A quick summary of private, nonprofit, and public sectors

The three sectors of business are private (for-profit), nonprofit, and public. Each is structured differently and thus exhibits different forms of ownership. This blog has a slant towards leisure service delivery systems, or organizations delivering various forms of recreation, but this information can be applied in a number of different areas. There is no right or wrong way to structure an organization that delivers recreation and/or leisure services; it is fully dependent on who establishes the organization, its purpose, and its intended consumer base.

The private sector exists for the primary purpose of making a profit. They are established by individuals or existing private businesses, and are thus privately owned. Within the private sector there are four different forms of ownership: sole proprietorships (businesses owned by a single individual), partnerships (businesses owned by two or more individuals), corporations, and limited liability corporations. The latter two are separate entities.

Sole proprietorships are owned by one individual acting as a single business entity. The owner is completely responsible for the business, and has full rights, without limitation, to assets and profits. That said, the owner also pays all taxes on the operation’s income and personally absorbs any losses. Sole proprietorships are ventures that are typically formed out of simplicity when incorporation of a corporate entity is not desired. Similarly, partnerships are non-corporate entities. The difference is that partnerships are established by multiple parties who agree to share in the operations and ownership of the organization. Two forms of partnerships exist: general and limited. General partnerships imply that each partner is jointly responsible for every liability of the organization. Limited partnerships have more stipulations, but allow each partner to have limited liability based on his or her capital investment. One major stipulation of being a partner with limited liability is that he/she cannot serve in a managerial role, which essentially restricts partners to those of whom only have interest in the organization as an investment.

Alternatively, corporations are separate business entities from individuals. Corporations act like individuals, however, in the sense that they engage in business, make contracts, hold title to property, sue and be sued, and pay taxes. The investors and those who form corporations are not liable for the organization as they would be under a sole proprietorship or partnership. The corporation is subject to specific state laws, including possible double taxation and management/oversight by shareholders. The primary advantage is that the organization can perform business practices independently, but disadvantages include additional restrictions and legal responsibilities to both state and federal governments. Limited Liability Corporations (LLCs) are an additional type of private business entity, similar to a standard corporation with decreased (limited) liability on its founder(s), but with better tax benefits and less regulation. Specific details of LLCs are determined on a state level.

Organizations formed in the nonprofit sector are similar in structure to the corporate entities, although they do not have capital stock. Nonprofit organizations are effectively businesses, but cannot distribute any of their income or property to members, directors, or officers. This does not mean that managers and employees cannot be paid salaries, as that is a part of operating expenses, but rather the profits generated are invested within the company or in other organizations with nonprofit designations. Nonprofits are established with specific missions (whether charitable, civic, educational, recreational, etc.), in comparison to businesses in the private sector, which exist to make money (and consequently must make money to exist).

The public sector encompasses the agencies and organizations which are funded by tax dollars from the general public. They exist at small, local levels all the way up to national/federal levels. Federal agencies are given authority via congressional action and then regulated by government administrations. Funding is also controlled by those in congress. Moving down the chain, state agencies are granted certain rights by the US Constitution, yet are managed on a state level, and are thus authorized/funded/regulated by state governments. Local agencies are granted authority by the states, and has predetermined geographical boundaries of jurisdiction and service. In summary, there is a specific chain of command and authority governing the public sector, regardless of the fact that the taxpayers are essentially the shareholders and consumers of services.

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photo licensed under creative commons by fensterbme.
content from:
- Management of Parks and Recreation Agencies, 2nd ed.
- themoneyalert.com.