2.

ORGANIZATION
Definition
An Organisation is a set (framework) of formal human relationship arranged to obtain
delegation of responsibilities and authority so as to achieve specific objectives.
It is the process of bringing together physical, financial and human resources and
developing productive relationship amongst them for achievement of organizational
goals.

It is also used to provide channels of communication to indicate the degree of progress in

achieving specified objectives.
In an Organisation the delegation of responsibility and authority is attained through
specialisation and division of labour.

This gives rise to the formation of departments/sections and even sub-sections. Examples
include:
Examples of depts.

• Maintenance & Engineering

• Accounts & Finance
• Sales & Marketing
• Production & Operation
• Design & Product Innovation
• Personnel & Administration, etc.

The number of departments in an Organisation depends on the following factors

• Size of the Organisation and
• Type and nature of activities carried out by the Organisation

2.1 Steps in the process of organising

Organising involves a series of steps that need to be taken in order to achieve the desired
goal. The following steps emerge in the process of organising:

i. Identification and division of work:

The first step in the process of organising involves identifying and dividing the work that has
to be done in accordance with previously determined plans. The work is divided into
manageable activities so that duplication can be avoided and the burden of work can be shared
among the employees.
Division of work is the separation of a work process into a number of tasks, with each task
performed by a separate person or group of persons.
It is a method of sharing the work activities on the principal that different workers at different
places are best fitted for different executions depending on the influence of geography, natural
conditions, personal aptitude, and skills.

Advantages of Division of work/labour

• Higher productivity
• The Right Man in the Right Place
• The Worker Becomes an Expert
• Heavy Work Taken over by Machinery
• Less Training Required
• Saving in Time
• Lower costs
• Greater cooperation

Disadvantages of Division of Labour

• Monotony or repetition
• Decline in craftsmanship
• Reduction in employment opportunities
• The problem of the mobility of labor
• Problems from increased interdependence
• Difficulty in control
• Difficulty in promotion

ii. Departmentalisation/ Departmentation:

Once work has been divided into small and manageable activities then those activities which
are similar in nature are grouped together. Such sets facilitate specialisation. This grouping
process is called departmentalisation.

Identifying and grouping of similar activities on some logical basis, in order to attain the
objectives of the enterprise/organization may be defined as departmentation. ach department is
headed by a person known as departmental manager (or) Head Of the Department
(HOD).
A department is a work group combined together for performing certain functions of similar
nature. Departmentation is done for proper administration.
Methods of departmentation

• Functional

The grouping of activities by functions performed.

• Product

The grouping of activities by product produced.

 • Customer

The grouping of activities by common customers.

• Geographic

The grouping of activities by territory.

• Process

The grouping of activities by work or customer flow.

Advantages of departmentation

• Promotes order and increases enterprise efficiency.

• Ease of fixing accountability.
• Helps in growth of individual/s professionally.
• Improves co-ordination in the enterprise as a whole.

iii. Assignment of duties:

It is necessary to define the work of different job positions and accordingly allocate work to
various employees.

Once departments have been formed, each of them is placed under the charge of an individual.
Jobs are then allocated to the members of each department in accordance to their skills and
competencies.

The work must be assigned to those who are best fitted to perform it well.
iv. Establishing authority and reporting relationships:

Merely allocating work is not enough. Each individual should also know who he has to take
orders from and to whom he is accountable.
The establishment of such clear relationships helps to create a hierarchal structure and helps in
coordination amongst various departments.

Superior subordinate relations between different people and job positions is to be created,
so that everybody knows from whom he/she is to taking orders and to whom he/she can
issue orders.
2.2 IMPORTANCE OF ORGANISING

i. Benefits of specialization:
• Organising leads to a systematic allocation of jobs amongst the work force.

• The division of work into smaller jobs reduces workload and enhance productivity and
repetitive performance leads to specialization.
 ii. Clarity in working relationships:
• Organising helps in defining all the jobs and also clarifying the limits of authority and
responsibility of each job.
• It helps in creating a hierarchical order thereby enabling the fixation of responsibility and
specification of the extent of authority to be exercised by an employee.

iii. Optimum utilization of resources:

• Organisation leads to usage of all natural resources, financial resources and human resources.

• The proper assignment of jobs avoids duplication of work and minimizes wastage of
resources.
iv. Effective Administration:

• It provides a clear description of jobs and related duties, which helps to avoid confusion and
duplication of work.
• Clarity in working relationships enables proper execution of work, which results ineffective
administration.

v. Adaption to Change:
• The process of organising is flexible which allows a business enterprise to accommodate
changes in the business environment.

• It also provides stability to an enterprise.

vi. Development of Personnel:

• A well-designed organization structure encourages initiative and relative thinking on part of

the employees.
• When managers delegate their authority, it reduces their workload and thus can give time on
important areas of growth and opportunity to innovate thereby.

vii. Expansion and growth:

• Organising helps in growth & diversification of an enterprise.

• By adding more job positions, departments, products lines, new geographical territories etc.
and thus will help to increase customer base, sales and profit.
2.3 ORGANISATIONAL STRUCTURE
The organisation structure can be defined as the framework within which managerial and
operating tasks are performed. It specifies the relationships between people, work and
resources in an organisation.
Span of management/control refers to the number of subordinates that can be effectively
managed by a superior. The Span of management largely gives shape to the organization
structure.
Three main objectives of organizational structure
• To develop coordination among the different activities performed by various
department.
• To avoid duplication of the efforts at the time of execution of the necessary activities.
• To execute all necessary activities & unnecessary activity avoided.

2.4 TYPES OF ORGANISATIONS STRUCTURES

The type of structure adopted by an organisation will vary with the nature and types of
activities performed by an organsation.
The organisational structure can be classified under two categories which are as follows:
(i) Functional structure and
(ii) Divisional structure
i. Functional structure
In functional structure activities are grouped and departments are created on the basis of
specific functions to be performed. For example, all the jobs related to production are grouped
under production department, sales departments etc.

ii. Divisional organization structure

Dividing the whole enterprise according to the major products to be manufactured (like
metal, plastic, cosmetics etc.) is known as divisional organization structure.
Basis Functional Structure Divisional Structure

Formation Formation Is based on functions Formation is based on product lines

and is supported by functions

Specialisation Functional specialisation Product specialization

Responsibility Difficult to fix on a department Easy to fix responsibility for

performance

Managerial Development Difficult, as each functional Duplication of resources in

manager has to report to the top various departments, hence costly
management

Cost Functions are not duplicated Duplication of resources in various

hence economical departments, hence costly.

Coordination Difficult for a multiproduct Easy, because all functions related to

company. a particular product are integrated in
one department.
Other types;
iii. Formal organisation

Formal organisation refers to the organisation structure that is designed by the management
to accomplish organizational goals.
In a formal organisation the boundaries of authority & responsibility is clearly defined and
there is a systematic coordination among the various activities to achieve organizational
objectives.
iv. Informal organisation

Interaction among people at work gives rise to a ‘network of social relationships among
employees’ called the informal organisation.
The main purpose of this organization structure is the psychological satisfaction of the
employees with common interests. For example, employees with similar interest in books,
films, religion etc. may form their own informal groups.

Basis Formal organisation Informal Organisation

Meaning It refers to the structure of It refers to the network of
well defined authority and social relationships arising
out of interaction among
employees
Origin As a result of company rules Arises as a result of social
and policies interaction
Authority Arises by virtues of Arises out of personal
positions in management qualities.
Adherence to rules Violations of rules may lead No such penalties and
to penalties and punishments.
punishments.
Flow to Communication Communication takes place Not through a planned route,
through the scalar chain it can take place in any
direction.
Purpose To achieve planned To satisfy social and cultural
organizational objectives. needs and fulfill common
interests
Structure Well defined structure of No clear-cut structure
tasks and relationships because of complex network
of relationships.
Flow of Authority Authority flows from top to Authority flows vertically as
bottom i.e., downwards. well as horizontally.
Leadership Managers are leaders Leaders may or may not be
managers. They are chosen
by the group.
 3. PRODUCTION PROCESS
3.1 Production process definition
The production process is an essential part of any business. It is a process of turning raw
materials and ideas into products and services. It is important to develop efficient and effective
production processes because they heavily impact business performance.
The production process is defined as the process in which the factors of production, i.e., inputs
of resources, are turned into products or services.

Raw Materials are fed in and converted into simplified forms that can be used by a variety of
customers.

Types of production
The methods of production can be classified into many types depending on the company’s
product and the organization’s needs. The four main types of production are:
i. Mass production,
Mass production means there is continuous production and all employees work continuously
to produce the same items at the same time. Such items usually fall under consumer goods.
Examples include; cars, TV sets, radios, cigarettes, etc.
ii. Batch production,
Batch production is similar to mass production. However, the products may be produced in
batches. This means that the production may be divided based on product size, colour, form,
etc. Examples: Production of books, bread, machine tools, textiles, pottery, etc.
iii. Job production,
Job production means the products are produced in a limited quantity and may be specific to
customer preferences. Job production is small-scale, and the task of producing an item or
product is completed before taking up other jobs.
iv. Continuous or process production.
Raw materials enter at one point and emerge at another end as finished products. The whole
factory operates like one machine. It needs relatively small number of technical and scientific
employees. Examples: Soft drinks, brewing, chemical industries, etc.
Other types are;
i. Service production. This method of production involves rendering services via an
automated process, such as technical support for customers. One example in current
business in terms of service production is delivery services.

ii. Customized production. Customized production is a process in which goods and

services are produced on the basis of the customer's needs.
 Type of production Examples
• Automobile industry
Mass production • Electronics industry

• Baking
Batch production • Craft brewing industry

• Shipbuilding industry
Job production • Custom furniture production

• Brewing industries
Continuous or process production • Chemical industries

• Consulting industry
Service production • Law industry

• Automobile industry (customisation)

Customised production • Garment industry (tailored clothes)

3.2 Basic Economic Processes

Those activities, actions, and operations that involve the production and sale of goods and
services. This includes the extraction of raw materials and natural resources.

• In any economic system we can derive four major processes which govern the activities
of society in making ends meet. They are:
– Primary Raw Material Industry
– Manufacturing / Processing Industries
– Distribution Industries
– Service Industries
i. PRIMARY RAW MATERIAL INDUSTRY

The primary industry includes the economy that utilises the natural resources of the
environment.
Examples of primary Raw Materials Industry:
– Minerals, fuels, grains, wool, cotton, etc.
– They are also known as Extractive or Primary Industries.

ii. MANUFACTURING / PROCESSING INDUSTRIES

This industry usually utilises the products from the primary industry to create several other
utility products. Majorly includes those industries which are involved in construction and
manufacturing.
The product can be categorised into two general classes
1. Manufactured goods which go directly for the consumer.
2. Semi-manufactured goods which pass from producer to another reproducer for further
processing, e.g., cotton - - yarn(threads) - cloth roll – a cloth (shirt or gown)
iii. DISTRIBUTION INDUSTRIES
Raw Materials and Manufactured goods are passed from source / manufacturer to processor
and finally to consumer.
The so called commercial and Trading Agencies fall under this category.

Their main activities include the operations of buying and selling as middle men, storing,
grading and moving goods from one place to another (where they are most needed) depending
on customer demand – distribution priority.
iv. SERVICE INDUSTRIES

Are those not directly concerned with the production of physical goods.
Unlike manufacturing or production, service industries don’t rely on the sale of goods or
physical products. Instead, they deliver essential services to the public.

These fall under domestic services, charitable clinics, social clubs, play grounds, sanitation,
etc.
In buying and selling we also need the services of commercial banks or financial institutions
and insurer.

Professional services, e.g., institution of engineers, law societies, hospitals, accountants and
auditors, rescuers, etc.
There are also general public services such as; transport, water, electricity, telephones
(Communication), etc.
3.3 The major factors of production
Prior to our discussion on the answers to above question, we should first look in to the major
factors of production, namely;
• Land
• Labour
• Capital
• Management

Land
To establish an enterprise definitely one needs a piece of land where you can put an office and
area of working/producing/manufacturing.
The site must be economical in its selection and convenient in utilising. Factors like;
geographical position, availability of basic infrastructures (such as raw materials availability,
water, electricity, road, railway line, sea port, network, social amenities etc. Thus, before a
project takes off it is always very import to do what is known as feasibility study.
Labour
An organisation can not work without people to run it. Availability of labour (skilled and
unskilled) has to be studied before implementation of a project.
There has to be a proper selection, training and economical utilisation ( i.e. one does not need
to employ 4 typists when only one typewriter is available).
Managing levels in an organisation with proper labour relations etc. must be thoroughly
considered/ looked into at the early stage of establishing an enterprise.
This kind of analysis and advise on the production/engineering aspects is normally done by a
qualified technical person/engineer.
Capital
To establish an enterprise the sources of funds/working tools/equipments must be known from
the very beginning.
These resources have to make the enterprise survive before realising profits.
It hast to be clear as to what is the meaning of working capital and its effects on the production/
engineering enterprise.
Such a forecast can best be done by an engineer who can analyse and work together with other
parties to ensure a proper decision.
Without proper consultation an engineer can over look i.e. legal risks when establishing an
enterprise and present a capital that can not fulfil such occurrences.
Management
Without proper management all above factors are of no use.
The beginning could be quite simple but as time goes the effect of the Management will be of
greater importance.
The management will cover the implementation of objectives, policies, monitoring, control and
introduction of amendments wherever necessary.

4. INDUSTRIAL ENTERPRISES
An Enterprise can briefly be defined as a set of personal competences.

When guided by a Management, an Enterprise combines; land, labour and Capital in variable
proportions to make a producing unit – turning out tangible goods/services.
Enterprises can be divided into several categories (based on their products/services produced).
Producer goods Enterprises / Industries:
 i. Produce products for use in the operations of other Enterprises, e.g., materials, tools,
machines and equipments, etc. They are sometimes referred to as the “Capital Goods
Enterprises”.
ii. Consumer goods Enterprises: - produce goods / services intended for direct use by the
people in daily life, e.g., laundry soap, Vaseline, matchbox, etc.

N.B. Each category mentioned above can further be sub-classified as: – Durable goods, e. g.
automobiles, planes, Windows, etc. – Semi-durable goods e. g. batteries, bulbs, tires, etc. –
Non – durable goods e. g fuels, soaps, etc.

5. BUSINESS POLICY PROCESS

5.1 Business policy process
It is simply the stages required in establishing a business venture / enterprise.
Features of Business Policy
An effective business policy must have following features-

i. Specific- Policy should be specific/definite. If it is uncertain, then the

implementation will become difficult.
ii. Clear- Policy must be unambiguous. It should avoid use of jargons and
connotations. There should be no misunderstandings in following the policy.
iii. Reliable/Uniform- Policy must be uniform enough so that it can be efficiently
followed by the subordinates.
iv. Appropriate- Policy should be appropriate to the present organizational goal.
v. Simple- A policy should be simple and easily understood by all in the organization.
vi. Inclusive/Comprehensive- In order to have a wide scope, a policy must be
comprehensive.
vii. Flexible- Policy should be flexible in operation/application. This does not imply
that a policy should be altered always, but it should be wide in scope so as to ensure
that the line managers use them in repetitive/routine scenarios.
viii. Stable- Policy should be stable else it will lead to indecisiveness and uncertainty in
minds of those who look into it for guidance.

Difference between Policy and Strategy

The term “policy” should not be considered as synonymous to the term “strategy”. The
difference between policy and strategy can be summarized as follows-
i. Policy is a blueprint of the organizational activities which are repetitive/routine in
nature. While strategy is concerned with those organizational decisions which have
not been dealt/faced before in same form.
 ii. Policy formulation is responsibility of top-level management. While strategy
formulation is basically done by middle level management.
iii. Policy deals with routine/daily activities essential for effective and efficient running
of an organization. While strategy deals with strategic decisions.
iv. Policy is concerned with both thought and actions. While strategy is concerned mostly
with action.
v. A policy is what is, or what is not done. While a strategy is the methodology used to
achieve a target as prescribed by a policy.

• Two very important and interrelated aspects are evident in the business policy process
are the formulation and the implementation.
5.1.1 FORMULATION
Formulation involves the following activities
• Identification of opportunities for the organization and threats to it. This clarifies the
degree of risk associated with both opportunities and the risks of failure.
• Assessment of the organization’s present and potential strengths and weaknesses
particularly in respect of its material, financial, technical and personnel resources.
• Consideration of the personal value and aspirations of the organization’s major
influential internal stakeholders in particular its managers. – Clarification and
acknowledgement of the major social responsibilities and objectives of the organization
5.1.2 IMPLEMENTATION
Implementation of an agreed policy is basically concerned with the acquisition and
mobilization of resources, the creation of appropriate structure and processes, monitoring and
control.
These can further be classified into four categories;
i. Physical resources
Use of physical resources e.g., machines and equipment, labour, raw materials, buildings and
the development of appropriate technology is of vital importance.
ii. Organizational structure and relationships
The creation of appropriate organizational structure and relationships, e.g., the rules and
responsibilities of individuals, departments and functions and the use of appropriate
information systems, etc.
iii. Organizational processes and behaviour
Organizational processes and behaviour, e.g., the development of individuals, their motivation
and rewards, performance measurement and the establishment of standards
iv. Top leadership
Top leadership, i.e., the provision, monitoring and updating of overall objectives, inter-function
and inter-division coordination, overall resource allocation, etc. Top Leadership is expected to
have skills in the following areas; Technical skills, Human skills, Conceptual skills and
Diagnostic skills.
• Technical skills: ability and knowledge in using equipment, techniques and procedures
in performing tasks.
• Human skills: ability to work effectively with other people both as individual and as a
member of the group.
• Conceptual skills: ability to see the whole Organization and interrelationships between
parts.
• Diagnostic skills: ability to determine, by analysis and examine the nature and
circumstances of a particular condition.
5.2 THE ENTERPRISE
The Enterprise/Industry can be looked upon as a System supported by a number of sub-systems.
The Enterprise = Purchasing (Inputs) + Production (Conversion Process) + Marketing (System)
(Sub-system) (Sub-system) (subsystem).

6. FORMAL AND INFORMAL BUSINESS

The beginning of any business takes place once the responsible organ makes a decision as to
whether it will be Formal or Informal. The two differ in a number of ways;

6.1 FORMAL BUSINESS

This is a business which is registered with the Registrar of Companies.

To start such a business, one must be aware of the licenses, labour laws, taxes and permits
required to avoid a conflict with the country’s laws and regulations

Advantages of formal business

i. They are legally recognized.
ii. They are properly organized
iii. It is easier to apply for loans from financial institutions.
iv. They usually have a sound base for further growth and development
v. They are reliable and somehow permanent in nature.
vi. It is therefore easier to recruit skilled human resources.
Disadvantages of formal business
i. They are always governed by laws and rigid regulations.
ii. Time consuming due to elements of bureaucracy
6.2 INFORMAL BUSINESS
Such businesses are generally not registered though they may have licenses. People with such
businesses do not pay taxes nor do they adhere to government regulations.
It is, however wise before one goes too far with such occupations to at least be acquainted (up
dated on the risks).
6.2.1 Advantages of informal business
i. They can lead to fast employment opportunities.
ii. They can form a basis of initiating new industries (Formal business).
iii. They are adaptable to changes.
iv. They are quite simple to start.
v. Can be run on full or part time basis
6.2.2 Disadvantages of informal business
i. They are not legally recognized
ii. They are not always reliable as profit making enterprise.
iii. They do not have a clear-cut access to loans from financial institutions.
iv. They do not comply with social security regulations.
v. In most cases do not have suitable and clearly defined premises

7. BUSINESS OWNERSHIP

7.1 What does ownership of an enterprise mean?

Business ownership refers to legal control over a business. It gives the owner the legal right
to make certain business decisions.

Enterprise Ownership is a legal entity (term). When applied to an industrial Enterprise it means
title to and possession of the assets of the Enterprise, the mandate to determine policies of
operation, and the right to receive and dispose of the proceeds. Several types of ownership are
in practice.

7.1.1 Private Ownership

When an Enterprise is so organized that individuals exercise and enjoy above mentioned rights
in their own interest, the ownership is said to be private

7.1.2 Public Ownership

These include Enterprises which are directly attached to government bodies (or indirectly
attached to political or ruling organs)

7.1.3 Mixed Ownership

This combines 7.1.1 and 7.1.2 above. It has some public and private elements of Ownership in
its operation. Examples are Government/Private owned Hotels, the so called or known as 51%
to 49% shares, etc.

7.2 Forms of Ownership

Usually, one form is more desirable than the other depending on the type of Enterprise. The
following factors govern their choice
Who the Promoters are?
Nature and size of the business to be established. The Capital required and the means of raising
it. The length of time the Enterprise is expected to operate. Technical conditions affecting the
Enterprise
Types of products/Services to be manufactured/rendered. Sources of market to receive the
products and the marketing strategies. Competitive conditions in the type of industry selected.
Influence of Government laws and regulations. Methods and volume of Production.
7.3 Private Industrial Enterprises
Private Industrial Ownership fall under four (4) basic categories namely:
• Sole / individual ownership
• The Partnership
• The Corporation
• Cooperatives
7.3.1 Sole / Individual Ownership
Sole proprietorship means that a business is owned and directed by one individual. This
individual owns all the rights to run the business
While the Sole Proprietorship is the simplest legal form of business, it has certain disadvantages
that may overshadow its advantages.
The owner and the business are synonymous in the eyes of the law. The owner called the
Proprietor, owns all the assets and profits of the business, at the same time, also responsible for
all its liabilities and losses. Usually in a sole proprietorship, the owner has invested all the
business capital. Often the owner is the total management of the business.
Advantages of Sole / Individual Ownership
i. A sole proprietorship can legally begin operations almost with immediate effect.
ii. There is little in the sense of legal fees and related costs
iii. A sole proprietorship is easily recognized and no complications.
iv. There is lack of complexity in administration in a sole proprietorship category as
compared to other legal entities.
v. Decision making is not shared with any other party, like shareholders or the like.
vi. It is sole, thus decisions can be made quickly and implemented without prior approval
from any other source.
vii. Profits not share with any one else.
viii. It is faster to terminate/transform or sell the business, i.e., the ownership.
Disadvantages

i. A sole owner may lack sufficient expertise

ii. Competent employees may desire more rewards and request them too vigorously than
the sole owner is prepared or able to offer.
iii. Financing may be a potential difficulty due to lack of security.
iv. Technical know who which plays part in public relations (PR) may be not big enough
to influence outside resources.
 v. The business may sway or collapse in the event of owner falling sick or dies.
vi. At certain levels of realizing high profits depending on size of operation, there may
arise a tax disadvantage for the sole proprietorship.
vii. Unlimited liability can mean seizing of the sole owner’s personal assets to meet
outstanding debts or liabilities.

7.3.2 The Partnership

The legal form of business known as Partnership means sharing the Ownership. There are both,
advantages and disadvantages.
Legally what is meant by a Partnership?
• A Partnership is simply defined as an association of two or more persons undertaking
a business together or in common, with a view to make profits. A Partnership is created
through a contract, either oral or written between the concerned parties.
• A Partnership is an agreement joined by injecting a capital to fund the business, and an
agreement to share ownership of the enterprise in the sense that profits and losses will
eventually be shared as well.
The sharing in this case corresponds to the amount of investment in all circumstances.
A Partner may be a silent partner in the business in the sense that he provides money only.
A Partner may also be a working partner providing both money and skills to the business.
Partners are referred to as either General or Limited.
A general partner is active in management and is responsible for all debts and obligations of
the Partnership.
A Limited Partner contribute money only and is not responsible for the business’s debts or
obligations.
The agreement might provide such details as the following:
i. Amount of cash and other contributions to be made by each partner
ii. Division of partnership income (or loss)
iii. Partner responsibilities—who does what
iv. Conditions under which a partner can sell an interest in the company
v. Conditions for dissolving the partnership
vi. Conditions for settling disputes
Advantages of Partnership
i. Availability of more capital as compared to a sole proprietorship.
ii. Financing may be easier. Lenders can be more attracted than to a single owner for
security or additional resources.
iii. Partners can bring various talents and experience to the business. Workload can be
shared amongst all Partners
iv. Pride of ownership increased by number of Partners. More owners can result to a greater
motivation for success as compared to that generated by one proprietor.
v. Few legalities involved in establishing a Partnership as compared to a corporation.
Disadvantages of Partnership
i. Unlimited liability means individual Partners are not only responsible for debts they
have contracted on behalf of the business, but also for the debts incurred by other
Partners on behalf of the business.
ii. Any changes to the state of the partnership, e.g. death of a Partner, admission of a new
Partner, or the withdraw of a Partner ends the legal entity. A new contract or agreement
has to be written.
iii. There is a risk of management crisis.
iv. Management difficulties may arise due to individual differences in personalities,
methodologies or external pressures to individual partners.
v. Partnership agreements when involving too many Partners may call for several
complications and additional administration may be required.
vi. Time and a longer procedure is involved when one wants to withdraw funds from the
business.
7.3.3 The Corporation
The Corporate structure may well be the most favoured legal form of business.
Legally what is meant by a Corporation (Limited Enterprise)?
• A Corporation is a legal entity with or without shares capital. It can be established by
one or more individuals or other legal entities
The Corporation exists on its own. It exists separate and distinct from the establishing
individuals or other legal entities
A Corporation has all rights and responsibilities of a person with the exception of those rights
that can only be exercised by a natural person. Expressed more simply; a corporation is a legal
entity, separate from yourself and the other persons who own it (all of you are only
shareholders.
The business can own assets, make contracts and conduct business transactions in its own
capacity. Only a business that is incorporated that can use the slogan, “LIMITED” / “LTD” or
“INC.” in its business name
In order for the business to establish and operate as a corporate identity, certain Governmental
requirements must be fulfilled. They include:
• Obtaining a “Corporate Chapter” or
• Filling “Articles of incorporation, Memorandum (MoU) and Articles of Association”.
7.3.3.1 Memorandum of Association
In this case the following will be required:
• Name of the Company
• Registered office
• Objectives of the Company
• Liability of the members must be limited
• Capital of the Company
 • Shares which clearly indicate the value of shares.
• Names and signatures of members
• Number of shares for each member.
7.3.3.2 Articles of Association
A clarification on the following has to be tabled:
• Shares controller (e.g., Board)
• Share certificates
• Condition on calls for shares
• Forfeiture of shares
• Transfer and transmission of shares. (Forms of share transfers)
• When and how shares are transformed into stock. Share conversion into stock.
• Alteration of capital
• Borrowing powers
• Notice of Annual meetings and General meeting
• Proceeding out of the General meeting
• Votes of members
• Powers of Directors
• Disqualification of Directors
• Dividends and reserves
• Accounts / Auditors
• A Company seals
• Notices and discovery of secrets
• Arbitration
• Indemnity of Directors
• Alteration of Articles
• Winding up or closing down business
• Reminders
7.3.3.3 Incorporation
How to incorporate? It has been proven that incorporation is a relatively complex process
involving legalities.
It is thus always advisable to seek professional and legal expertise. Areas needed by such legal
documents for action include: Organizational, Legal and Personal.
7.3.3.3.1 Organization
The organization has to prepare the following:
• Pre-incorporation agreement
• Accounting system to be applied, (cash, accruals or other methods.
• Operating basis (fiscal or calendar year)
• Salaries and Directors
• Bankers
• Insurers
 • Employees benefits, etc.
7.3.3.3.2 Legal
• Corporate name
• Kind and conditions of share capital
• Privileges and voting rights of shares
• Organizational meetings
• Special licenses required, etc.
7.3.3.3.3 Personal Requirements
• Issuing of shares
• Identifications
7.3.3.4 Corporate Advantages
• Limited liability means owners (shareholders) can preserve their personal and /or other
business assets from being seized to pay for any outstanding business debts incurred by
the corporation.
• Flexibility for tax planning
• Flexibility in management as owners can appoint agents, officers and directors with
specified delegation of authority to manage the business.
• Most investors look for limited liability when investing, and thus prefer a corporation
instead of a sole Proprietorship or Partnership.
• There is a perpetual existence of the Corporation regardless of any changes (e.g. death,
withdrawal or more members) in the shareholders.
7.3.3.5 Corporate Disadvantages
• Establishment and the operation of a corporation must abide by Government
regulations.
• It must furnish annual income statements and balance sheet to shareholders resulting in
disclosure of financial situation.
• If the net income is too low, there will be a tax payment disadvantage as compared to
sole Proprietorship or Partnership.
7.3.4 Cooperatives
A cooperative is a business structure whose owners are consumers of its services. It is operated
to provide benefits to those people.
They have elements of a large Partnership. Basically, they provide goods and services to
members at cost.
Organization structure is similar to Corporation. Paid fees and profits are re-distributed to
members.
Cooperatives have two forms namely:
i. Consumers Cooperatives which cutter as retail trade and services.
 ii. Producer Cooperatives which are organized groups for buying and selling items such
as agricultural products and for buying producer’s supplies
7.3.4.1 Advantages of cooperatives
• They are relatively easy to start.
• Management style is democratic, with each member having voting rights.
• Funding is internal; hence responsibility is shared among members.
7.3.4.2 Disadvantages of cooperatives
• Independent of the amount invested, all members have equal voting rights.
• There is a limit to sharing dividend payments.
• There is the risk of rigid business practices.
• Over-reliance on internally generated funds.
7.4 Public Ownership
These are formed due to the need of public welfare and necessity.
They include:
• Public Utility and
• Public Services
Once established they are operated very much like private industrial enterprises e.g., Public
Corporations and non-incorporated public enterprises, operated by a regular department of
government or by a special agency created for that purpose.
7.5 Public Private Partnership (PPP)
Sometimes known as Mixed Unit.
In this type of business, the forms of Ownership lie between the three discussed above
depending on the promoters and operators.