When starting a business, you must make a decision on the form of ownership you intend to have. In doing so, it is important to consider the following factors:
In this topic, you are going to get introduced to the different forms of business organizations.
LEARNING OBJECTIVES
By the end of this topic, you should be able to:
Businesses are organized in recognizable units called business organizations. These units are grouped on the basis of ownership structures or the status of legal control. Business organizations vary in size, some are small and others are very large. Every unit is unique in terms of ownership, formation and management.
Some of the main characteristics of formal organizations include:
Business units can be found in all sectors of the economy. They can be owned by one or more people and have different characteristics. These units can provide either a good or a service. These enterprises are involved in production, distribution, as well as the selling of goods and services, for purposes of making profits or for social well being.
Business organizations are broadly categorized as either public or private. This categorization is based on the ownership of the business. Business units under the private sector include: sole proprietorship, partnership, cooperative societies, and incorporated companies. Business units under the public sector include: State corporations, state companies, and businesses under the county or state.
A business organization can refer to;
COMPANY
A company which is abbreviated as co. refers to a legal entity that represents an association of people. This association can be natural, legal, or both, with a specific goal. Members of a company share the same goal. Companies can take different forms like:
Companies can associate and register collectively as new companies, and form entities known as corporate groups.
Companies are different around the world. For example, in China companies are mainly run by government or government supported. In the United States a company is not always a corporation
TRADE ASSOCIATION
A trade association is also called a business association, industry body, sector association, or industry trade group. This is an organization that is founded and financed by businesses operating in a certain industry. An industry trade association is involved in public relations activities like education, advertising, publishing, and political donations. However, its main purpose is collaboration between companies.
EMPLOYER’S ORGANIZATIONS
An employer’s organization also known as employer’s association is an organization collectively made of manufacturers, retailers, and employers. The goal of employer’s organizations is to coordinate the behavior of member companies. They also represent their companies during negotiations with public bodies or trade unions. Employer’s organizations work like trade unions. They promote the social and economic interests of its members.
Other forms of business organizations include:
Sole proprietorship. This is a business organization that is owned by one person. The owner mostly operates the business alone but may hire employees. All business assets belong to the sole proprietor. The owner has rights to all profits but bears all the liability for debts. The owner has unlimited liability. This is the simplest form of business ownership as it is owned by one person who may be assisted by family or staff. Specific examples of sole proprietors include, simple shop keepers and traders offering direct services.
Partnership. A partnership is a business organization owned by two or more people. These persons act as co-owners of the business with the purpose of making profit. All partners contribute to the business in form of money, property, and skills (labor force). All partners share profits and losses of the business in relation to their contribution. There are two major types of partnerships in business; General partnership, and limited partnership. In general partnership, all partners have unlimited liability. This means, in case a partnership is not able to clear all its debts, personal properties of partners will have to be sold to clear the debt. In limited partnership, partners have limited liabilities. This means their personal properties cannot be sold to pay business debts. In this partnership, one partner must have unlimited liabilities.
Corporation. This is an organization, mainly a company or group of people permitted by the state to operate as a single entity. It is a separate legal entity from its owners who have limited liability. Some corporations are aimed at making profits while others are nonprofit organizations. A corporation aimed at making profit is owned by shareholders. Shareholders elect a board of directors for management of the corporation. Corporations that are allowed to issue stock are called stock corporations. An example of public corporation in the world today is the McDonald’s corporation.
Cooperative. This is a limited liability business organization which can be for profit or not for profit. The difference between a cooperative and a corporation is that a cooperative has members instead of shareholders. These members also share decision making authority. The main types of cooperatives are consumer cooperatives and worker cooperatives. Cooperatives are mainly focused on the ideology of economic democracy.
Government parastatal. Parastatal is a legal entity created by a government to undertake commercial activities on behalf of an owner government. Their legal status varies from being a part of the government to stock companies with a state as a regular stockholder. Parastatals are fully owned and managed by the government. It is formed by an act of Parliament.
Note that, state corporations and state companies are owned and operated by the state. Their main purpose is to provide vital services to the people unlike other business units that aim at making profit. They provide services such as construction of roads, schools, hospitals and dams.
SUMMARY
We’ve learnt that:
