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University of Karachi

Theory and Practice

Part III Functional Management

1 Organization and Types


An organization in its simplest form is a person or group of people intentionally organized to
accomplish an overall, common goal or set of goals. Organizations can range in size from one
person to tens of thousands.

There are several important aspects to consider about the goal of the business organization.
These features are explicit (deliberate and recognized) or implicit (operating unrecognized,
"behind the scenes"). Ideally, these features are carefully considered and established, usually
during the strategic planning process.

1. Vision of an organization

A Vision statement is more specific in terms of both the future state and the time frame. Vision
describes what will be achieved if the organization is successful.

2. Mission of an organization

A Mission statement defines the purpose or broader goal for being in existence or in the
business and can remain the same for decades if crafted well.

3. Values of an organization

All organizations operate according to overall values, or priorities in the nature of how they
carry out their activities. These values are the personality, or culture, of the organization.

Business Entity Concept

The business entity concept, also known as the economic entity principle, states that a business
or an organization and its owners are treated as two separately identifiable parties.

Types of Organization

Organization and be divided into two types, business organization that exists to provide goods
and services at a profit. Making profit may not necessarily be the sole aim of a business
organization, but it is certainly what distinguishes it from non-business organization, which is
public service organization or charity organization.

The most common types of business organization are as follow:

1. Sole Proprietorship

The vast majority of small businesses start out as sole proprietorships. These firms are owned
by one person, usually the individual who has day-to-day responsibility for running the
business. Sole proprietorships own all the assets of the business and the profits generated by
University of Karachi
Theory and Practice
Part III Functional Management

it. They also assume complete responsibility for any of its liabilities or debts. In the eyes of
the law and the public, owner is one in the same with the business.

Advantages of a Sole Proprietorship

Easiest and least expensive form of ownership to organize.
Sole proprietors are in complete control, and within the parameters of the law, may make
decisions as they see fit.
Profits from the business flow-through directly to the owner.
The business is easy to dissolve, if desired.

Disadvantages of a Sole Proprietorship

Sole proprietors have unlimited liability and are legally responsible for all debts against the
May be at a disadvantage in raising funds and are often limited to using funds from personal
savings or consumer loans.

2. Partnerships

In a Partnership, two or more people share ownership of a single business. Like
proprietorships, the law does not distinguish between the business and its owners. The Partners
should have a legal agreement that sets capital contribution ratio, how decisions will be made,
profits will be shared, disputes will be resolved, or what steps will be taken to dissolve the
partnership when needed.

Advantages of a Partnership

Partnerships are relatively easy to establish.
With more than one owner, the ability to raise funds may be increased.
The profits from the business flow directly through to the partners.
Employees may be attracted to the business if given the incentive to become a partner.
The business usually will benefit from partners who have complementary skills.

Disadvantages of a Partnership

Partners are jointly and individually liable for the actions of the other partners.
Profits must be shared with others.
Since decisions are shared, disagreements can occur.
The partnership may have a limited life; it may end upon the withdrawal or death of a

3. Corporations

Firm that meets certain legal requirements to be recognized as having a legal existence, as an
entity separate and distinct from its owners. Stockholders or shareholders are the real owner of
the corporation, who share in profits and losses generated through the firm's operations.

University of Karachi
Theory and Practice
Part III Functional Management

Advantages of a Corporation

Shareholders have limited liability for the corporations debts.
Shareholders can only be held accountable for their investment in stock of the company.
Corporations can raise additional funds through the sale of stock.

Disadvantages of a Corporation

The process of incorporation requires more time and money than other forms of
Corporations are monitored by federal, state and some local agencies, and as a result may
have more paperwork to comply with regulations.