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BUSINESS AND ITS ENVIRONMENT

Business Organisations
Industry may also be classified in other ways, for example, by private or public sector and by type of legal
organization. Each organization within the public or private sector carries a particular legal structure that
determines the following:
● How profits or losses are shared
● The firm’s tax obligation
● Ease of formation
● Funding
● Who bears the legal liabilities
● Continuity of existence

PRIVATE SECTOR ORGANISATIONS PUBLIC SECTOR ORGANISATIONS

● sole-trader; ● Public corporations
● Statutory boards.
● partnership; ● Not for Profit Organisations:
o (i) charities;
● private limited company* o (ii) non-governmental organisations
● Nationalised industries
● public limited company* ● Privatization

● co-operative enterprise

● franchise;

● joint venture (legal element governing

formation, financing and management).

*NOTE THAT THERE ARE TWO TYPES OF LIMITED COMPANIES

Finance and Management

A company’s main source of funding is from the shares that it issues (equity capital) but it may also be
funded by loans (debt capital). The shares are issued to shareholders who become owners of the company.
The number of shares will determine the level of control of each shareholder. The shareholders may not
necessarily be managers of the company but at an Annual General Meeting (AGM) may vote for directors
to carry out that role. These directors sit on a board which is headed by a chairperson. The board of
directors is accountable to the shareholders and may be dismissed or voted out if its performance is below
par. The company also has a secretary, who is entrusted with the responsibility of maintaining a register
of shareholders, notifying them of AGMs and preparing the company’s annual reports.

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THE PRIVATE SECTOR

This sector consists of businesses that are owned by individuals or groups of individuals with the main
aim of making profits. The following are the different types of private sector organisations.

(1) Sole trader/proprietor (please see previous notes)

(2) Partnership (please see previous notes)

(3) Limited companies

By law, this business is regarded as an artificial person, distinct and separate from its members
(owners). Before a company is incorporated or starts trading there are certain legal requirements
that must be met, according to the Companies Act.; two main documents must be drawn up:
(i) Memorandum of Association
(ii) Articles of Association
In Jamaica (under the Companies Act of 2004) these two documents are combined into what is
known as the Articles of Incorporation.

It may also be necessary to draw up an Application for name search and reservation - this
document is submitted to the registry of companies so that the relevant authorities can verify that
the submitted business name does not already exist.

The memorandum of association outlines the following:

❖ The name of the company, including the abbreviation ‘Ltd’ or ‘plc’
❖ The address of the registered office of the company
❖ The objects of the company and the scope of its operations
❖ Details of the company’s capital, i.e. both authorized and issued shares.
(The list is not exhaustive as depending on the company, other clauses may be included).
The articles of association outlines the running of the company and includes the following:
❖ The number of directors, the procedures for their appointment and their power
❖ The rights of the shareholders
❖ Procedures for meetings
❖ Tenure of the directors before re-election
❖ The process of transferring shares
When both the memorandum of association and the articles of association are submitted to the Companies
Office, the company will be issued with a certificate of incorporation which now gives the company the
right to start trading.

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Other documents included are: Notice of Directors – outlines the directors of the company
Statement of Authorised, Registered or Nominal Capital – This forms part of the Memorandum of
Association and outlines the maximum amount of shares that the company is authorized to raise.

(i) Private Limited Company

This is an incorporated business venture which is separate and distinct from its owners. This
company has the abbreviation ‘Ltd” at the end of the business name.

Main Features Advantages Disadvantages Examples

(i) Usually small and ● Each shareholder ● Raising capital (i) Digicel Group
owned by family has limited liability may be hampered Limited
members ● Continuity of since shares (ii) Sugar Company
(ii) The name of the existence cannot be traded of Jamaica Ltd.
company must be ● There is greater publicly (iii)Advantage
registered capital potential as ● Profits have to be General
(iii) Shares cannot be shares can be sold shared among a Insurance Co.
traded on the stock to family members larger group of Ltd.
market ● Lower possibility of people (iv) Columbus
(iv) Shareholders cannot loss to outsiders ● A copy of the Communication
sell their shares ● The company has a audited financial Ltd.
without the agreement legal identity statement must be
of the other separate from that submitted to the
shareholders of its owner Companies Office
(v) Limited liability ● Transfer of shares
(vi) Involve two to fifty us limited by the
people approval of
existing members
● Legal
requirements may
be time consuming
and costly to
implement.

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(ii) Public Limited Company

This type of limited company is usually larger than a private limited company. The
abbreviation ‘plc’ is usually found at the end of its name. This company may advertise its
shares to prospective investors in a document called a prospectus. Some public companies
also own other companies. This can be in the form of holding companies, conglomerates and
associate companies.

Main Features Advantages Disadvantages Examples

(i) Must be registered with the ● Each shareholder ● Many legal (i) Cable and
Companies Office has limited liability requirements Wireless
(ii) Separate legal identity ● Continuity of which may be (ii) Grace Kennedy
from that of its owners existence costly and time & Company
(iii) Can raise capital through ● Easier to raise consuming to Limited
the sale of shares to the capital on a large implement (iii) Trinidad Cement
public scale ● There is risk of Ltd.
(iv) Managed by a board of ● Freedom to transfer takeover bids, as
directors elected by shares via the stock shares can easily
shareholders exchange be purchased on
(v) Limited liability for its ● Better credit ratings, the stock exchange
owners therefore it is easier ● Must disclose their
to secure loans accounts at the end
● Benefits from of the financial
economies of scale period
due to size and ● Published accounts
lower production can be viewed by
costs. the public
● Can become large,
impersonal and
difficult to manage
(this may also
cause it to
experience
diseconomies of
scale).

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