FORMS OF BUSINESS ORGANISATION

What is business? Business is defined as all forms of activities that people engage in to satisfy their needs of people and sometimes also make profit.

Business organisation is a commercial or industrial enterprise and the people who constitute the business.

Types of business organisation

Different types of business organisation exist namely:

1. Sole proprietorship
2. Partnership
3. Limited liability company
4. Public limited company
5. Unlimited liability company
6. Cooperative societies and company limited by guarantee

Sole Proprietorship

Sole proprietorship is than type of business that is owned and directly run by a sole trader. It is often called one man business.

Features of sole proprietorship

1. One person provides the money to start the business
2. One person owns and runs the business
3. There is no differences in law between the owner and the business that is the business is not a legal entity.
4. The owner takes all the profits and all the risks of the business.
5. There is unlimited liability
6. The business often dies with its owner.

Advantages of sole proprietorship

1. It is the easiest form of business to set up
2. The sole proprietor enjoys a freedom of choice decision and action
3. The sole trader is not bound by routine procedures. Decisions are made and taken immediately.
4. Employees of the sole proprietor are for the most part, personally supervised by him and there is, therefore, a better chance of his business wishes being carried out.
5. He/she determines the location of the business

Disadvantages of sole proprietorship

1. The business is not a separate legal entity. Whatever happen to the business will definitely affect the owner.
2. Sole proprietor’s liability and risks are unlimited. He makes profit or loss as the business performs.
3. A sole proprietor has only a limited amount of capital or other resources and this can seriously affect the business by limiting expansion plans and slowing down growth.
4. It is limited by time. This means business may close down at the death of the owner.

Partnership

This is another form of business which exist between two or more persons contribute their skills, money, own and managed a business organisation with the sole purpose of making profit.

By law the number of persons that could form a partnership is not less than two and not more than twenty.

Advantages of partnership

Some of the advantages of partnership are:

1. There is a diversity of talents among the partners
2. There is usually more commitment to work
3. Profits are shared only by partners
4. More jobs are created
5. Sound business decisions are usually made by more than one person.
6. Business risks and liabilities are shared
7. A partners exit may not affect the business.

Disadvantages of partnership

Some of the disadvantages of partnership are:

1. The growth of the business is limited to how the partners manage the business.
2. The partnership is automatically terminated through death, bankruptcy or insanity of any of the partners.
3. Capital beyond the means of the partners may be difficult to obtain.
4. Disagreement between partners may affect the ability of the business to make profit
5. Decision is slower than in sole proprietorship
6. Introduction of a new partner, if not managed well, may end the company.

Features of partnership

Some of the advantages of partnership are:

1. There is a diversity of talents among the partners.
2. There is usually more commitment to work
3. Profits are shared only by partners
4. More jobs are created
5. Sound business decisions are usually made by more than one person.
6. Business risks and liabilities are shared
7. A partners exit may not affect the business

Disadvantages of partnership

Some of the disadvantages of partnership are:

1. The growth of the business is limited to how the partners manage the business.
2. The partnership is automatically terminated through death, bankruptcy or insanity of any of the partners.
3. Capital beyond the means of the partners may be difficult to obtain
4. Disagreement between partners may affect the ability of the business to make profit.
5. Decision is slower than in sole proprietorship
6. Introduction of a new partner, if not managed well, may end the company.

Features of partnership

1. Partners liability are unlimited.
2. Partners are expected to exercise utmost good faith in dealing with each other.
3. Minimize number of people is two and the maximum number is 20.
4. Partners are not only agents of the firm but also agents of each other.

Limited Liability Company:

A limited liability company is a business enterprise established and owned in bits by individual who are called shareholders.

In a limited liability company, the liability of the owners in case of liquidation is limited to the amount which each owner has invested in the company.

There are two major classes namely:

1. Company limited by share
2. Company limited by guarantee

Company limited by share:

This Company may either be a private limited company (having its official name ending as LTD) or a public limited company (having its official name ending as PLC). A private limited company is not permitted by law to offer its shares to the public. A public limited company is permitted to offer its share to the public and can have as many shareholders as it wants.

Company Limited by guarantee:

This Company are formed with the objective of promoting public causes and not to make money. They cannot create non sell shares in any form such companies depend on donations through charity, etc. as sources of their capital. Some of these company are often called Non-Governmental Association (NGOs)

Features of Limited Liability Companies

1. They have objectives which are contained in their memorandum of Association
2. A limited liability company can outline its present owners
3. It is a legal entity. It can sue or be sued.
4. Their account are audited yearly and published in national newspaper for the public to see.
5. The liability of its owners is limited to the amount due to their shareholding
6. They keep specific books of account

Advantages of Limited Liability Company

1. It is a legal entity. That is, it is held responsible for its own action.
2. The liability of shareholders of registered companies is limited. In the event of liquidation, the maximum that shareholders can lose is only their paid up shares.
3. Through the sale of shares, much larger capital can be accessed.
4. The death or exit of any shareholder of the company does not necessarily affect the company’s existence.
5. Shareholders are part owners of the company but are not responsible for the day-to-day running of the business.

Disadvantages of Limited Liability Company

1. Individual shareholders have no control over the company’s operations.
2. There is usually no secret about the operation of the business.
3. Lack of commitment of the employees may lead to failure of the business.
4. There is usually the burden of high tax, especially for the private company.
5. It involves a rigorous registration process.

Statutory (or public) corporation

Statutory or public corporation are also known as public corporation are also known as public enterprises. They are business organisations formed and owned by the government and finances from the country’s purse with the key objective of providing certain essential services to the members of the public.

Examples are Nigerian National Petroleum Corporation (NNPC), Power Holding Services (NIPOST), Nigerian Railway Corporation (NRC) etc.

Features of public corporation

1. The sources of their capital is from the government.
2. They are not set up with the view of making profits
3. They are established and owned by the government.

Advantages of Public Corporation

1. Government uses public corporations for more evenly spread development.
2. Public corporations provide essential services.
3. The government can charge the public for use of such services provided and generate revenue through means other than taxes in the government form a public corporation to manage such investment such as railway system etc.

Disadvantages of public corporation

1. Poor management of company’s resources.
2. Appointment of incompetent management team.
3. Most decision are based on politics.
4. Operations of government companies are not usually examined or frequently audited
5. Employees are usually uncommitted to the goals of the organisation.

Cooperative Society

Cooperative societies are voluntary association owned and run by members for the members’ benefit.

A cooperative society is a unique form of business. Its aim is not to make profit for itself but for members.

There are several forms of cooperative societies operating in Nigeria; these are:

1. Consumer Cooperative
2. Farmers’ Cooperative
3. Thrift and Credit Cooperative etc.

Features of cooperative society

1. A cooperative society is structured to outline its owners. There is continuity in cooperative societies and the death of a member cannot end the business organisation.
2. The activities and management are structured to be democratic in nature. Each member are entitled to one vote and all members have equal number of shares.
3. Profit is shared among the members on the basis of patronage. For example loans are given as a factor of the amount saved in the member’s account.

Advantages of cooperative society

There are several advantages of cooperative society;

1. Members have equal rights to benefit from the existence of the cooperative.
2. Every member is entitled to only one vote irrespective of his/her contribution.
3. Members are allowed to pay back debts in instalment.
4. Profit are shared in proportion to contribution.
5. Members of cooperatives are able to solve problems beyond their individual means.
6. Government helps some cooperative societies to achieve their goals.

Disadvantages of cooperative societies

1. Insufficient membership size restricts the capital available to the cooperative society.
2. The profits of the cooperative are exempted from taxation. The financial discipline which taxation forced on a business organisation is therefore lost in the cases of the cooperative.
3. Since cooperative are not as strongly regimented as limited liability companies, case of fraud and embezzlement among officials of such societies are not unusual.
4. The cooperative society lack secrecy

Evaluation

1. What is business organisation
2. State the features of sole proprietorship
3. List the advantages and disadvantages of public limited liability company.
4. What is cooperative society
5. State 3 features of cooperative society.\