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- 1. Forms Of Business Organizations An organization is a system that groups people together towards establishing a commongoal. Business organizations are centeredon creating goods and servicesfor profit. There are severaltypes of business organizations that one can start. Forms of Business Organizations: Sole Trader Partnership Private Limited Liability companies Public limited Liability Companies Multinationals Franchise Conglomerates Cooperatives Nationalized Industries Local and Municipal Authorities Government Departments All formsof business organizations can either be characterizedas a part of the private sector or the public sector. The Private and Public Sector All privately ownedindustries, servicesand other business activitiesare a part of the Private Sector. All industries, servicesand any other business activitiesthat are owned by the state are a part of the Public Sector. For example, the commercialbanks are a part of the Private Sector, andpublic schools and hospital are a part of the Public Sector. The sole trader The sole trader as the title suggest is a single business owner. This personmay employ severalother persons to work in the organization, but he has to make all decisions, acquire all the capital required and other resourcesneeded for the business on his own. Advantages Benefits of operating alone are: all profitsare taken by the owner. Consultations are not necessary for decision making and the legal requirements for start-up is very simple as the proprietor only needs to submit the registrationdocuments for the business. Disadvantages The sole proprietor must work for long hours resulting in little time for family. There is also limited capital to inject into the business and he alone bears all the risk of the business. He does not have
- 2. limited liability and therefore if the business goes bankrupt he may lose his personal assets e.g. house and car. There is a lack of expertise in areas of business where he is not knowledgeable which may limit success. Partnership A partnership business is formedlegally by a minimum of two and a maximum of twenty persons in a business. There are two typesof partnership forms: -Limited Liability Partnership – at lease one partner must have unlimited liability -Unlimited liability Partnership- all partners have unlimited liability. A deed of partnership must be draftedwhich set out the terms and conditionsof the partnership. Types of Partners -Ordinary/GeneralPartners : take an active part in the running of the business. -Sleeping Partners: invest in the business but do not take an active part in the business. -Limited Liability Partners: assets will not be lost if the business goes bankrupt. Advantages Since more than one person is involvedmore capitalcan be raised to inject into the business. There is more expertise and work load is shared. The risk of the business operationis also shared. Disadvantages All partners will be affectedby the action of each partner since eachperson representsthe business. Decision making may be very slowif partnersare not in agreement. There are high risks for partners who do not have limited liability. Limited Liability Companies Limited Liability Companies are companies in which shareholders/investorsare protectedasthey will not lose their personalassets if the business goes bankrupt. They are not liable for the debts of the company beyondtheir levelof investment. Therefore if a shareholder buys shares in a company valuing $5000 thenhe will only lose that $5000 investedand his personal assets. There are two typesof limited liability companies. 1. Private Limited Liability Company 2. Public Limited Liability Company The Private Limited Company only allows friends, relativesand coworkersto purchase shares and to be a part of the company. Itsprivacy isalso protectedby the fact that unlike the public limited liability company, it does not have to publish its balance sheet in the newspaper. The public limited company allows members of the public to purchase shares. The shares/stocks of public limited companies are traded on the stock market.
- 3. Legally the private limited company can only have a minimum of two and a maximum of fifty persons to join. Whereasthe public limited liability company has a minimum of sevenmembers and there is no limit to the number of share holders that can join. The legal proceduresfor both these typesof companies are lengthy as they must submit the several documents. The Companies Act contains the laws relating to companies. To comply with certainrequirements which were laid down by the Companies Act, the promotersof the company must present the following documents: -The Memorandum of Association -The Articlesof Association -Statutory Declaration -Certificate of Incorporation -Certificate of Trading The private limited company may begin trading after receivingthe certificate of incorporation, but the public limited company must issue a prospectusinviting the public to subscribe for shares before a certificate of trading is issued. A main advantage of limited liability companies is that their shareholdersenjoy limited liability. Thistype of business is assured continuity of existence as it has severalmembers. Unlike the sole trading business that comes to an end if the owner dies or is very ill. These firms can accesscapital for expansion by selling shares. The disadvantages however, are that they are not easy to start due to the number of legal procedures required. For the private limited liability company, sharesare not easily transferable as other members must agree to have persons join the company. However, shareholdersin public liability companies are not restrictedto sell their shares to whomever they wish to. Multinationals A multinational company is a global organization directedfroma main centre or office. Examplesof Multinational companiesin the Caribbean are Shell, Kentucky Fried chickenand Digicel. Some of the benefitsof multinationals to the Caribbean are that they provide employment, introduce advancedtechnology and provide well needed goodsand services. However, there are disadvantages. Profitsearned are repatriatedto the main centre in their home country. They may exploit the workersby payinglow wages and having them work long hours. They cause unemployment when they close down to take advantage of cheaper labour and lower operationalcost in another country.
- 4. Franchise Some businesses begin by the owner acquiring a franchise to operate under an already existing business name. A franchise is an agreement between a franchisee (the person requesting permission to set up business) and the parent company to allow the franchisee to sell its productsor services. Many multinational companies expand into new regions through franchises. The franchisee bears the name of the parent company. They must abide by all the rules and guidelines outlined by the parent company to sell its products. It paysroyalties(a fee) to the parent company to operate under its business name. Conglomerates Thisis a group of unrelated companies(e.g. a restaurant, shoe store a travelagency etc,)under one umbrella. A parent company owns a controllingstake in each company which conductsbusiness separately. Nationalized Industries Nationalized industries are government owned and controlledbusinesses. A chairman and boardof directorsare appointed by the government to run them. Businesses run by the government in most countriestend to be those that provide essential servicessuchas water, electricity and transportation. Nationalized industries are beneficialto a country as they provide essential goods and servicesat very affordable cost or free. For example, a water company providing standpipes to rural communities. Although beneficial, they operate at high coststo the society astheir operations tend to be inefficient. They are supportedby taxpayersmoney and do not operate on the basis of making profits. Cooperatives They are business entities owned by their members who purchase shares to join them. They are usually established because of a need existing among a number of persons who wish to acquire particular goods and servicesat a reasonable cost. For example, members of a credit union purchase shares in these entities in order to obtain loans at low interest rates. There are severaltypesof cooperative, for example, Retail/Consumer cooperativesandProducer cooperatives. Sharesinvestedin a retail cooperative are used to buy goods in bulk at a very lowcost and then resold to members. Producercooperativesmay include a groupof farmerswho will obtain raw material at a low cost. Profitsare distributed to members based on the amount of goods that they buy and not on the amount of investment that they make in the business. At the annual general meeting, shareholders elect their management committees fromamong their members and vote on proposalsput forward. Benefits of being a part of a cooperative are therefore obtaininggoods and servicesat low costs and a
- 5. guaranteed market as members are also customers. A disadvantage is that its management may be inexperiencedas they are chosenfrom their membership. Government Departments These include the government ministries e.g. the Ministries of Finance and Education. A minister is appointed in charge of each ministry. These departments are very important to the running of government. Local and Municipal Authorities are government bodieswhich are run by electedlocalofficials, e.g., the Kingston and St. Andrew Corporation(K.S.A.C.)in Jamaica. These bodies fulfill localneeds and allow for more balanced localdevelopment. They carry out dutiessuch as cleaning gullies and drains and fixing community roads.