The document outlines different types of business organizations including sole proprietorships, partnerships, corporations, cooperatives, and non-profit organizations. It describes key characteristics of each type such as ownership structure, funding sources, legal registration requirements, tax treatment, and advantages and disadvantages. Corporations require heavy capital investment, have limited liability, and can easily transfer ownership through share trading on public markets. Cooperatives are democratically controlled enterprises where members pool resources for mutual benefit. Non-profits focus on improving lives rather than profit and rely on donations, grants, and other fundraising.
The Triple Threat | Article on Global Resession | Harsh Kumar
Business organisations
1. TYPES OF BUSINESS ORGANISATIONS
SOLE PROPIETORSHIPS (SOLE TRADERS)
PARTNERSHIPS (GENERAL , LIMITED)
CORPORATIONS (REGISTERED, STATUTORY)
CO-OPERATIVES
NON-PROFIT & NON-GOVERNMENTAL ORGANISATIONS
TO DESCRIBE A BUSINESS, FOCUS ON
Its ownership & management structure
Its raison d’être (purpose of existence)
Its source of funding
Its tax jurisdiction/requirements
Its formation (legal) requirements
Its risk factor
TO FORM AN OPINION, FOCUS ON
Start-up process
Decision-making process
Ability to raise capital/investment
Management structure & size
Profit sharing (and other accounting ratios)
Relationship with employees
Relationship with clients/customers
Liability & legal status
Continuity/transfer of ownership
2. SOLE PROPRIETORSHIP
A separate and distinct organisation (business) with a single owner.
Generally a small retail operation; or an individual professional service
(eg dentist).
Funded through owner’s efforts
Profits treated as personal income (no tax)
No specific legal regulations to start up
Advantage
Except for specific licences or certificates (eg liquor) one can start up the
business at anytime with legal hindrances.
It is recommended, however, that the business be registered (at minimal)
with the business registry.
Owner generally plays an active role in the management (often the only
manager)
Profits remain under the owner’s control
Decisions can be put into effect at once without the necessity to consult
The small size allows owner to be intimately involve with every aspect of
the operation.
The small size encourages a more personal relationship with employees
Disadvantage
Unlimited liability (claim on owner’s personal assets)
Difficulty in raising ownership capital
Lacks continuity (terminates with the owner)
Difficult to transfer ownership
Often impacted by owner’s absence
3. PARTNERSHIPS
An incorporated association (business) with two or more co-owners.
Has 2 to 20 persons; at least one must be a general partner
Typically a small retail operation (e.g family store); or provision of
professional service (eg, dentists, lawyers).
Funded through the pooling of their resources and skills
Profits are shared; and are subjected to personal income tax
No specific legal regulations to start up; but are guided by the Partnership
Act of 1890 (amended in 1907*).
Advantage
Except for specific licences or certificates (eg liquor) start up no legal
hindrances.
It is recommended, however, that the business be registered (at minimal)
with the business registry; and partners sign a formal agreement*
At least one owner must play an active role in the management
Decisions are more consultative and reduces impulsive action
The small size encourages a more personal relationship with employees
The number of partners lend to greater specialisation and work
distribution
Disadvantage
Unlimited liability (claim on owners’ personal assets)
Difficulty in raising ownership capital as fewer people are interested in
partnerships
Lacks continuity (terminates with any change of owner)
Difficult to transfer ownership (Agreement)
Often impacted by poor decisions of any partner (Agency)
Other comments
General partners – has the right to manage the business (except forbidden
by partnership agreement); and assume unlimited liability for the debts of
the partnership.
Limited partners – invest capital in the business but have no active role in
its management. [also known as a sleeping partner].
Agency theory – implies that each partner acts as an agent of the
partnership; and can thus bind the partners into a contract when acting
within the scope of the business.
Transfer of interest – a partner is free to dispose of his/her interest in the
partnership in any legal way; but the current partners must approve of the
incoming party in order for them to participate in the business.
4. CORPORATIONS (limited companies)
A group of persons associated together to form a legal entity* to undertake
some form of business activity.
These are generally large businesses requiring heavy investment of capital
(e.g a commercial bank)
The capital required is divided into shares* and sold to interested
individuals in variant amounts.
The profits are divided in proportion to the amount and type of shares
held by each shareholder*.
The entity is required to pay corporation tax*; while shareholders pay
income tax
Subject to stringent legal rules and regulations in order to safeguard
shareholder interest
Must be registered with the Registrar of Companies or similar body
Becomes an entity recognised as an individual under the law
Owners elect a directorate (board) to ensure the investments are
protected. They report to the others at the AGM*
Decision making is left up to managers and other hired professionals.
Employs high degree of specialisation of skills and management
Owners are generally estranged from both employees and employers.
Advantage
Limited liability (claim on company assets only)
Easier to raise ownership capital especially if business is doing well
Has continuity as shareholders can transfer ownership interest
Ownership (shares) can be easily transferred on the market at anytime.
Disadvantage
Impacted by double taxation; and government regulations
Expansion in size leads to greater complexity and bureaucracy
Other comments
Public companies – can have as many owners (shareholders) as possible;
the shares are bought and sold in a public securities market or stock
exchange.
Private companies – the number of owners are restricted [1 – 50]; the
shares cannot be bought or sold in a public securities market or stock
exchange.
Statutory companies – are owned by the government (state) as established
by act of Parliament.
5. CO-OPERATIVES
An association of persons with common interest and goals to form a
democratically controlled enterprise.
It is self-governed (autonomous) – directors are chosen to manage its
affairs
Capital invested by members form the capital pool (base) of the
organization
Each member has his/her separate businesses; but pool funds to enjoy
economies of scale (cheap inputs, advertising, etc)
Economic returns (profit?) are mutually distributed
Advantage
Voluntary, non-discriminatory, and open membership policies
Democratic control; one vote per member (regardless of contribution to
the pool)
Limited interest on capital invested*
All surplus (less reserved deductions*) generated from operations belong
to the members
Act of continuous education and training to help improve the contribution
of members
Cooperating with other cooperatives to foster harmony and greater
economies of scale
Disadvantage
Shares are not transferable
Capital invested can be returned if person ceases to be a member
New tax laws have impact this entity
Limited liability of the cooperative itself
Focus is not profit making but cost reduction and creation of investment
opportunities.
6. NON-GOVERNMENTAL ORGANISATIONS (NGOs) &
NON-PROFIT ORGANIZATIONS (NPOs)
A large group of organisations that have been established as non-profit
making entities. Its main focus is to work with people to achieve long-term
improvements in the quality of their lives*.
It can be a church, a youth group, a political party, a research institute, a
professional association, a social club, a sports club, or a charity.
Some NGOs have been created* by Acts of Parliament
It can be incorporated* or unincorporated*
Its management and operations are independent of government control
It is managed by a of Board of Directors (elected to office for a specific
period of time)
It is a legal entity when it has been incorporated
It has no (share) capital and is thus funded via restricted* and
unrestricted* means.
All of its funding must be declared and an account (preferably audited)
given for the disbursement of said funds.
NGOs operate on funds provided by donors who do not benefit directly from the
organisations’ programmes. Sources of funding* include -:
Donations
Sponsors (special business events)
legacies & bequests
Fund-raising events (cake sales, fairs)
Free rent & volunteerism
Membership subscriptions
Sales of publications or artifacts
Government grants & subventions