Business Organization

INTRODUCTION

A business, also referred to as company, can be defined as a legal person or entity created by the association of a number of people in accordance with the law for the purpose of pooling their capital together in order to set up a business venture. It is a legal entity with
personality of its own. It is more than a mere association of individuals.
         Types of Business Organization
(1) Private enterprise: Private enterprise is an enterprise owned and manages by private individuals. e.g sole proprietorship, private and public limited companies, e.t.c. The main aim of private enterprise is to maximize profits.
  Features of private enterprise include:

• It is owned and financed by private individuals
• It only has the objective of making profits
• Owners have to bear the entire risks associated with liquidation or any business failure

(2) Public enterprise: Public enterprise is a type of business organization owned, financed and controlled by the government. Its major objective is to provide social services to the people e.g National Railway Corporation.
     Features of Public Enterprise include:

• Capital is provided by the government.
• Its main objective is to provide social services.
• It is owned by the government.
• It is managed by board of directors.
• It is a legal entity i.e it can sue and be sued in its own right.
• Risks are borne by the government and the tax payers.

     Types Of Business Organizations

1.  Sole Proprietorship
2. Partnership
3. Private Limited Company
4. Public Limited Company
5. Public Corporation
6. Co-operative Societies  

  Differences between private and public enterprises are many. I am going to list some for us here:

1. Private enterprises are owned by individuals while Public enterprises are owned by the government.
2. Private enterprises have the major objective of maximizing profits while Public enterprises have the main objective of providing social services to the people.
3. Private enterprises are controlled by the owners while Public enterprises are controlled by the board of directors.
4. Private enterprises do not enjoy any form of monopoly while Public enterprises enjoy some form of monopoly.
5. Private enterprises tend to be more efficient in management while Public enterprises are tend to be less effective in management.
6. Private enterprises are established by ordinary registration while Public enterprises are established by the act of parliament.
7. Private enterprises require smaller amount of capital to set up compared to Public enterprises.
8. Private enterprises take decisions without much consultations while Public enterprises take decisions with rigorous consultations.

  Some factors determine the type of business units such as: availability of capital, ownership of the business, nature of the proposed business, the objective of the proposed business, the return on investment e.t.c.
  The size of a business unit is also determined by some factors such as: amount of capital, size of the market, ability to undertake risks, nature of product, government policies e.t.c.
       SOLE PROPRIETORSHIP 
 Sole proprietorship is a form of business enterprise owned, financed and managed by by one person with the primary objective of making profits. 
       Features of Sole Proprietorship 

1. It is owned by only one person.
2. Its objective is to maximize profits.
3. It has unlimited liability.
4. It is not a legal entity.
5. It is controlled and managed by the sole proprietor.
6. Only the proprietor provides the capital to set up the business.

  Sources of capital of sole proprietorship include: personal savings, trade credit, bank loans, loans from government e.t.c.
       Advantages Of A Sole Proprietorship are:

1. Its establishment is easy.
2. It is easy to manage.
3. It requires small capital.
4. Quick decision making.
5. Close relationship between owners and employees as well as owners and customers.
6. The profits are owned by the owners alone.
7. It gives room for owner`s privacy. 

       Disadvantages of A Sole Proprietorship are:

1. Problem of sourcing for capital.
2. The business may die after the death of the owner.
3. Its liability is unlimited.
4. Risks are borne by the owner alone.
5. The business is not a separate legal entity.
6. Difficulties in expansion.

             Partnership Business 
  Partnership business is a type of business organization in which two to twenty persons agreed to establish and manage a business with the main aim of making profits. Those involved in a partnership agreement are called Partners.
    Features of Partnership Business

1. It is owned by two to twenty persons but it is two to ten in a banking enterprise.
2. It has the main objective of making profits.
3. Its liability is unlimited.
4. It is not a legal entity  because the partners are not separated from the business.
5. It is controlled and managed by the partners.

Sources of capital for partnership include: personal contributions of the partners, trade credit, loans and overdrafts, admissions of new partners and undistributed profits.
 We have various types of partners which include: limited partner, general partner, active partner, sleeping partner and nominal partner. Partners also enjoy some rights which are as follows: entitlement to share from the profits of the business, right to act as the agent of the business, access to the partnership book of account e.t.c.
    Advantages of Partnership

1. Ability to raise sufficient capital.
2. There is privacy. 
3. Better management.
4. Joint and quality decision making.
5. Risks and liabilities sharing.
6. It does not require legal formalities.
7. Increased chance of continuity.
8. There is easy access to loan.
9. There is greater possibility of expansion.

    Disadvantages of Partnership

1. There is high risk of dissolution after the death of a partner.
2. Use of false records especially by the active partners.
3. Slow decision making process.
4. Disagreement between partners can bring the business to an end.
5. It is not a legal entity.
6. There is high possibility of disagreement between partners.
7. The action of one partner is binding on others.
   

             Company 
A company can be defined in many ways, even by a layman. But the but generally accepted definition in economics is as follows:

  "A company is a legal entity established by the association of a number of people in a agreement with the law for the purpose of setting up a business venture."

                                     Types of Companies

(1)          Unlimited liability company: In an unlimited liability company, the liability of a member is limitless and he may be liable to the full amount of company`s debts in the event of liquidation. The members will contribute more money, including their capital, to settle the debt of the company.

(2)          Limited liability Company: In a limited liability company, the debt or liability in the company is limited to the amount of share capital the shareholders had agreed to contribute individually in the event of liquidation. A shareholder cannot lose any of his private properties in the event of liquidation. Types of limited liability company include;

       Company limited by guarantee: A company limited by guarantee is not formed for commercial   purposes, such as clubs or charities. The members guarantee the payment of certain (usually nominal) amounts if the company goes into insolvent liquidation, but otherwise, they have no economic rights in relation to the company. This type of company is common in England. A company limited by guarantee may be with or without having share capital

       Company limited by shares:  It is the most common form of company used for business ventures. Specifically, a limited company is a “ company in which the liability of each shareholder is limited to the amount individually invested” with corporations being “ the most common example of a limited company”.

                Types of limited liability company

(1)    Private limited liability company: A type of company that offers limited liabilities, or legal protection for its shareholders but that places certain restrictions on its ownership. These restrictions are defined in the company`s bylaws or regulations and are meant to prevent any hostile takeover attempt.

  Read more: http://www.businessdictionary.com/definition/private-limited-company.html#ixzz4Amah1Wwo  

(2) Public limited liability company: It is the one which by its articles allows the public to subscribe to its shares. It must have a minimum of seven persons but no prescribed maximum number. Here, shares are transferable and the name of the public company must end with "Plc.", e.g First Bank Plc. This is the type that is popularly referred to as Joint Stock Company.

Similarities between Private and Public limited liability companies include:  

•  Both companies are legal entities, which means that they can sue and be sued in their own names due to the fact that both are registered companies. The business is different from the owner.
• Both companies have limited liability.
• The death or withdrawal of a shareholder cannot affect the existence of both companies.
• Part of the profit can be ploughed into the business for both companies while the remaining can be shared by the shareholders according to their contribution.
• Both companies require huge capital to set up. 

                                 Differences between them

	Private limited company	Public limited company
(1)	Shares are not easily transferable.	Shares are easily transferable.
(2)	Its shares are not quoted in the stock exchange.	Its shares are quoted in the stock exchange.
(3)	Minimum of two shareholders and maximum of 50.	Minimum of seven shareholders and no maximum number.
(4)	They are not allowed to use “Plc.”	They are allowed to use “Plc.”
(5)	Owned and controlled by those who contributed capital.	Owned by shareholders and controlled by board of directors.
(6)	The public is not allowed to subscribe.	Public is allowed to subscribe.

      
        Sources Of Finance to Private Limited Company are;

• Loans and overdrafts from banks.
• Shares raised by shareholders.
• Equipment leasing.
• Retained profits.
• Trade credit.
• Hire purchase