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Section 1.6 Forms of Business Organizations

The document outlines various forms of business organizations in a free market economy, including sole traders, partnerships, cooperatives, private and public limited companies, and multinational corporations. Each type has its own advantages and disadvantages, such as ease of setup, liability issues, and access to capital. The document also highlights the differences between private and public limited companies, as well as the impact of multinational corporations on host countries.

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7 views20 pages

Section 1.6 Forms of Business Organizations

The document outlines various forms of business organizations in a free market economy, including sole traders, partnerships, cooperatives, private and public limited companies, and multinational corporations. Each type has its own advantages and disadvantages, such as ease of setup, liability issues, and access to capital. The document also highlights the differences between private and public limited companies, as well as the impact of multinational corporations on host countries.

Uploaded by

melek.richards
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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FORMS OF

BUSINESS
ORGANISATIONS
Business Organisations
In the free market economy, there is the private sector where all firms are owned and
operated by private individuals. In this type of economy many forms of business
organizations have evolved. The main types of business organisations in this economy
are:
➔ Sole Trader/Sole proprietorship
➔ Partnership
➔ Co-operatives
➔ Public and Private Limited companies
Franchises
➔ Multinational corporations
This is a business owned and controlled by a single
Sole trader / person.
Sole
A sole trader form of business is the most common
proprietorship and is the easiest to set up.

They are easy to operate as the business might be


involved in jus one or two activities eg. Production
and selling or providing a service

Examples: Fruit vendors, Hairdresser, Barber,


Grocery shops/convenience stores or Landscaping
services.
ADVANTAGES DISADVANTAGE
S
 Easy to set up with little paperwork required  Having unlimited liability that endangers
person possessions
 Less capital is required to start the business  Finance can be difficult to raise

 Speedy decisions can be made, as fewer  Prices are often higher than larger
people are involved organisations

 Caters to the needs of local people, they


come in direct contact with customers  Limited skills within the business with one
owner
 Business affairs can be kept private

 Mistakes are possible if there is no one to


 Special services can be offered to customers
consult with
Profits do not have to be shared
 Illness or holiday may affect the running of
the business.
A partnership is a business that is owned and
Partnershi operated by the partners involved. It is a business
p that is owned by two or more persons (2 to 20).

Setting up a partnership usually involves creating


a legal agreement (partnership deed) between the
partners. It includes:

●Name of the business


●Name of partners and addresses
●Profit/loss sharing ratio
●Capital contribution
●Duties of partner etc.
Partners provide the financial capital needed
Partnership
Partners bear the liabilities for debts incurred by the
business

Partners need to register the business with the


Registrar of Companies

Examples of partnerships can be found among


many professionals such as lawyers, doctors,
dentists, accountants
ADVANTAGES DISADVANTAGE
S
More partners increases the amount of capital Each partner takes responsibility for the actions of
available the other partner, as each partner’s action is
binding on the other partners.

Risks and responsibilities are spread among Disagreement between partners


members

More informed decision making since more Limitations to number of partners


persons are involved (20)

As more people are involved, specialisation Decision making may be slower as more people
and division of labour can occur are involved

If a partner dies, the partnership deed will have


Can operate on a larger scale than sole trader
to re-formed

Business losses are shared among partners


A co-operative is an independent group of persons
Co- who set up an enterprise to meet their economic
operatives needs.

Agricultural cooperatives are set up to sell or


process the produce of its members – the farmers.

A consumer cooperative is set up to supply goods


at a competitive price to members

A credit union is also a cooperative set up to meet


the financial needs (savings and loans) of its
members.
Co- Each member purchases shares in the

operatives cooperative. This is the source of funds for the


business.
If a member wishes to leave the cooperative,
the value of his shares is returned to him.
Examples : C&WJ
Co-operative
Credit Union, First
Heritage Co-
Operative Credit
Union
ADVANTAGES DISADVANTAGE
S
Profits are shared among members Limited access to capital – the capital of the
enterprise is limited to the amount of the
members’ total investment
Members benefit from lower prices

Members work collectively to solve Members may lack managerial and technical
problems skills
Employment is may be created for members

Decision making is slow if members are


consulted
Joint stock companies owned by a number of
individuals who have purchased shares in the
company.
Joint stock
These individuals are called shareholders.
Companies
The shareholders have limited liability and so joint
companies are also called ‘limited companies’.

Limited liability is a legal protection whereby owners


and shareholders have no personal responsibility for
their company's debts and financial losses.

There are two types of joint stock(or limited )


companies:
oPrivate Limited Company
These are companies owned by private shareholders and
Private whose shares are not openly traded on the stock market.
Limited
Company Shares can only be bought and transferred with the permission
of the board of directors.

Characteristics
:
1. Financial support comes from private individuals
2. The shareholders have limited liability
Examples: Southern Medical
3. Two to fifty shareholders
Clinic Ltd., Caribbean Glass
Company Ltd. (Trinidad and 4. The business is considered a legal entity. A customer or a
Tobago) and Meldam creditor can file a lawsuit against the company but not
the owners.
Company Ltd. (Jamaica)
ADVANTAGES DISADVANTAGE
S

Private Limited companies has an unlimited life. Shares cannot be issued to members of the
Years after the founding members have died, the public
company can still be opened.

Greater access to capital than other forms of Shares are not easily transferred without the
business such as a sole trader. consent of directors

The company has limited liability. Shareholders Decision making can be slow
cannot be held liable for the company’s debts as
the business is a legal entity in its own right.

Having a small number of people to


The original owners can stop outsiders from generate capital restricts growth.
buying shares
These are companies whose shares are traded on the
Public stock exchange. Buyers and sellers can trade through an
. intermediary.
Limited
Company They can trade without having to get permission from the
board of directors.
Characteristics:

1.Financial support comes from the general public or


loans from financial institutions.

2.Liability is limited to the amount invested in shares


Examples: Berger Paints,
Jamaica Broilers Group, 3.A minimum of seven (7) shareholders and no maximum
Gracekennedy Limited
4.The business is registered with the registrar of
company.
ADVANTAGES DISADVANTAGE
S

All shareholders have limited The business may get too large and lose touch
liability with their customers

Greater access to capital, since the general Decision making can be very slow
public can invest in the business

Shares are transferable Difficult to manage as operations are


extensive and the firm might employ a large
number of persons
What is the difference
between public limited and
private limited
businesses ?
Private Limited Company Public Limited Company
•Chooses its shareholders •Does not choose its shareholders
•Not listed on any stock market. Has to •Is listed on a stock market for its shares
raise capital through its small group of
stakeholders or governmental grants to be traded

•Does not have to make a public report •Must release an annual earnings report
of its earnings
Large group of stake holders (201-
•Small group of stakeholders (2-50) 100,000)
A multinational corporation (MNC) is a company that
Multinational operates in its home country, as well as in other countries
around the world.
Corporations It maintains a central office located in one country, which
coordinates the management of all its other offices, such
as administrative branches or factories.

Features
MNCs invest heavily in the primary and secondary sector
in the host countries
They have branches or subsidiaries in many foreign
countries.
The subsidiary might not be totally owned by the parent
Examples: The Coca-Cola
company. However, the parent company has the
Company, Nestle, Sony
controlling share in subsidiaries.
ADVANTAGES DISADVANTAGE
• The host countries benefit from the large injections of •
S
MNCs are sometimes accused of interfering in the
foreign currency that the MNC might bring. political life of countries by supporting or not
supporting certain government policies.
• The MNC introduces new and advanced technology.
This increases productivity in the sector it invests. • MNCs might use overseas personnel instead of
recruiting workers locally. This is especially true for
management and skilled worker positions.
• The MNC provides employment.
• The MNC might take profits out of the country back to
• The country earns more tax revenue as the tax base is the main firm in home country. These are repatriated
widened. profits.

• Locals employed in the industries receive high levels • It might be difficult for governments to control MNCs
of training as international standards must be because of their size and power.
maintained.

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