Back to: Financial Management
Hello, class!
I hope you’re all energised and ready to learn. Last week, we explored the functions of a financial manager, and I hope you now understand how vital they are to any organisation.
Today, we’ll shift focus a bit and look at the different forms of business organisations in Nigeria, which is a key concept for any aspiring financial manager or entrepreneur.
Lesson Objectives:
By the end of this lesson, students should be able to:
Identify the major types of business organisations in Nigeria.
Describe the characteristics of each form.
Discuss the advantages and disadvantages of each.
Understand the financial implications of different business structures.
Forms of Business Organisations in Nigeria
In Nigeria, business organisations can be broadly classified into:
Sole Proprietorship
Partnership
Private Limited Company
Public Limited Company
Co-operative Societies
State-owned Enterprises (Public Corporations)
1. Sole Proprietorship:
Definition: A business owned and run by one individual.
Features: Simple to establish, owner has full control, not a separate legal entity.
Advantages: Easy to form, direct control, low start-up costs.
Disadvantages: Unlimited liability, limited capital, business dies with owner.
2. Partnership:
Definition: A business owned by two to twenty persons who contribute resources.
Features: Governed by a partnership agreement, profits shared.
Advantages: Shared responsibility, more capital than sole proprietorship.
Disadvantages: Unlimited liability, risk of conflict, shared profits.
3. Private Limited Company (Ltd):
Definition: A business owned by a small group of shareholders.
Features: Separate legal entity, limited liability, cannot sell shares publicly.
Advantages: Limited liability, perpetual existence, access to more capital.
Disadvantages: More regulations, restricted share transfer, formation costs.
4. Public Limited Company (Plc):
Definition: A company whose shares can be publicly traded on the stock exchange.
Features: Large ownership, subject to stock exchange rules.
Advantages: Can raise large capital, limited liability, perpetual existence.
Disadvantages: High cost of compliance, risk of hostile takeover.
5. Co-operative Societies:
Definition: Owned and operated by a group of people for mutual benefit.
Features: Democratic control, members share profits and risks.
Advantages: Promotes savings, limited liability, support for members.
Disadvantages: Limited capital, mismanagement risks.
6. State-owned Enterprises:
Definition: Businesses owned by the government.
Features: Serve public interest, often large-scale.
Advantages: Large capital base, support from government.
Disadvantages: Bureaucracy, inefficiency, political interference.
Summary:
Each business form has its own legal, financial, and managerial implications. Financial managers must understand these forms to make suitable decisions regarding capital structure, taxation, and regulatory compliance.
Class Activity / Discussion:
Group Work:
Each group selects one form of business and presents its financial pros and cons. Focus on start-up capital, liability, and financial decision-making.
Evaluation (Assessment Questions):
List and explain four types of business organisations in Nigeria.
What are the key features of a public limited company?
Compare sole proprietorship with partnership in terms of liability and capital.
Explain why limited liability is important in business.
Discuss two advantages and two disadvantages of co-operative societies.
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