BUSINESS STRUCTURES

1. Sole proprietorship
2. Partnership
3. Limited liability partnership
4. Private limited companies
5. Public limited companies
6. Non-profit making units
7. Public enterprises
8. Nationalism industries
9. Local government institutions
10. Central government departments

Forms of business ownership

The following are the types of business organization:
Sole proprietorship –This is a business owned one person.
A sole proprietorship is one individual carrying on business on his or her own (under
his or her own name or a business name) without adopting any other form of business
organization such as incorporation.

Advantages.
1. Ease of formation: this is the easiest form of business organization to establish.
There are no complex forms to complete and no documentation required between you
and any other party. It involves registering your choice of business with the registrar
of companies filling in a simple form and paying a small registration fee.
2. Owner makes independent decisions: the business owner has complete control
over the business is solely responsible for all decisions in the business.
3. Owner has personal contact with employees and customers.
4. Owner enjoys all the profits.
5. Flexibility: the business owner is able to respond quickly to business needs in
day-to-day management decisions of the business. One can easily take advantage
of an attractive business opportunity.
6. Total control of business

Disadvantages
1) Bears all the losses.
2) Capital base may be limited: This kind of business has less financing capacity.
3) The amount of funds a sole proprietor can raise is limited to their assets and their
credit worthiness.
4) Has unlimited liability: The business owner has little or no protection against
personal liability in the event of bankruptcy or adverse legal judgement. Personal
assets such as the owners house, land, car and investments are liable to be seized
if necessary to pay outstanding debts.
5) Success of the business depends on the entrepreneur’s hard work.
6) Business operations can be affected death of the owner.
7) Low level of specialization
8) Long working hours
Partnerships
These is a relation which subsists between persons carrying on a business in common
with a view of profit.” Thus, a partnership is a joint business enterprise carried on for
profit.
A partnership is an association of two or more persons who come together to carry on
a business with a view to making profit.
Although it is possible to establish a valid partnership without a formal agreement, it
is advisable to sign an agreement first.

Factors besides sharing of profits that suggest the existence of a partnership:

• Contribution of property or labour to the enterprise
• Guarantee of partnership debts
• Joint ownership of property
• Participation in management, including having signing authority for contracts and
bank
•accounts, and access to information about the business
Holding oneself out as a partner, or allowing others to do so

In summary
I. The effective date of the partnership.
II. The business name of the partnership.
III. The contributions of capital each partner
IV. How the business profits and losses will be shared.
V. How a partner may withdraw from the partnership
VI. How the business assets and liabilities will be shared in the event of a dissolution.

Advantages

1) Capacity for more capital; partners can raise more capital than a sole trader. The
asset base is much higher. Work is divided among partners.
2) Better combination of skills and talents: for example, a mechanic and driver
could successfully combine resources and talents to start a driving school.
3) Losses and liabilities are shared among partners.
4) Business can easily expand.
5) Formation of the business is simple: the registration and legal formalities are easy
and simple.

Disadvantages
a. The liability of partners is unlimited.
b. Partners are likely to disagree on various matters affecting the business.
c. If one partner makes a mistake, all other partners suffer the consequences.
d. Some partners may work harder than others, yet the profits are shared. This may
e. discourage a hard working partner.
f. If the business relies heavily on one partner and the partner leaves or dies, the
firm can easily collapse.
g. Control is shared

Types of partnerships
Limited liability Partnership (LLP)
While a sole proprietorship has only one owner, and a general partnership may consist
of several owners, a limited partnership (LLP) consists of two classes of owners:
i. the limited partner -The limited partner is simply someone who invests money in
the partnership
ii. the general or managing partner-The general partner may or may not be an
investor but serves as the business’s operating and financial manager.

Individual partners are not personally liable for the professional negligence of their
partners or for certain other obligations provided certain requirements are met. A
partner remains liable for his own negligence and for that of people under the
partner’s direct supervision or control. The
firm itself also remains liable.

.
As a general rule, liability will be limited if a partner is not directly involved in the
day - to - day managerial decision making of the business.
The legal principle involved is one of control.
A general partner exercises control over day - to - day operations but as a result bears
unlimited liability for any debts or damages incurred by the business.
A limited partner risks only his or her investment in the business but must give up the
control of that investment in exchange for a limitation on the amount of liability.

Company
It is usually governed by a set of agreed rules
This agreement is called the Memorandum of Association
It is a formal statement that members wants and wish to be associated with one
another with the purpose of carrying on a business

Object clause include the following(a business constitution)

The name of business-before a name is registered it is essential to obtain the
approval of the registrar of the proposed name.
Several names are selected in the order of preferences
List of directors-their addressees and occupation of partners
Article of associate-this controls the internal affairs of a company
Eg duties of managing director
Borrowing power etc
Contest of directors-a written contest is also written by partners/directors
Statutory Declaration-Its a declaration that all directors stating the requirements of
the Act regarding Registration have been dully compiled
This is usually done by a lawyer
Letter of authority for making necessary corrections of this memorandum of of
Association articles.

Private limited Company

In this form of business ownership, members are all protected from the company’s
debts, unless they undertake personal responsibility for a debt, such as personally
guaranteeing a loan for the business.
Thus, a member can serve as the company’s owner or manager, yet still protect his or
her personal assets from liability.
Its is governed by an operating agreement,.(Memorandum of Association)
It sets the rules for managing the company, as well as the rights and responsibilities
of the members.
Businesses under this bracket must end their name with Limited.
It is formed a minimum of two shareholders and no maximum

Advantages 

1. Can raise more capital through sale of shares.

2. It has limited liability.
3. Death of a shareholder does not affect its operations.
4. They are managed professionals.

Disadvantages

a. Shareholders can only transfer their shares with the consent of other shareholders.
b. The company is not allowed to appeal to the public for extra capital, so it may
find it
c. difficult to raise money for expansion.
d. Accounts of the company must be filed annually with the registrar of companies.

Public limited company

It has a minimum of seven shareholders and no maximum number of
shareholders.Name of business should end with PLC

Advantages
1. Shareholders liability is limited to the amount contributed.
2. It can raise more funds through sale of shares.
3. There is no restriction on the transfer of shares.
4. Public companies can easily expand due to large capital base.Disadvantages
1. The procedure of forming the company is long and complicated.
2. Raising capital can be expensive due to the cost involved.
3. As the company grows it may be difficult to manage.
4. Once established it has to comply with many regulations.
5. The accounts of a public company must be published, so there is no secrecy or
privacy about
its affairs.
6. Owners exercise little control over the business.
v) Co-operative – It is formed people with a common interest such as those in the
same trade or
dealing in similar commodities.

.
.

Non profit making units(clubs and societies)

They are formed to confer on their members certain benefits in the way clubs
facilitates discounts
They include
A)Co-operatives retail Societies
These are independent owned business that come together and pool their resources to
purchase in bulk usually by establishing central buying organizations

B)Agricultural cooperatives
They enable small farmers achieve economies of scale.They may be
Marketing cooperatives -they grade,pack and distribute farmers produce
Purchasing cooperatives-they buy in wholesale then distribute among members

C)Public Enterprises
This are business organizations partially or wholly owned by the state and controlled
through public authority
Features of public enterprise
1. Government ownership
2. Its government managed and control ed- it controls ley appointing personnel eg
board,directors etc
3. Public accountability-they are operated by public funds
4. Service motive-it provides service to thr public by provision of goods and
services to the public by provision of products at reasonable prices.Profit
consideration is minimal
5. The government does not inter fer with day to day activities
6. Separate legal entitle-it can be sued

Reasons for business structure within the public ownership

Natural Right-Body of opinion which holds that certain products should belong
collectively to the entire nations
Fundamental importance-some industries are a basic importance to the whole
economy
Social necessities-many goods and services are part of the social need of a
sophisticated society
Natural monopoly this occurs when the supply of a particular product is in the hands
of a single organizations
Heavy capital cost-Some industries have a heavy capital cost eg Airports

Nationalized Industries
This is the process of taking Private owned companies and industries under the
control of the government

Aim/objectives
1) To prevent mono ploy
2) Reduce regional imbalance-helps in regional growth by not only concentrating
business in urban centers
3) Improvement in working conditions-the government is well known for global
security and good payment for all its workers
4) Protection of public interst -the unhealthy competition among industrialists
injures the interest of the public
5) Use of surplus profit-profits earned by nationalized industries is used in support
of government economic policies
6) Uniformity and stability of services

Criticism of nationalization
a. Any losses made will be borne on he tax payers eg salaries.some are basic to the
government and cant allow them to fall hence public funds are used there
b. Low productivity and inefficiency
c. This is due to the fact that government business are usually poorly managed and
most government end up being mismanaged
d. Prevention of Private infinitives -when the government takes over private
business,there is every likely hood that public initiatives will also decrease
e. Consumers can be exploited-even though nationalization is supposed to be with
the aim of not making profit,that does not mean that it cant exploit the users
f. Corruption
g. Political interference

Local Government institutions

These are utilization of local government eg Municipalities ,wards and public utilities
Economies are important part of these services required in local characters
eg Education ,health drainage sewerage works

Central government
This consist of all administration departments of the state and other central agencies
who have responsibilities covering the whole economy territory of country in the
relevant field
Example
Forestry Commission(under ministry of tourism)
KWS