ENTREPRENEURSHIP

Business Organisation

A business organisation is an enterprise set up by entrepreneurs to

produce or trade in goods and services. It usually aims at making profits.
In fact, the common forms of business organisations are the:
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 i. Sole trader
ii. Partnership

BUSINESS
ORGANISATION

AIM IS TO MAKE
PROFITS SKYROCKET

Sole Trader

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A sole trading business is the simplest and most common structure
chosen to start a business. It is also called a one man business. The
business is owned and controlled by one person only who is known as the
entrepreneur. The owner is also known as the sole proprietor.

In fact, in Mauritius, there is the Small and Medium Enterprises (SME

Mauritius) which has been developed to promote and develop
entrepreneurship.

Features of a sole trading business

1. Only one owner

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 In a sole trading business, there is only one person who manages and
controls the firm. There is only one owner.

2. Capital brought by the owner

Since there is only one owner, the capital needed to start the business
is brought by the latter himself. The sources of finance can be personal
savings, loan from a friend or loan from the bank.

3. Risk taker and sole profit maker

The sole trader is the only one who takes all the risks and decisions.
Thus based on his decisions and investment, the latter will make either
profits or losses. The fact that he is the owner implies that all the
profits are for him.

4. Unlimited liability
Unlimited liability is a situation which arises when in case of
bankruptcy; the owner’s personal belongings (house, car, land, and
apartment) may be used to clear off the debts of the enterprise.

Advantages of a sole trading business

1. Easy to set up and simple to operate
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 Starting up a sole trading business is easy. Unlike other business
structures like partnership and company, a sole trading business
requires less paperwork and time.

Moreover, the business is simple to operate given the fact that the
owner does not employ any other workers and need not to manage
them.

2. Little capital is required to set up the business

Compared to other business structures, little capital is required to start
a sole trading business. Where other structures have increased fees and
filings to open for a business, sole proprietorship tends to be
affordable models to start and maintain.

3. All profits belong to the sole trader

Since there is only one owner, all the profits made by the business are
for the only. Unlike a partnership business, the sole trader needs not to
share his profits.

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4. Decisions are taken quickly.

In a sole proprietorship, the sole trader is his own boss. He does not
employ any other workers and does not have any partner. Therefore,
before finalising a decision, the sole trader needs not to consult
anyone’s opinion. In this way, the process of decision making is
quicker.

Disadvantages of a sole trading business

1. Lack of capital to expand the business

The flipside of not having partners in a sole trading business is not

being able to come up with a large amount of capital to start and
sustain the company.

Even if the sole trader manages to gather the capital required for
investment, coming up with a substantial amount of money to get the
business going and to expand it can be very difficult due to lack of
additional capital.

2. The sole trader bears all the risks and responsibilities.

Since the sole trader manages the business on his own, he has to bear
all the risks and responsibilities alone. More precisely, when the
business faces loss, the sole trader alone has to bear all the losses.

Moreover, the sole trader has to shoulder all the responsibilities of the
business himself. For instance, the sole trader has to undertake the
financial, managerial and marketing responsibilities alone since he
\\does not employ anyone.

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3. Lack of continuity; Death of sole trader may result in closure of
business
The existence of a sole proprietorship business is dependent on the life
of the proprietor. In case the owner dies, the business cannot be
continued and is instantly closed.

4. The sole trader suffers from unlimited liability.

One of the major disadvantages of a sole trader is that he suffers from
unlimited liability. In case of bankruptcy, the sole trader has to sell his
personal assets in order to pay back the debts of the business.

Example of a sole trading business

“Hardwork, optimistic and Humble.” Such are the words my neighbour,
Mr Aqeb Eydatoulah used to describe the success behind his sole trading
business.

Commonly known as “Iceman”, Mr Eydatoulah has built his reputation in

the region of Mahebourg and villages around it. He is a seller of “glaçon
râpé (grated ice), and cotton candy.

In fact, when one visits Mahebourg, especially Mahebourg waterfront,

without eating the “Iceman so glaçon râpé”, the visit is considered to be
incomplete.

Having started his sole trading business in his early twenties, Mr

Eydatoulah, presently aged 53 years old still operates as a sole trader. He
emphasises that hardwork is the key to his success.

Everyday he wakes up at 5.00 a.m and with the help of his wife, he cleans
his machine of grated ice and prepares the necessary secret ingredients of
the “glaçon râpé” and cotton candy. At 7.00 a.m, he sets out for his
journey.

Mr Eydatoulah argues that he prefers to remain a sole trader instead of

expanding his business to a partnership or a company due to the
advantages of a sole trading business.

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In the words of Mr Eydatoulah: “By being a sole trader, I keep all the
profits for myself and I can decide at what time I want to start or stop
work.”

Nevertheless, he agrees that the sole trading business has its drawbacks as
well. During winters, the demand for the famous “glaçon râpé” falls and
thus he has to try to sell more cotton candy in order to make profits.

Moreover, he has also faced some dangers which he considers to be

another drawback. Since he goes to work on his motorcycle, twice, some
people at night pretended to stop him to buy “glaçon râpé” but instead
threatened him with a knife and pushed him after having snatched his bag
of money. Yet, Mr Eydatoulah, with his strong willpower to succeed,
remains optimistic and strives to work and earn a living.

Finally, being humble to his customers is another characteristic of sole

traders. He speaks politely to them and has always a smile on his face.

Partnership

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A partnership business is a form of business structure. It is owned and
controlled by more than one person. A partnership consists of 2 or more
people who collectively own and manage a business to make profits. The
owners of a partnership are known as partners. Each partner contributes
capital to the business and share profit or loss.

Features of Partnership

1. Capital contributed by all partners

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 The fact that a partnership comprises of 2 or more partners, each
partner brings an amount of capital as initial investment. Compared
to a sole trading business, in a partnership, the total amount of
capital is more likely to be higher.

2. Joint ownership of the business

Since all partners collectively own and control the business and
bring a particular amount of capital, the partnership is owned
jointly by all partners.

3. Share risks and rewards

The partnership comprises of 2 or more people, so all the risks and
rewards are shared unlike a sole trading business.

How to set up a partnership?

In order to set up a partnership business, partners should sign a contract
called the Deed of Partnership. It is an agreement which outlines the
terms and conditions of a partnership business. If a conflict arises for
example among the partners, then they can refer to the deed of the
partnership to solve the problem.

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Deed of Partnership between 2 partners (India)

Advantages of a partnership
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1. More capital can be raised than a sole trader
Since a partnership comprises of 2 or more partners, each of the
partner brings in an amount of capital. At the end of the day the total
amount of capital sums up to a high amount. Thus, the capital raised in
a partnership is much higher compared to a sole trader.

For instance, a sole trader may collect Rs 60 000 as start up capital.

On the other hand, if there are 5 partners in a partnership business and
each partner brings Rs 60 000 as capital, then the total amount sums
up to Rs 300 000 which is way higher than the start up capital of a
sole trading business.

2. Shared responsibilities among partners

Responsibilities are shared among partners in a partnership. Each
partner may possess a skill and each may be assigned a specific task to
do. For example, one partner may have great accounting knowledge
while another may have great skills in marketing the product of the
business. So, the first partner may specialise in occupying the
expenses and income of the business while the other may decide on
how to advertise the business. In this way, each partner can specialise
in one task. As a result, the workload is reduced and the partners may
not suffer from stress due to work pressure as compared to a sole
trader.

3. Sharing of losses
When the partnership business suffers from losses, they are shared
among all partners.

Disadvantages of partnership
1. Disagreements among partners
There can be conflicts among partners. Partners may not agree for
instance over a particular decision, and this can create conflicts and
fights among partners.

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2. Sharing of profits
When the partnership makes profits, all the profits have to be shared
among partners.

3. Unlimited liability
The partners may face unlimited liability. In case of bankruptcy, the
partners may have to sell their personal belongings in order to pay
back the debts of the business.

4. Lack of continuity
In case one partner dies or retires, the partnership cannot be continued.
It ends instantly.

Example of a partnership business

One example of a partnership business is the relationship between Red
Bull and GoPro. GoPro sells more than portable cameras, while Red Bull
sells more than portable cameras, while Red Bull sells more than energy
drinks. They are both lifestyle brands that have similar goals.

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The advantage from this partnership business is that both GoPro and Red
Bull separately have a brand image and a large amount of customers. So
by being a partnership, the amount of profits they receive is higher.

However, there can always be conflicts about the position of hierarchy in

the business. For example, there can be conflicts between the
shareholders of Red Bull and GoPro and this can create conflicts and
fights.

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