × 85 = $34 million.
Answer: $51 million and $34 million.
A loss would be shared in the same ratio: that is the point of a joint venture for a risky project.
From Units 1-2: state-owned enterprises and not-for-profits often exist because of market failure: natural monopolies, public goods and services with external benefits that a profit-maximising market would under-provide.
Section A questions on types of business describe an arrangement and ask which one it is.
Look for the two clues: who owns it, and what happens to the surplus.
Two firms from different industries creating a new, jointly owned business is a joint venture, not a merger or a co-operative.
- "Not-for-profit means it makes no profit." It may make a surplus; it does not distribute it to owners. That is why it is "not for profit".
- Confusing state-owned with "public limited company". A public limited company is in the private sector: "public" refers to its shares being sold to the public. A state-owned enterprise is in the public sector.
- Calling a joint venture a merger. In a merger the firms combine into one; in a joint venture the parents stay separate and create a new, shared business.
- Assuming every firm maximises profit. The type of business shapes its objective; say so when you evaluate a firm's likely behaviour.
Check your understanding
1. In 2025 a technology firm and a car manufacturer each put up half the capital for a new company to design self-driving software. Both firms continue to trade separately. Which one of the following best describes the new company? (1)
- A A conglomerate merger
- B A joint venture
- C A consumer co-operative
- D A state-owned enterprise Total [1]
2. Which one of the following is most likely to be true of a producer co-operative? (1)
- A Votes are allocated in proportion to the number of shares each member holds
- B Its surplus is paid to outside investors as dividends
- C It is part of the public sector
- D Its surplus is shared among members according to how much they supply Total [1]
3. A student writes: "A not-for-profit organisation does not need to cover its costs, because it is not trying to make a profit." Explain why the student is wrong. (4) Total [4]
4. A rice growers' co-operative made a surplus of $2.7 million in 2025 from 18 million kilograms of rice supplied by members. It kept one third of the surplus for investment and shared the rest by kilograms supplied. Calculate the payment per kilogram. You are advised to show your working. (2) Total [2]
5. In 2025 Corvex, a mining group, and Halden Steel set up a 50:50 joint venture to build a $3.2 billion iron ore railway. Neither firm could raise the full sum alone, and Halden had never built rail infrastructure. Analyse two reasons why the firms chose a joint venture. (6) Total [6]
6. In 2024 the government of Kesland owned 100% of the national water company, which charged households one of the lowest water prices in the region but lost 38% of its treated water through leaks. Discuss whether state ownership is the best type of ownership for a water supply business. (14) Total [14]
Answers
1. B (1). A is incorrect because in a merger the two firms combine into one; here both keep trading separately. C is incorrect because a consumer co-operative is owned by its customers, not by two firms. D is incorrect because no government owns the company.
2. D (1). A is incorrect because co-operatives usually give one member, one vote, not votes by shares. B is incorrect because the surplus goes to members, not outside investors. C is incorrect because a producer co-operative is owned by private members, so it is in the private sector.
3. Knowledge 2 Application 2 (in the shape of an "explain" item; there is no extract, so the application marks come from the student's claim):
- a not-for-profit reinvests any surplus in its purpose instead of paying it to owners (1)
- but it must still cover its costs over time, or it runs out of funds and closes, like any business (1)
- the student confuses "not distributing a surplus" with "not needing revenue to cover costs" (1)
- for example a charity hospital must pay wages and suppliers from donations, fees and grants; repeated deficits would force it to cut services (1)
4. 2.7 million × 2/3 = $1.8 million to share; 1 800 000 ÷ 18 000 000 (1) = $0.10 per kilogram (1). NB: an answer without the currency or "per kilogram" earns 1.
5. Knowledge 2 Application 2 Analysis 2:
- shared cost and risk (1K): each parent pays half and bears half of any loss, so a project too large for either alone becomes possible (1AN)
- pooled expertise (1K): Halden lacks rail-building experience, so working with a partner that knows how to move ore lets it share in the project without learning everything alone, while Corvex gains a guaranteed buyer for the ore the railway carries (1AN)
- Application, up to 2: the cost of $3.2 billion, which neither could raise alone (1AP); Halden had never built rail infrastructure (1AP)
6. Indicative content. KAA (8): water is a natural monopoly (one network of pipes), so a private owner could charge a monopoly price; state ownership lets the government keep prices low, as in Kesland, and serve every household; but state ownership weakens the pressure to cut costs, so X-inefficiency grows, shown by 38% leakage, a waste of treated water whose cost is borne by taxpayers. Evaluation (6): a regulated private owner may invest more in fixing leaks if it can keep the savings; but private owners may cut investment to raise dividends; the outcome depends on regulation, the government's budget and whether managers face targets; low prices may also encourage overuse. A Level 3 answer develops two contrasting points with multi-stage chains using the Kesland data and evaluates each one straight after it.