We all know there are many different kinds of business organizations around the world, but what kinds of business organizations are there? How do that differ from each other? What are their main aims?
Every business organization has either limited or unlimited liability. Limited liability is when the financial liability of each shareholder of the firm for the firm's debts and obligations is limited ; in other words, the owner and the company are regarded as two different legal entities. For example, if the company goes bankrupt, the owner will only lose what he or she invested in the company.
Unlimited liability is the exact opposite. Unlimited liability is when there is an indefinite extent of liability to pay a firm's debts or obligations, which might extend beyond the investments by the owner, partner or shareholders. He or she is also held responsible for claims against the business. For example, if a factory produces byproducts that may have damaged people's health, the company can be sued and the owner may have to pay for the damage caused.
Starting private and public limited companies is different. There are different procedures that have to be taken before the companies can engage in trade.
- Memorandum of Association
- Article of Association
- Registrar of Companies
- Certificate of Incorporation
For a public limited comapany to establish, there are two more procedures to be taken:
- Statutory Declaration
- Publish of Prospectus.
The biggest difference between a private limited company and a public limited company is how shares are issued and sold. A private limited company can only sell shares to people they know like workers, families, or familiar acquaintances. On the other hand, a public limited company can sell shares directly on the stock market, so strangers can also become an owner of your company, no matter how little influence they have. Also, public limited companies' first issuing of shares on the stock market is called floating, and additional floats are issued to make more money.
There are many other organizations such as sole trader, partnership, franchises, co-operatives, multinationalsand, trade union and charities.
SOLE TRADER!!
A sole trader is business owned by one person. It may have one or more employees.
The advantages of setting up as a sole trader are:
- Total control of the business
- Cheap and easy to start
- Full profit
- Business affairs are private
The reasons why sole traders are often successful:
- Specialist services
- Sensitive to the needs of customers
- Cater for the needs of local people
Disadvantages of setting up as a sole trader:
- Unlimited liability
- Difficult to rise finances
- Difficult to reach economies of scale
- No continuity
PARTNERSHIPS!!
A partnership has 2 or more owners in the company. In addition, a partnership is normally set up using a "Deed of Partnership", which is a legal document that contains:
- Amount of capital each partner should provide
- How profits and losses should be divided
- How many votes each partnet have
- How the business is brought to an end or how a partner leaves
The advantages of setting up a partnership:
- Spreads the risk
- May bring more capital, resources and skills
- Increase credibility with potential customers and suppliers
FRACHISE!!
A franchise is where a business sells a sole proprietor the right to set up a business using their name. The franchisor is the business whose sells the right to another business to operate a franchis. A franchise is bought by the franchisee. Once they have purchased the franchise they have to pay a proportion of their profits to the franchiser on a regular basis. Depending on the business involved, the franchiser may provide training, management expertise and national marketing campaigns.
The advantages setting up a frachise:
- Support is given by the frachiser
- May benefit from national advertising, format, established name
- Less investments is required
- Able to run with less risk
A co-operative is a business organization owned and operated by a group of individuals for their mutual benefit. There are three main types of co-operatives:
- Retail Co-operatives
- Market Co-operatives
- Worker Co-operatives
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