Forms of Organization

 

Welcome to class! 

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

Forms of Organization

Forms of Organization classnotes.ng

What is a business?

Business can be defined as all forms of activities that people engage in to satisfy the needs of people and sometimes makes profit.

A business organization is a commercial or industrial enterprise and the people who constitute the business.

Types of business organization

We have different types of the business organization namely;

  1. Sole proprietorship
  2. Partnership
  3. Limited liability company
  4. Public liability company
  5. Cooperative societies
  • Sole proprietorship:

A sole proprietorship can be defined as the type of business that is owned and directly run by a sole trader. It is often called one-man business.

Feature of a sole proprietorship
  1. One person provides the money to start the business.
  2. One person owns and runs the business.
  3. There are 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 a sole proprietorship
  1. It is the easiest form of business to set up.
  2. The sole proprietor enjoys the freedom of choice decision and action.
  3. The sole trader is not bound by routine procedures.
  4. Decisions are made and taken immediately.
  5. 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.
  6. He/she determines the location of the business
Disadvantages of a sole proprietorship
  1. The business is not a separate legal entity.
  2. Whatever happened to the business will affect the owner.
  3. Sole proprietor’s liability and risks are unlimited. He makes profit or loss as the business performs.
  4. 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.
  5. It is limited by time.
  6. This means a 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 organization with the sole purpose of making a 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 a partnership are:

  1. There is a diversity of talents among the partners.
  2. There is usually more committed to work.
  3. Only partners share profits.
  4. More jobs are created.
  5. More than one person usually makes sound business decisions.
  6. Business risks and liabilities are shared.
  7. A partners exit may not affect the business.
Disadvantages of partnership

Some of the disadvantages of a 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. A disagreement between partners may affect the ability of the business to make a profit.
  5. A decision is slower than in sole proprietorship.
  6. Introduction of a new partner, if not managed well, may end the company.
  • 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. A company limited by share.
  2. A company limited by guarantee.
  • A 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

  • A company limited by guarantee:

This company is formed to promote public causes and not to make money. They cannot create nor sell shares in any form such companies depend on ordinations through charity, etc. as sources of their capital. Some of this company are 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 is audited yearly and published in the 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 a limited liability company
  1. It is a legal entity. That is, it is held responsible for its 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.
  • Public liability company:

They are a business organization formed and owned by government and finances from the country’s purse with the key objective of providing certain essential service to the member of the public. example include NNPC,  NIPOST, NRC etc.

  • Cooperative societies:

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

 

In our next class, we will be talking about Consumer, Market And Society.  We hope you enjoyed the class.

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4 thoughts on “Forms of Organization”

  1. I noticed that in the quiz I was given there was a question that asked how many types of organization, and according to the note (which said 5) I choose 5 but I got it wrong.

  2. They are four (4) because the number 3&4 on the list above are types of limited liability company
    So they are ,(1) sole proprietorship
    (2) partnership
    (3) limited liability company
    (4) cooperative society

    Thanks.

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