Objectives and purpose of organisations - For profit public ...

Learning Outcomes

By the end of this article, you will be able to explain why organisations are formed and distinguish between profit-seeking, public sector, and not-for-profit organisations. You will identify their main objectives, describe how they differ, and outline the sectors in which they operate. You should also be able to define key organisational forms and explain their characteristics as tested in the ACCA Business and Technology exam.

ACCA Business and Technology (BT) Syllabus

For ACCA Business and Technology (BT), you are required to understand the reasons organisations exist, the differences between business types, and their typical aims. Focus your revision on:

• The reasons why organisations are formed, including the need for collective goals and controlled performance
• The difference between commercial (profit-seeking), public sector, and not-for-profit organisations
• Typical objectives for each type of organisation
• Common features and types of organisations: sole trader, partnership, company, government body, charity, club, cooperative, and NGO
• Sectors of operation (e.g. private sector, public sector)
• Key differences in ownership, activities, funding, and liability

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. According to the ACCA syllabus, which of the following is a primary objective of a commercial organisation?
   1. To provide social services
   2. To maximise owner wealth
   3. To implement government policy
   4. To lobby for environmental change
2. An organisation that operates independently of government, aims to benefit society, and does not primarily distribute profits is best described as a:
   1. Public sector organisation
   2. Not-for-profit organisation
   3. Private limited company
   4. Partnership

3. True or False? The main aim of public sector organisations is usually to maximise profits for shareholders.

4. Give one example each of a profit-seeking, public sector, and not-for-profit organisation and state their main objective.

Introduction

Organisations exist to achieve collective objectives that individuals working alone would struggle to accomplish. There are many types of organisation, each with its own core purpose and aim, shaped by factors such as ownership, funding, and social role. Understanding why organisations are set up—and how their objectives vary—is key for the ACCA Business and Technology exam.

Key Term: organisation
A group of individuals arranged to achieve common goals, sharing responsibilities and coordinating efforts under systems of control.

Why are organisations formed?

Organisations bring together people with shared aims. By combining skills, resources, and knowledge, individuals working in an organisation can achieve results that would not be possible alone. Typical reasons organisations are established include:

• Achieving specific goals (e.g. profit, public service, social impact)
• Allowing specialisation of labour
• Pooling financial and physical resources
• Creating a structure for control and performance measurement
• Increasing efficiency via formal organisation of roles and tasks

Main types of organisation

Organisations are commonly classified into three major types according to their objectives:

Profit-seeking (commercial) organisations

These organisations exist mainly to generate profit for owners or shareholders. They are found in the private sector, making goods or providing services for sale. The surplus (profit) is usually distributed to the owners.

Key Term: profit-seeking organisation
An entity whose primary objective is to generate financial returns for its owners or shareholders.

Typical forms:

• Sole traders
• Partnerships
• Limited companies (private or public)

Main objectives:

• Maximise profit and shareholder/owner wealth
• Grow market share and revenue
• Increase business value

Public sector organisations

These are controlled and funded by government bodies. Their purpose is the provision of public services or implementation of government policy, rather than making profit for owners.

Key Term: public sector organisation
An entity owned and operated by government, focused on delivering services for the public good.

Common examples:

• Healthcare trusts
• Schools (publicly funded)
• Police and emergency services
• Local councils/government agencies

Main objectives:

• Provide essential services to society
• Operate efficiently within government-set constraints
• Implement government policies

Not-for-profit organisations

These organisations do not aim to make profit for distribution to owners. Instead, any surplus is usually reinvested to further their mission, which typically targets social, educational, environmental, or charitable benefits.

Key Term: not-for-profit organisation
An entity that exists primarily for social, charitable, or community purposes rather than profit distribution to owners.

Examples:

• Charities (e.g. international aid agencies)
• Clubs (e.g. sports or social clubs)
• Non-governmental organisations (NGOs)
• Foundations

Key Term: non-governmental organisation (NGO)
An organisation independent from government, typically aiming to address social, political, or environmental issues.

Key Term: cooperative
An organisation owned and democratically controlled by its members, usually combining buying or selling power to their mutual benefit.

Features that distinguish organisations

Organisations differ not only in objectives, but in several other ways that you must know for the exam:

• Ownership: Private individuals (private sector), government (public sector), or members (cooperatives)
• Sources of funding: Investors/shareholders, government grants, donations, members’ contributions
• Activities: Profit-making sales, delivery of services, fundraising, advocacy
• Liability: Limited or unlimited, depending on structure and country
• Size and scale: From single-person start-ups to large multinational corporations

Worked Example 1.1

Scenario:
State the primary objective and one typical source of funding for each of the following:
a) A hospital trust
b) A privately-owned supermarket
c) A local football club

Answer:
a) Hospital trust: Primary objective—to provide healthcare services; funding—government allocation/public funds.
b) Private supermarket: Primary objective—to maximise profit; funding—owner’s capital, commercial loans.
c) Football club: Primary objective—to serve the interests of members and community; funding—membership fees, sponsorship, local grants.

Sectors in which organisations operate

• Private sector: Businesses and organisations run by individuals/groups aiming for profit or other private interests (includes most profit-seeking companies, some not-for-profits, cooperatives).
• Public sector: Government-controlled and funded bodies, providing services such as education, defence, and healthcare.
• Third sector: Not-for-profit and voluntary organisations, including charities, NGOs, and co-operatives.

Objectives of different organisational types

Note: Some not-for-profit or public sector bodies may generate surpluses, but these must be used to support the organisation’s main mission.

Contrasts and overlaps

While these categories are distinct, there can be overlap:

• Some public sector bodies may aim to operate at breakeven or generate profit for reinvestment.
• Certain not-for-profits run trading arms to raise funds.
• Some organisations, like cooperatives, may combine social and commercial aims.

Worked Example 1.2

Question:
Which of the following best describes an independent charity running a hospital:
A) Profit-seeking
B) Public sector
C) Not-for-profit
D) Private sector company

Answer:
C) Not-for-profit. The charity exists to provide healthcare for community benefit, not for distributing profits to owners or government.

Additional organisational forms

• NGOs: Independently advocate for social, environmental, or political causes.
• Cooperatives: Owned by members and prioritise mutual benefits.
• Clubs/Associations: Set up to meet the needs of members, not make profits.

Ownership and liability

Owners’ exposure to risk varies:

• Sole traders and partners have unlimited liability.
• Company shareholders’ liability is limited to invested share capital.
• Non-profit members may have no legal ownership or limited liability if registered as a corporate entity.

Exam Warning

Remember: Not all organisations that make a surplus are profit-seeking. Always check their main aim and use of funds for classification in ACCA questions.

Summary

Organisations exist to pursue specific aims, with the main distinction found in their reason for existence—profit, public service, or social benefit. Recognising the objectives and forms of profit-seeking, public sector, and not-for-profit organisations is essential for ACCA exam questions. Be able to identify core differences in funding, ownership, and activities.

Key Point Checklist

This article has covered the following key knowledge points:

• Explain why organisations are formed and describe the concept of collective goals
• Distinguish between profit-seeking, public sector, and not-for-profit organisations
• State the main objectives typical for each organisational type
• Identify sectors of operation: private, public, and third sector
• Define and differentiate important organisational forms: commercial, NGO, cooperative, club
• Summarise the key differences in ownership, funding, activities, and liability
• Relate objectives to measurement of organisational success

Key Terms and Concepts

• organisation
• profit-seeking organisation
• public sector organisation
• not-for-profit organisation
• non-governmental organisation (NGO)
• cooperative