LESSON 4: TYPES OF BUSINESS ORGANISATION

SOLE TRADER
Sole trader is business owned by one person.
The following are the advantages of sole trader business:
1. Few legal regulations: The owner need not worry too much because the rules from the law are very
less for him.
2. Own boss: He has complete control to manage the business as there is no one to interfere.
3. Freedom: He has complete freedom to take any decisions related to choosing his workers or going
on a holiday or producing the product.
4. Enjoys all the profits: All the profit earned belongs to him as there is no one to ask for a share.
5. Secrecy: He does not disclose the information from his business to anyone.

Disadvantages:
1. Limited ideas: He has no one to take advice or suggestions.
2. Unlimited liability: He is fully responsible for any debt his business has. If his business does not have
enough profits or capital then he has to use his personal belongings to pay the debt.
3. Limited sources of finance: He does not have many source from where he can arrange capital. He can
only arrange a small loan from banks.
4. No continuity of business: After the death of the owner the business comes to an end. He cannot pass it
to his sons or daughters.

SOLE TRADERSHIP IS SUITABLE IN THE FOLLOWING CASES:

1. If it’s a new business.
2. If the capital needed is small in amount
3. If personal or direct contact with the customers is needed.

PARTNERSHIP
A partnership is a form of business in which two or more people jointly run a business.
A partnership agreement is a written and legal document to which all the partners agree.

ADVANTAGES
1. Sharing of capital: All the partners make a contribution towards the capital needed.
2. Sharing of responsibilities: All the partners share the work according to their area of specialization.
If one partner wants to take an off, he can because others are there to take care of the business.
3. Sharing of losses: If the business suffers a loss it is shared by all the partners and does not fall on
one only.
DISADVANTAGES
1. Unlimited liability: If the business suffers a loss and there is not enough profit or capital to cover
the loss or debt then partners have to use their personal property to cover up the loss.
2. No separate legal entity: The business and the partners are the same in the eyes of the law so incase
anything happens to any one partner or all of them, the business comes to an end. The remaining partners
can later form a new partnership if they wish to.
3. Disagreement: Sometimes the partners may not agree with each other and the business may suffer.
4. Inefficient partner: Sometimes a partner may not be very capable of performing his duties. The
whole business may have to suffer because of his inefficiency.
5. Limited growth: A partnership cannot have more than 20 members so chances of growth are limited
to what these 20 partners can contribute as capital.

Private Limited Companies

A company is a separate legal unit from its owners. It is jointly owned by the people who have invested in
the business.
Features
1. A company can make contracts or agreements
2. Company accounts are separate from the accounts of the owners.
3. A company exists separately from its owners and will continue to exist even if one of the owners
dies.

ADVANTAGES
1. Large capital: A company can sell large number of shares to its members only and so funds are not a
problem.
2. Limited liability: All shareholders have limited liability and so the company cannot force them to sell
their personal possessions incase company failed with debts.
3. Control: If too many shares are not sold then the original people who started the company continue to
take all decisions.

DISADVANTAGES
[Link] formalities: There are lots of legal formalities which have to be completed for the formation of a
company.
The main documents are memorandum of association and articles of association.
[Link]: The shareholders cannot sell their shares to anyone freely.
[Link] secrecy: The accounts of the company have to be disclosed to the registrar once a year.
[Link]: The shares of the company cannot be sold to the public. Only the members can buy the shares.
This makes the capital limited.
Some important terms used in a company:

The investment in a company is known as share capital.

The share capital is divided into small units and each unit is known as a share.
The members of a company who buy these shares are known as shareholders.
Shareholders are the owners of the business.

Public limited companies

Merits
1. Limited liability: all the shareholders have a limited liability
2. Large capital: due to issue of shares to the public large funds can be arranged.
3. Freedom: the shareholders can sell the shares whenever they wish to and they need not take
permission from anyone.
4. High status: public limited companies generally enjoy a high status.

Demerits
1. Legal formalities: in a public limited company there are large number of legal formalities to be
done.
2. Difficult to manage: due to a large size, it becomes little difficult to manage a public limited
company
3. Expensive to sell shares: to sell shares to the public is a costly affair as lot of documents need to be
prepared and also registration fee need to be paid to the registrar.
4. More restrictions: there are certain controls imposed on public limited companies because
government wants to protect the interest of the shareholders.

JOINT VENTURES

When two or more businesses agree to start a business together sharing the capital, the risks and the profits.

Merits
1. risk is shared.
2. capital is shared.
3. local knowledge can be used.

Demerits
1. Profits have to be shared
2. Difference of opinion is harmful for business
3. Different ways of work culture can be a problem if the businesses are from different countries.

FRANCHISING
When a successful existing business sells its license to another
Business, it is known as franchising. The business using the logo or trading
method is the franchisee and the one selling it is the franchisor.
Merits ( for franchisor )
1. Gets money by selling the license
2. Business expands faster
3. The management of the outlet is with franchisor.
4. Products have to be bought from franchisor.

Demerits
1. Poor management may lead to bad reputation
2. The franchisee keeps profits from the business.

Merits ( for franchisee)

1. Chances of failure are few.
2. Franchisor pays for advertising
3. All supplies provided by franchisor
4. All decisions made by franchisor
5. Banks provide loans because of low risk.

Demerits
1. Less independence
2. Unable to take decisions related to their local area.
3. License fee need to be paid and some part of the profit.
 BUSINESS ORGANISATIONS IN THE PUBLIC SECTOR

The term “PUBLIC SECTOR” includes all businesses owned by the state and local governments
TYPES
1. Public corporations:
* These are completely owned by the government.
* Government does not directly operate the business.
* Government ministers appoint a BOARD OF DIRECTORS, who operate the business.
* Government decides the objectives of the business.
Merits
*Government keeps all important and essential industries under it like water supply and electricity.
*Areas of monopolies are owned by government
*Failing businesses if purchased by government can be improved and jobs can be secured.
*The objective is not to earn profit but to provide service.
DEMERITS
*Profits may not be high
*They can easily take help from government when going in loss which private business is never given.
*There is no competition so services may not improve.
*Government can use these businesses for political reasons to influence public during elections.

LESSON 5: Business objectives and stake holders objectives

Different types of objectives of a business

1. Survival: any new business has many problems in the beginning. It is very important at that time to
survive in the market. This objective can be achieved by selling goods at a lesser price to make a place in
the market and fight the competition.
2. Profit: It is the total income of the business.(revenue – cost)
Use-1. To pay returns to the owners
 2. Provide finance for investment
3. Return to
shareholders: It is the share in the profit earned which the investor get on their investment.
Use- [Link] shareholders to sell their shares.
[Link] the job of the managers safe.

[Link]: It is the increase in the size of the business usually measured by value of sales or output. It also
depends on the satisfaction of the customers.
Use-
[Link] remain secured
[Link] the risk
[Link] higher market share
[Link] cost advantage

[Link] share: It is the proportion of total market sales achieved by one business.
Use-
[Link] publicity
[Link] influence on suppliers
[Link] influence on customers

[Link] to society: To take care of the society as a whole.

Use-
[Link] people can get jobs
[Link] is protected.
[Link] can be used for social work.

Why business objectives could change?

As the time passes there may arise a need to change the objectives of the business.
• A business has achieved the objective of survival in the first three years.
• A business has achieved the objective of high profits and now aims to increase the returns for
shareholders
• A profit making business may face the problem of economic recession in its country so needs to
change the objective to survival again.

Objectives of Public sector businesses

1. Financial: meet profit targets set by the government
2. Service: provide services to the public like health service and education service
3. Social: create employment in certain areas especially poor regions.
THANK YOU