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