FORMS OF

ORGANIZATIONS
Prepared by the Professional Practice Cluster
Different forms of Business Organizations
 Choosing the organization structure right for you

Different factors to consider:

• Goals
• Personality
• Financial aspects
• Age
• Firm size
• Practice mix
• Geographic location

A business can be organized in one of several ways, and the form its
owners choose will affect the company's and owners' legal liability and
income tax treatment.
Three basic legal forms:

1. Proprietorship
owned by one person who has complete undiluted control over its
decisions and destiny and personally has a legal and financial responsibility
for all of the firm’s actions

2. Partnership
partners share both the ownership of the firm and liability for its acts. Each
partner is liable for the business actions and obligations of all of the
partners.

3. Corporation
the principals who form the corporation become its employees as such are
eligible for employee benefit programs, which are usually the greatest
advantage to be derived from incorporation.
 Comparison of Forms of Organizations

Criteria 1 Proprietorship Partnership Corp.

Ownership Owner is the individual General partnership Ownership is reflected by

who starts the owners and limited
business partnership owners
Liability Individual is liable for Liable for all aspects of
business liabilities. the business.
Amount of personal
liability is shared equally.
ownership of shares of
stock.
Owners liable only for
the amount of their
investment.

Costs of starting a Filing for a business or Partnership agreement, Created by statute,

business trade name. legal costs, trade name articles of incorporation,
filing fees. filing fees, taxes, fees for
states in which
corporation registers to
do business.
 Criteria 2 Proprietorship Partnership Corp.

Continuity of Death of owner Death or withdrawal of Death or withdrawal has

business results in the one of the partners no impact on
termination of the results in partnership continuation of business.
business. termination, unless
stipulated otherwise.
Transferability of Entrepreneur has the Cannot sell their Shareholders may
interests right to sell or transfer interest without first transfer their shares at
any assets in the refusal from the any time without
business. remaining general consent from the other
partners. shareholders.
Disadvantage: It can
affect the ownership
control
Capital From loans or by Loans can be obtained Stock may be sold as
requirements additional personal from banks but may either voting or
contributions by the require change in nonvoting.
entrepreneur. partnership agreement.
 Criteria 3 Proprietorship Partnership Corp.

Usual Firm Size Generally small Small to large Medium to

large
Personal involvement of Maximum Varies Varies
principal
Extent of personal liability Maximum Shared Minimum
(business)
Extent of personal liability Maximum Maximum but Slightly
(professional) subject to reduced
contribution
Potential personal tax Minimum Minimum Maximum
advantage for principals
Potential benefits for Usually minimum Varies Maximum
employees
Other organizational structures

• Associated professional firms

• Mergers and acquisitions
• Team endeavors
• Limited liability company/partnership (LLC/LLP).
A corporate structure whereby the members of the company cannot be held
personally liable for the company's debts or liabilities. Limited liability companies
are essentially hybrid entities that combine the characteristics of a corporation
and a partnership or sole proprietorship.
Checkpoint!

1. For an architectural firm employing 200 architects in 2 countries

which form of organization is best and why?

2. If you are a young architect looking to start your own firm but don’t have
enough capital on your own which form of organization is best and why?

3. Which form of organization is the easiest to set-up and why?

Departmental/Functional Internal Organization

Separates the various functions which must be performed in the development of a

project. An advantage of this structure is employees are grouped by skill set and
function, allowing them to focus their collective energies on executing their roles as a
department. One of the challenges this structure presents is a lack of inter-
departmental communication.
Divisional (Market Based) Internal Organization

Under this structure, each division essentially operates as its own company, controlling
its own resources and how much money it spends on certain projects or aspects of the
division. A downside to this type of organizational structure is that by focusing on
divisions, employees working in the same function in different divisions may be unable
to communicate well between divisions.
Divisional (Geographical) Internal Organization

Under this structure, each division essentially operates as its own company, controlling
its own resources and how much money it spends on certain projects or aspects of the
division. A downside to this type of organizational structure is that by focusing on
divisions, employees working in the same function in different divisions may be unable
to communicate well between divisions.
Matrix Internal Organization

A hybrid organizational structure, the matrix structure is a blend of the functional

organizational structure and the projectized organizational structure. Advantages of
this structure is that employees can share their knowledge across the different
functional divisions, allowing for better communication and understanding of each
function’s role. On the other hand, reporting to multiple managers may add confusion
and conflict between managers over what should be reported.
Flat Organization

Blending a functional structure and a flat structure results in a flatarchy organizational

structure, which allows for more decision making among the levels of an organization
and, overall, flattens out the vertical appearance of a hierarchy.

A benefit of this system is it allows for more innovation company-wide, as well as

eliminating red tape that could stall innovation in a functional structure. As for the
negatives, the structure could be confusing and inconvenient if everyone involved
doesn’t agree on how the structure should be organized.
 Building a Successful Organizational Culture

A management team must be able to accomplish three functions:

• Execute the business plan.

• Identify fundamental changes in the business as they occur.
• Make adjustments to the plan based on changes in the environment
and market that will maintain profitability.

A business plan is a written document that describes in detail how a

business, usually a new one, is going to achieve its goals. A business plan
lays out a written plan from a marketing, financial and operational
viewpoint. Sometimes, a business plan is prepared for an established
business that is moving in a new direction.
 Building a Successful Organizational Culture

Factors to establish an effective team, and in turn a successful organization

culture:

• Desired culture must match business strategy outlined in the business

plan.
• The workplace must encourage communication from the bottom up.
• Entrepreneur should be flexible enough to try different things.
• Entrepreneur needs to spend extra time in the hiring process.
• Core values and appropriate tools must be provided for employees to
effectively complete their jobs.
 Designing the Organization

Formal and explicit indication to the members of the organization as to

what is expected of them:

• Organization structure
• Planning, measurement, and evaluation schemes
• Rewards
• Selection criteria
• Training
 QUIZ NO. 1
1. For 5 points draw a functional internal organization as it applies to
architectural firms.

2. For 5 points draw a market based divisional internal organization as it

applies to architectural firms .
CASE STUDY NO. 1
Organizational Change: Case Study of General Motors