Business Organization

Back to: ECONOMICS SS1

 

Welcome to class! 

In today’s class, we will be talking about business organization. Enjoy the class!

Business Organization

In today’s class, we will be talking about the Business Organisation. Enjoy the class!

At the end of the lesson, you should be able to;

• Define Business Organisation with the various types
• Distinguish between the business organisations types with examples
• Analyse the economic advantages and disadvantages of each type of Business Organisation with their source of funds.

Business organization are basically divided into two:

• Private Sector firms
• Public sector firms.

Private sector firms constitute business units that are owned and managed by private individuals. This business includes:

1. Sole proprietorship
2. Partnership
3. Co-operative societies
4. Private
5. public limited Liability Companies.

Public sector firms or enterprises, on the other hand, are business units owned exclusively by the government.

Sole proprietorship

This form of business may be defined as a business owned, established, financed and controlled by one person only with the aim of making a profit. The owner can employ others to work for him and pay them wages or that he can own more than one shop. It is the oldest and cheapest form of business organization and can also be called one-man business or sole – trader

Characteristics and features

1.  It is owned by one person
2. The source of capital comes from the owner
3. The motive of formation is for profit-making
4. The owner has unlimited liability
5. It is not a legal entity
6. It is the commonest oldest and simplest form of a business unit

Evaluation

1. Who is a sole trader?
2. Mention five characteristics of a sole trader.

Advantages

1. Small Capital
2. It is easy to establish without any legal or formal process
3. A quick decision can be made
4. It fosters a better interpersonal relationship between the owner and his employees
5. There is privacy in the business
6. All the profits made belong to the owner alone
7. After-sales services can easily be rendered
8. It can fit into any environment

Disadvantages

1. His capital is limited
2. The owner has unlimited liability
3. The business is not a legal entity
4. The limited scope of decision and policymaking
5. The death of the owner may end the business
6. Inability to face stiff competition
7. He works too long hours every day

Evaluation

1. List and explain four advantages of sole trading.
2. Discus five disadvantages of sole trading.

Partnership

A partnership business may be defined as a business organization where two or more persons enter into a legal agreement to form a business with the sole aim of making a profit. The membership should not be more than twenty (20) persons but where the partnership wants to perform banking functions, the members should not be more than (10)

Features/characteristics

1. It is owned by two ( minimum ) to twenty ( maximum )
2. The liabilities of the partners are unlimited
3. Source of capital is from contributions of the partnership motive for formation is for making a profit
4. It is not a legal entity
5. Method of capital withdrawal or distribution must be outlined in the partnership deed

Partnership deed

A partnership deed is the agreements, rules and regulations guiding the members of a partnership business.  The deed contains some or all of the following;

1. Name of partners
2. Names and nature of business
3. Amount of capital contributed by each partner
4. The role of each partner in the business
5. How profit and losses are to be shared
6. how long the business shall last
7. Rights of partners and methods of dissolution when necessary
8. Whether salaries shall be paid to all or any partner method of settling disputes /discussions/decisions e.g. by voting

Evaluation

1. What is partnership?
2. State five of its features.

Types of partnership

1. Ordinary partnership: – All partners have equal responsibilities and bear all risks equally and profit are also shared equally as well.
2. Limited Partnership: – The liabilities of the partnership is limited to the capital they contribute and they do not take equal part in the management of the business. But as requested by the partnership law at least one of the partners in a limited partnership must have unlimited liabilities in the business.

Kinds of partnership

1. Active Partner: – This partner takes an active part in the formation, financing and management of the business. If agreed upon in the partnership Deed, salary is paid to him.
2. Sleeping or Dormant Partner: – This partner only contributes part of the capital used in the formation and running of the business but does not take part in the management. He takes part in the sharing of profit and losses.
3. Nominal or Passive Partner:- This partner exist only in name or word because he contributes nothing but his name in the formation of the business

Evaluation

1. Define Deed of partnership.
2. Itemize five of the content of a Deed of partnership.

Advantages

1. More capital is available compared to a sole trader.
2. Joint and better decisions are made.
3. There is an increase in production.
4. Application if the division of labour is enhanced.
5. There is a high degree of privacy
6. Abundant skills and talents are available
7. Exit of a member may not end /affect the business
8. There is room to withstand competition
9. Sharing of risks and liabilities

Disadvantages

1. The business is not a legal entity
2. Partners have unlimited liabilities
3. Delay in decision making
4. Limited capital available may be inadequate
5. Introduction of a new partner or exit of old one may end the business
6. A partner cannot make a secret profit.

Evaluation

1. What are the essential features of the partnership form of business?
2. Why do people prefer the partnership?

Reading assignment

Amplified and Simplified Economics for SSS by Femi Longe Chapter 7 and 8 Pages 73-88

Fundamentals of Economics for SSS By. R.A.I. Anyanwuocha. Chapter 6 pages 41–42

General evaluation

1. What are the problems partners are likely to face?
2. State three condition suitable for the formation of a partnership.
3. Economic problems arise because a country’s resources are limited in relation to her unlimited wants. Identify and explain these economics problems.
4. What do you understand by wealth?
5. Explain five content of the partnership agreements
6. The sole proprietorship form of business is the commonest in Nigeria why?

 

In our next class, we will be talking about the Joint Stock Company.  We hope you enjoyed the class.

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