BUSINESS ORGANIZATIONS

BUSINESS ORGANIZATIONS
Sole proprietor:
 A single person owns and controls the business affairs.
Features
 It is easy to setup and cheap to organize
 Decision can be taken quickly but the sole proprietor has unlimited liability.
 He can enjoy all the profits of the company but has to suffer the losses.
Partnership
 Business owned and controlled by a group of individuals ( 2—20 ).
 Partners have unlimited liability and each partner has to contribute capital
Advantages
 Partners bring new ideas and skills to a business
 More partners mean more money for the business
 Partners can help in decision making
Disadvantages
 Partners can disagree
 Partnership have unlimited liability
 Partnership lack capital
Limited Companies
Business organizations owned by many share holders who have limited liability. There are two types:
Private Limited Companies
 Issue shares privately among friends and relatives
 They have separate legal entity.
 It is owned by the share holders, but controlled by board of directors
Advantages
 Shareholders have limited liability
 Shareholders have no management worries
 The company has a separate legal entity.
Disadvantages
 It must publish information about their spending, revenues, profits etc
 It must hold an Annual General Meeting of share holders each year.
 Company profits are taxed twice by the government
 It cannot sell shares through stock exchange market
Types of shares
Preference shares
 The dividend of the share will be a fixed percentage
 The company will divide its profit firstly among preference share holders
Ordinary shares
 The dividend will vary according to the profit of the company
 Ordinary share holders get dividends only after the preference shares receive their dividend.
Public Limited Companies
 They issue shares to the public and shares can be sold at stock exchange
 Share holders own company and receive profits
 The company has separate legal entity
 It is owned by the share holders but controlled by board of directors.
Advantages
 Shareholders have limited liability
 Shareholders have no management worries
 The company has a separate legal identity
 It can sell shares on the stock exchange
 It can advertise their shares.
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Disadvantages
 It must publish information about their spending, revenues, profits etc
 It must hold an Annual General Meeting of share holders each year.
 Company profits are taxed twice by the government
 The original owners of the company may lose control
 It is expensive to form a PLC.
Co operatives
 It is a business organization which is formed in the aim of providing welfare to its members.They can be classified in to two:
Worker co operatives: They are co operatives owned by workers
Consumer co operatives: It is the retail business organization owned by the consumers.
 Multinationals/ Multi national Companies
 It is the largest business organization which operates in more than one country with its head quarters in one particular country Eg: Ford, Nokia etc
Advantages of multinationals to home country/developing countries
 They provide jobs to local labours
 They bring business knowledge, skills and modern technology.
 They may taxes which increase government revenue.
 They bring foreign currency to the country by selling goods abroad
 They improve infrastructure like roads, airport etc
 They widen economic base of the country
Disadvantages of multinationals to home country/developing countries
 Multinationals move their factories to whatever it is profitable to produce. It will cause unemployment
 Most of the profit may go overseas. the home country may not get any benefit
 They may force the home industry to compete with them, it also cause to unemployment.
 Some multinationals may exploit workers by paying very low wages.
 The mechanization reduces the size of labour force in the home country.
 Some multinational may interfere the government of a country
 The highest posts of the firm may be reserved to foreigners.
Advantages of being a multinational company to a firm
 Multinationals are able to sell more than any other type of the company
 Multinationals can avoid transport cost by producing goods in different countries.
 It can take the advantage of different wage levels in different countries
 It can achieve greater economies of scale
 Multinationals have less chance of going bankrupt than smaller companies.
 It can avoid trade barriers
 Multinationals can carry out a lot of research and development.
Public corporations
 It is an organization formed by the government to provide welfare to the public
Nationalization
 Transferring a private industry to a public industry
Privatization
 Transferring public industries to private industries