Definition

A business organisation may be defined as a single individual or group of persons who have pooled their resources in order to provide goods and services to make a profit.

Types of Business Organisations

1. Sole trader
2. Partnership
3. Cooperatives
4. Private Limited Companies
5. Public Limited Companies
6. Multinationals
7. Conglomerates
8. Franchises
9. State Corporations/Nationalised Industries

Sole Trader

This is a business owned by one person who provides capital for the business and usually directs and supervises its activities. The owner takes responsibility for the total debt of the business with unlimited liability; i.e. he is solely responsible for all debts, moneys owed, losses, etc. of the business. The opposite is also true; i.e. all the profits go to the owner.

Advantages
— It can be easily and quickly formed.
— The sole trader accounts only to himself or herself.
— The sole trader makes decisions quickly because he/she has no one to consult.
— All profits belong to the sole trader.
— The sole trader can enjoy a personal relationship with his/her customers.
— He/She has access to a government small-business loan.
— A sole trader is usually flexible and can enter or exit the firm easily according to changes in the market.
— A sole trader can progress or grow into a large company.

Disadvantages
— A sole trader assumes all the risks and losses himself or herself.
— It is not easy to obtain loans from a bank.
— In assuming all responsibilities the sole trader has long working hours.
— A sole trader has unlimited liability.
— If the sole trader’s business is disrupted, his/her customers may turn to another competitor.
— Usually, a sole trader’s business dies with the owner.

Partnership

A partnership occurs when 2 or more (up to 20) persons carry on business in common with a view to making profits. The partners usually provide the capital and direct and supervise the activities of the business.

All partners have the right to take part in the general management of the business.

— Sleeping or silent partners do not play an active role in the day-to-day operations of the business. Partners may have either limited or unlimited liability.
— A limited partner is only responsible for debts of the firm to the extent of the capital he invested.
— Unlimited partners are responsible for the total debt of the business; (collectively and individually).

Advantages
— As with a sole trader, a partnership is easy to form with little legal formalities.
— More capital can be raised by the combined resources of a number of partners.
— Specialisation in management is possible as each partner may participate in the field in which he has experience and training.
— In a partnership, the work load can be shared among the partners. This makes it possible for a partner to take a vacation, and, on the death of a partner, the remaining partners can continued to run the business on their own or they may find a new partner.
— There is still the incentive to succeed and there is also close contact with employees and customers.
— A partnership is usually flexible and partners can join or leave the firm easily according to changes in their market.
— A partnership can progress or grow into a large company.

Disadvantages
— All the partners stand to lose if on partner makes a mistake.
— Capital is still limited.
— Except in the case of a limited partnership, there is still unlimited liability if the business fails.
— There is the risk of disagreement and quarrelling among partners.
— At least 1 partner must have unlimited liability.

Cooperatives

A co-operative is an association of persons who have voluntarily joined together to achieve a common goal through the formation of democratically controlled organisation, making equitable contributions to the capital required and accepting a fair share of the risks and benefits of the business.

Co-operatives have a great deal of freedom to draw up their own by laws, but there are certain principles and practices that distinguish them from private business, to which they must adhere.
(i) Open (voluntary) membership, without discrimination, once persons are willing to accept the responsibility of membership.
(ii) Democratic control – Co-operative affairs should be administered by persons elected or appointed in a manner agreed by the members and accountable to them.
(iii) Limited interest on capital invested – Share capital should receive only a strict limited rate of interest, if any.
(iv) Profit sharing – The economic benefits resulting from the operations of the co-op belong to the members and should be distributed fairly.

In addition to these principles, co-ops should:
— make provision for the education of their members, officers, employees and the general public;
— actively co-operate in every way possible, with other co-ops at local, regional and international levels so as to serve the best interest of their members and their communities.

Advantages
— There is a guaranteed market for members.
— Little or no advertising costs are incurred.
— There is no profiteering.
— There is a democratic form of management.
— Employment is created within the organisation.

Disadvantages
— Management may be poor and inexperienced.
— Conflict may arise when members are both employers and employees.
— Lack of capital may cause problems.
— Co-operatives may be unable to attract skilled professionals.
— Capital base is limited.

Private Limited Companies

These often consist of not less than 2 persons and more than 50. A private company must have the word limited (Ltd) included in its name. The shares in this type of company cannot be offered to the public for sale. (The company is usually owned and operated by family members.)

Advantages
— Privacy is retained.
— There is limited liability.
— Continuity is ensured – the death of a shareholder does not affect the company.
— It enjoys benefits such as specialized or expertise help, flexibility, etc.

Disadvantages
— Shares are not freely transferable without the director’s consent.
— The amount of capital is limited and growth is slow.
— It is vulnerable to changes in demand., the minimum
— The entrepreneurial pool is restricted to family members and close friends.
— Such companies are not known as innovators or for research and development.

Public Limited Companies

Like the private joint stock company, the minimum number of persons is 2. However, there is no limit as to the number of persons that can be a in a public company. It must have the words public limited company (PLC) at the end of its name. This company can offer shares and debentures for sale to the general public.

Advantages
— There is easy access to capital for expansion.
— They enjoy economies of scale.
— Specialists or experts are hired to run the company.
— The PLC is independent of its owners.
— Risk is spread over many shareholders.

Disadvantages
— The objectives of the managers may be different from shareholders (owners).
— Small powerful groups, e.g. insurance companies, may dominate the company.
— Over-expansion can lead to diseconomies of scale.
— Workers feel left out in decision-making.
— Accounts must be submitted annually to the Department of Trade for inspection.

Multinational Corporations

A multinational firm is one which owns controls and operates enterprises in several countries at the same time in order to increase market share and improve overall profits. The parent company makes all the decisions which are carried out by the management of the subsidiary companies.

Advantages
— Multinationals provide much-needed investment in Caribbean economies.
— They provide foreign expertise and train local workers.
— They allow access to already-existing markets.
— They are a valuable source of taxation, revenue and foreign exchange.
— They create employment.
— They encourage positive work ethics.

Disadvantages
— Multinationals extract raw materials but do not add value locally.
— The welfare of the economy is not a concern of a multinational.
— They transfer profits to home countries.
— They may change the culture of a country.
— They bargain for tax holidays and ‘sweetheart deals’ in exchange for investment.

Conglomerates

A conglomerate is simply a group of companies each operating in different industries and sectors of an economy.

Advantages
— There is strength and security in numbers; hence risk of failure is spread.
— Companies can draw on each other’s resources leading to economies of scale.
— There is much interaction between members in terms of staffing, promotions, etc.
— Successful companies help to make up for companies that perform below expectations.

Disadvantages
— Because of the diversity of interests, analysis of the group’s companies is difficult.
— Some managers may resent control outside of their own company.
— There may be friction between lines of authority.

Franchises

A franchise is a right sold by one person or firm (called a franchisor). It is another form of cooperation between a big firm and a sole trader. In franchising, a well-known company allows someone to buy the right to use their trade names.

Franchising offers a 'ready-made' business opportunity for those with some capital who are willing to work hard.

The potential entrepreneur (the franchisee) pays to use the name, products or services of the major company which receives a lump sum and a share of the profits of the business (sometimes called royalties).

The franchisee receives the majority of profits, but must also meet most of any loses. In addition to allowing use of their name, products, techniques or services, franchisors usually provide an extensive marketing back-up in return for the money they receive.

Examples: KFC, Popeye's, Pizza Hut, Burger King, Coca-cola.

Role of the Franchisor:
- develops a big-name brand
- has years of experience in how to run a business
- provides advice, know-how and equipment
- develops advertising materials and marketing campaigns
- keeps a close eye on the business to make sure standards are met.

Role of the Franchisee:
- pays an initial start up fee
- pays royalties, which are often from 2% to 10% of sales
- rents or buys a building and employs staff
- takes care of paperwork and pays taxes
- buys signs and equipment from the franchisor
- pays a contribution to advertising costs

Legalities:
- the franchisor and franchisee are separate companies
each must register as a company and keep the rules for company operation
a franchise license and a contract govern the relations between franchisor and franchisee

State Corporations/Nationalised Industries

These are corporations or industries that are owned, controlled and managed by the government or state. The main aim of the public corporation is to provide specific goods and/ or services that meet the need of the country, at a reasonable price.

Main Features
1. There are no private shareholders; government owns 100%.
2. The government appoints the controlling board
3. A government minister is usually responsible for seeing that the corporation is acting within the policy requirements laid down by Parliament.

NB: Any profits made by a public corporation must be used for capital investment, the lowering of prices, the raising of wages, etc.

Advantages
— State corporations provide vital services at reasonable prices, e.g. water, electricity and postal services.
— They enjoy economies of scale resulting in low cost of production.
— Their profits are distributed to the population.
— They safeguard jobs rather than engage in retrenchment.
— They have regards for the environment and working conditions of workers.

Disadvantages
— Losses by the companies are usually born by the taxpayer.
— State corporations and nationalized industries are not usually run efficiently, often due to political interference.
— The lack of a profit motive causes losses due to tax management.
— There is often a lack of proper accountability.
— Too much red tape in management decisions causes unnecessary delays.
— National issues are given preference over local ones.

Comparison of Business Organisations