Ibrahim Sameer (MBA - Specialized in Finance, B.Com – Specialized in Accounting & Marketing)

Forms of Business Organization

Sole Trader

Partnership

Limited Company

Sole Trader

What is your understanding about Sole trader?

Sole Trader

J.L. Hanson: “A type of business unit where one person

is solely responsible for providing the capital and

bearing the risk of the enterprise, and for the

management of the business.”

Sole Trader

So, we can say that ‘Sole Proprietorship’ from of

business organization refers to a business enterprise

exclusively owned, managed and controlled by a single

person with all authority, responsibility and risk.

Feature of Sole Trader

The term ‘sole’ means single and ‘proprietorship’

means ‘ownership’. So, only one person is the owner of

the business organization.

The most common form of business organization.

Owned and operated by one person

Very few legal requirements for setting it up.

Advantages of Sole Trader

Ease of Startup: Few legal requirements in setting up

the business.

Least expensive to start

Pride of Ownership

Owner has complete control over the business.

Advantages of Sole Trader

Close contact with customers.

Incentive to work hard – do not have to share profits.

Secrecy of business matters.

Disadvantages of Sole Trader

Limited Management Expertise - No shared ideas /

decision making

Unlimited liability – business not a separate legal

entity, therefore owner is fully responsible for the

debts of the business.

Limited access to capital – hard to grow

Disadvantages of Sole Trader

Hard to take leave

Limited Life – Business ends when owner leaves the

business

Limited Access to Credit

Partnership

What is the meaning of Partnership?

Partnership

‘Partnership’ is an association of two or more persons

who pool their financial and managerial resources and

agree to carry on a business, and share its profit. The

persons who form a partnership are individually

known as partners and collectively a firm or

partnership firm.

Feature of Partnership

Group of 2 – 20 people.

Each partner contributes capital.

Each partner takes part in the running of the business.

Each partner gets a share of the profits.

A Deed of Partnership / Partnership Agreement sets

out the rights and responsibilities of the partners.

Partnership Agreement

The amount of capital invested by partners;

The tasks to be undertaken by each partner;

How profits are to be shared;

The lifespan of the partnership;

Partnership Agreement

Arrangements for absences;

Arrangements for retirement and new partners being

admitted.

Advantages of Partnership

More capital (than sole trader).

Responsibilities can be shared.

Losses are shared.

Easier to take leave.

Increased skills.

Greater Access to Capital

Disadvantages of Partnership Unlimited liability

Limited life – if one partner dies, the partnership ends.

Decision-making can be difficult when there are

disagreements.

One incompetent / dishonest partner could cause

other partners to suffer.

Limited to capital of 20 people.

Limited Companies

Private Limited

Company

Public Limited

Company

Limited Companies

Private Limited Company Separate legal entity from owners.

Shareholders are the owners – they buy shares in the

company.

Shares sold to a small group of people – not through

the stock exchange.

The shareholders appoint the board of directors to run

the company.

Advantages of Private Limited Company

Shares can be sold to a large number of people.

Limited liability – shareholders are not personally

responsible for the debts of the business.

The main shareholders can keep relative control of the

company.

Disadvantages of Private Limited Company

Significant legal requirements when setting up.

Shares cannot be sold / transferred without the

agreement of other shareholders.

Accounts are much less private than sole trader /

partnership.

Cannot sell shares on stock exchange – limits

expansion.

Public Limited Company

Suitable for very large businesses.

Owned by private individuals – don’t mistakenly think

it is government owned.

Shares sold on the stock exchange.

Advantages of Public Limited Company

Limited liability to shareholders.

Continuity should a shareholder die.

Opportunity to raise very large sums of capital.

No restrictions on the buying, selling and transfer of

shares.

Disadvantages of Public Limited Company

Complicated and time consuming legal formalities in

setting up.

More regulations and controls.

Is costly to sell shares to the public for the first time.

Shareholders have little control over the running of the

company.

Business Objectives

What is objectives?

Business Objectives

Objectives are statements of specific outcomes that are

to be achieved.

Business Objectives

What might be an organization objectives?

Business Objectives

Business objectives might include:

To survive in the market

To improve its image

To have high motivation amongst employees

To maximise profits

Business Objectives

To increase market share

To diversify and sell different products

To make returns to shareholders if a limited company

(dividends)

Business Structure

Organizational structure is the linking of departments

and jobs within an organization.

Span of control

Chain of command

Hierarchy

Span of Control The span of control is the number of employees for

whom a manager is responsible.

Wider span of control Narrow span of control

Chain of Command

The chain of command describes the lines of authority

within a business.

Hierarchy

The number of layers of management or supervision in

the organization structure.

Organization Structure

There are two types of organization structure:

Tall structure

Flat structure

Tall Structure

Tall structure are those with narrow span of control.

Close supervision and tighter control is required.

Communication become more burdensome, since

directives & information must passed through more

layers.

Eg: Banking industry

Tall Structure

Flat Structure

Wider span of control.

They have simple communication chain.

Reduced promotional opportunities due to fewer levels

in the management.

Flat Structure

Types of Managers

Types of managers

HR Manager

Finance Manager

Production Manager

HR Manager

The Human Resource Manager is responsible for

managing the staff within an organization.

Activities will involve the recruitment and appraisal of

staff and defining the skills set necessary to achieve

corporate objectives.

Finance Manager

The Finance Manager is responsible for managing the

corporate finances and budget.

The finance Manager will monitor the expenditure and

revenue of other departments and manage the cash

flow for the organization.

Production Manager

The Production Manager is responsible for

manufacturing the product.

Production may involve sourcing raw materials,

developing the detailed product specification, and

sometimes the warehousing and packaging of the

product.

Q & A