Forms of Business Forms of Business OrganisationOrganisation

Meaning of OrganizationMeaning of Organization

““An organization represents a group of An organization represents a group of people who work together for the people who work together for the achievement of common objective.”achievement of common objective.”““An organization comes into existence An organization comes into existence when there are a number of persons in when there are a number of persons in communication and relationship to each communication and relationship to each other and are willing to contribute other and are willing to contribute towards a common endeavor.”towards a common endeavor.”

Process of organizationProcess of organization

Determination of objectives.Determination of objectives. Division of Activities.Division of Activities. Fitting Individuals.Fitting Individuals. Developing relationships.Developing relationships. Co-ordination.Co-ordination.

Advantages of organizationAdvantages of organization

Effective Management.Effective Management. Co-ordination and communication.Co-ordination and communication. Growth and diversification.Growth and diversification. Optimum use of technical Optimum use of technical

innovations.innovations. Optimum use of human resource.Optimum use of human resource. Balance emphasis to various Balance emphasis to various

activities.activities.

Principles of organizationPrinciples of organization

Principle of objectives.Principle of objectives. Principle of division of work.Principle of division of work. Principle of unity of command.Principle of unity of command. Principle of span of control. Principle of span of control. Principle of scalar chain.Principle of scalar chain. Principle of delegation.Principle of delegation.

Principles cont…Principles cont…

Principle of parity of authority Principle of parity of authority and responsibility.and responsibility.

Principle of co-ordination.Principle of co-ordination. Principle of flexibility .Principle of flexibility . Principle of efficiency.Principle of efficiency. Principle of continuity.Principle of continuity. Principle of exception.Principle of exception.

Business Organizations Business Organizations Ownership:Ownership:

The Private Sector The Private Sector Sole tradersSole traders PartnershipsPartnerships Private limited Private limited

companiescompanies Public limited Public limited

companiescompanies Co-operativesCo-operatives Close corporationsClose corporations Joint venturesJoint ventures FranchisesFranchises

Business Organizations Business Organizations Ownership :Ownership :

The Public Sector The Public Sector

Public corporationsPublic corporations Municipal Municipal

enterprisesenterprises

Ownership means Ownership means – title to and title to and possessionpossession of the assets of the assets

of enterprise, of enterprise, – the the powerpower to determine the policies to determine the policies

of operation, and of operation, and – rightright to receive and dispose of the to receive and dispose of the

proceeds.proceeds.

Sole Traders / Single Sole Traders / Single Ownership/ Proprietorship/ Ownership/ Proprietorship/ Private UndertakingsPrivate Undertakings

Sole Traders / Single Sole Traders / Single Ownership/ Proprietorship/ Ownership/ Proprietorship/

Private UndertakingsPrivate Undertakings The most common form of The most common form of

business organization.business organization. Owned and operated by Owned and operated by

oneone person person Very few legal Very few legal

requirements for setting it requirements for setting it up.up.

Examples are –Printing press, auto repair shop, wood working plant, retail traders, small engineering firms,….

Sole Traders: AdvantagesSole Traders: Advantages Few legal requirements in setting up the

business. Owner has complete control over the

business. Close contact with customers. Incentive to work hard – do not have to

share profits. Secrecy of business matters. Freedom to manage Easy to dissolve TaxesTaxes

Sole Trader: DisadvantagesSole Trader: Disadvantages No shared ideas / decision makingNo shared ideas / decision making Unlimited liability Unlimited liability – business not a – business not a

separate legal entity, therefore owner is separate legal entity, therefore owner is fully responsible for the debts of the fully responsible for the debts of the business. business.

Limited access to capital – hard to growLimited access to capital – hard to grow Limited skillsLimited skills Hard to take leaveHard to take leave

PartnershipsPartnerships Group of 2 – 20 people.Group of 2 – 20 people. Each partner contributed capital.Each partner contributed capital. Each partner takes part in the Each partner takes part in the

running of the business.running of the business. Each partner gets a share of the Each partner gets a share of the

profits.profits. A Deed of Partnership / A Deed of Partnership /

Partnership Agreement sets out Partnership Agreement sets out the rights and responsibilities of the rights and responsibilities of the partners.the partners.

Partnership AgreementsPartnership AgreementsPartnership agreements usually include:Partnership agreements usually include: The amount of capital invested by The amount of capital invested by

partners;partners; The tasks to be undertaken by each The tasks to be undertaken by each

partner;partner; How profits are to be shared;How profits are to be shared; The lifespan of the partnership;The lifespan of the partnership; Arrangements for absences;Arrangements for absences; Arrangements for retirement and new Arrangements for retirement and new

partners being admitted.partners being admitted.

Types of PartnershipsTypes of PartnershipsGeneral Partnerships

– All partners are responsible for the management and financial obligations of the business.

– All partners have unlimited liability.Limited Partnerships

– At least one partner is not active in the daily running of the business.

– Some partners have personal liability that is limited to the cash or property they invested in the firm.

Partnership: AdvantagesPartnership: Advantages More capital (than More capital (than

sole trader).sole trader). Responsibilities can Responsibilities can

be shared.be shared. Losses are shared.Losses are shared. Easier to take Easier to take

leave.leave. Increased skills.Increased skills.

Partnership: DisadvantagesPartnership: Disadvantages Unlimited liabilityUnlimited liability Unlimited life – if one partner dies, Unlimited life – if one partner dies,

the partnership ends.the partnership ends. Decision-making can be difficult Decision-making can be difficult

when there are disagreements.when there are disagreements. One incompetent / dishonest partner One incompetent / dishonest partner

could cause other partners to suffer.could cause other partners to suffer. Limited to capital of 20 people.Limited to capital of 20 people.

Private Limited Company Private Limited Company (Ltd)(Ltd)

Separate legal entity from owners.Separate legal entity from owners. ShareholdersShareholders are the owners – they are the owners – they

buy buy sharesshares in the company. in the company. Shares sold to a small group of Shares sold to a small group of

people – not through the stock people – not through the stock exchange.exchange.

The shareholders appoint directors to The shareholders appoint directors to run the company.run the company.

Private Limited Company: Private Limited Company: AdvantagesAdvantages

Shares can be sold to a large number Shares can be sold to a large number of people.of people.

Limited liability – shareholders are Limited liability – shareholders are not personally responsible for the not personally responsible for the debts of the business.debts of the business.

The main shareholders can keep The main shareholders can keep relative control of the company.relative control of the company.

Private Limited Company: Private Limited Company: DisadvantagesDisadvantages

Significant legal requirements when Significant legal requirements when setting up.setting up.

Shares cannot be sold / transferred Shares cannot be sold / transferred without the agreement of other without the agreement of other shareholders.shareholders.

Accounts are much less private than Accounts are much less private than sole trader / partnership.sole trader / partnership.

Cannot sell shares on stock Cannot sell shares on stock exchange – limits expansion.exchange – limits expansion.

Public Limited Company Public Limited Company (PLC)(PLC)

Suitable for very Suitable for very large businesses.large businesses.

Owned by private Owned by private individuals – don’t individuals – don’t mistakenly think it mistakenly think it is government is government owned.owned.

Shares sold on the Shares sold on the stock exchange.stock exchange.

Public Limited Company: Public Limited Company: AdvantagesAdvantages

Limited liability to shareholders.Limited liability to shareholders. Continuity should a shareholder die.Continuity should a shareholder die. Opportunity to raise very large sums Opportunity to raise very large sums

of capital.of capital. No restrictions on the buying, selling No restrictions on the buying, selling

and transfer of shares.and transfer of shares. Usually has a high statusUsually has a high status

Public Limited Company: Public Limited Company: DisadvantagesDisadvantages

Complicated and time Complicated and time consuming legal consuming legal formalities in setting up.formalities in setting up.

More regulations and More regulations and controls.controls.

Is costly to sell shares to Is costly to sell shares to the public.the public.

Shareholders have little Shareholders have little control over the running control over the running of the company.of the company.

Co-operativesCo-operatives Groups of people who agree Groups of people who agree

to work together and pool to work together and pool their resources.their resources.

All members have one vote.All members have one vote. All members help in running All members help in running

the businessthe business Profits are shared equally Profits are shared equally

among members.among members. Types: producer co-ops, Types: producer co-ops,

retail co-ops, worker co-ops.retail co-ops, worker co-ops.

Close CorporationsClose Corporations Similar to Private limited company Similar to Private limited company

but quicker to set up.but quicker to set up. Fewer rules and regulations.Fewer rules and regulations. Limited to maximum of 10 people.Limited to maximum of 10 people. Members are also managersMembers are also managers Separate legal entities – unlimited Separate legal entities – unlimited

liability and continuity.liability and continuity.

Joint VenturesJoint Ventures Two or more businesses agree to Two or more businesses agree to

start a new project together.start a new project together. Common in the research and Common in the research and

development of new products.development of new products. Spread costs and reduce risks.Spread costs and reduce risks. Can lead to disagreements and Can lead to disagreements and

disputes over policy and disputes over policy and management of the venture.management of the venture.

FranchisingFranchising A A franchisorfranchisor is a business with a product / is a business with a product /

service idea that does not want to sell to service idea that does not want to sell to customers directly.customers directly.

The The franchiseefranchisee is the person who buys the idea is the person who buys the idea from the franchisor and sells it to the public.from the franchisor and sells it to the public.

The franchisee pays the franchisor an initial The franchisee pays the franchisor an initial fee, then monthly fees to cover advertising etc.fee, then monthly fees to cover advertising etc.

The franchisee pays the franchisor a The franchisee pays the franchisor a percentage of their profits.percentage of their profits.

Examples: McDonalds.Examples: McDonalds.

Franchising: Advantages to Franchising: Advantages to FranchisorFranchisor

Expansion is paid for by Expansion is paid for by franchisee.franchisee.

Expansion is fast and Expansion is fast and effective.effective.

Franchisor can make large Franchisor can make large profits via franchisees.profits via franchisees.

Franchisor does not have Franchisor does not have management problems of management problems of the individual retail the individual retail stores.stores.

Franchising: Advantages to Franchising: Advantages to FranchiseeFranchisee

Reduced chance of failure.Reduced chance of failure. Advertising is paid for by franchisor.Advertising is paid for by franchisor. All supplies come from a single source – All supplies come from a single source –

the franchisor.the franchisor. Many decisions have already been made Many decisions have already been made

for them.for them. Franchisor provides training for staff.Franchisor provides training for staff. Banks more willing to loan money to Banks more willing to loan money to

franchises.franchises.

Public CorporationsPublic Corporations Wholly owned by the state or Wholly owned by the state or

central government.central government. Usually businesses that have Usually businesses that have

been nationalised (sold by been nationalised (sold by private individuals to the private individuals to the government).government).

The government appoints a The government appoints a Board of Directors to run the Board of Directors to run the organisation.organisation.

The Board of Directors runs the The Board of Directors runs the organisation according to the organisation according to the objectives set by the objectives set by the government.government.

Public Corporations: Public Corporations: ObjectivesObjectives

Traditionally, objectives of publicTraditionally, objectives of publiccorporations included:corporations included: To keep prices low so that To keep prices low so that

everyone can afford the service.everyone can afford the service. To keep people in jobs.To keep people in jobs. To offer a service to all areas of To offer a service to all areas of

the country.the country.This often led to public This often led to public

corporationscorporationsmaking hugemaking hugelosses, which had to be subsidisedlosses, which had to be subsidisedout of taxes.out of taxes.

Public Corporations: Public Corporations: ObjectivesObjectives

Today, the objectives have become:Today, the objectives have become: To reduce costs (this may include reducing To reduce costs (this may include reducing

the number of workers).the number of workers). To increase efficiencyTo increase efficiency To close loss-making services (even if this To close loss-making services (even if this

means some consumers are not provided means some consumers are not provided the service).the service).

This way of running public sectorThis way of running public sectororganisations is called organisations is called corporatisationcorporatisation..

Public Corporations: Public Corporations: AdvantagesAdvantages

Some industries are so Some industries are so important they need to be important they need to be government owned e.g. government owned e.g. electricity supply.electricity supply.

Ensures consumers are not Ensures consumers are not taken advantage of by privately taken advantage of by privately owned monopolists.owned monopolists.

Government can nationalise Government can nationalise important businesses that are important businesses that are failing to get them on their feet failing to get them on their feet again. again.

Non-profit but important Non-profit but important services can still be offered to services can still be offered to consumers.consumers.

Public Corporations: Public Corporations: DisadvantagesDisadvantages Lack of profit motive may cause Lack of profit motive may cause

inefficiency.inefficiency. Subsidies can further reduce Subsidies can further reduce

efficiency.efficiency. Usually no close competition – Usually no close competition –

lack of motive to increase lack of motive to increase consumer choice and efficiency.consumer choice and efficiency.

Public corporations could be Public corporations could be used for political reasons e.g. used for political reasons e.g. creating jobs to win votes before creating jobs to win votes before elections.elections.

Municipal EnterprisesMunicipal Enterprises Services offered by local Services offered by local

government authorities.government authorities. Some services are free to Some services are free to

the user and paid for out of the user and paid for out of taxes e.g. street lighting.taxes e.g. street lighting.

Some services are charged Some services are charged for to cover costs e.g. for to cover costs e.g. public swimming pools.public swimming pools.

These local services are These local services are increasingly being increasingly being privatised.privatised.

Key TermsKey Terms Sole traderSole trader Unlimited liabilityUnlimited liability PartnershipPartnership Separate legal Separate legal

entityentity Partnership Partnership

AgreementAgreement Private limited Private limited

company (Ltd)company (Ltd)

Public limited Public limited company (PLC)company (PLC)

CooperativeCooperative FranchiseFranchise Public CorporationPublic Corporation CorporatisationCorporatisation NationalisationNationalisation Municipal Municipal

enterprisesenterprises