Business organizations

Introduction:
Man lives in a business society where he either owns a company or buys from a company. A
business entity is one which is involved in the production or distribution of goods and services
for profit motive and for the wellbeing of the citizens. Businesses could be classified based on
ownership, objective or size.
Private sector businesses
These are businesses which are owned and controlled by the private individuals. Their main
objective is to maximize profits. Examples include sole proprietorships, partnerships, joint
stock companies etc. co-operative societies are the only private companies which are not out to
make profits. Private sector businesses can be grouped as incorporated or un incorporated
businesses.
Differences between incorporated and unincorporated businesses.
-Unincorporated businesses are not registered while incorporated are duly registered by law.
-unincorporated businesses have unlimited liabilities whereas incorporated businesses have
limited liabilities.
-unincorporated businesses do not have separate legal entity but the incorporated businesses
do.
A) sole trader or sole proprietorship
It is an unincorporated business owned by one person. He may not employ others. He makes
decisions alone, bears the risks alone and enjoys all the profit alone. It is the oldest and the
most popular form of business in Cameroon. Owners of such businesses have unlimited
liabilities. It is also called a one- man business. The person who runs this business is called a sole
proprietor while the business is sole proprietorship.
Advantages of sole proprietorship
1)Profits; He enjoys all the profits alone since he is the lone risk bearer.
2)Quick decision making; the process of decision making here does not take time. This is
because he does not need to consult any other member.
3)management; sole proprietorships are easy to manage because of their sizes and the trader’s
mastery of his job.
4)persona contact; there exists a good relationship between the trader and their customers.
This is because he attends to them personally.
5)capital required; here very little capital is needed to start up. This is because they are
generally small- scale businesses.
6) Easy formation; the number of documents needed to kick off are few compared to other
forms of businesses. As such it does not also take time for every thing to b e fully set in place.
Disadvantages of one-man businesses
1)Risk bearing; he bears the risk alone since he enjoys his profits alone. That means he suffers
fully in the events of business failures.
2)inaccurate decisions; since the decisions are made by one person, there is the tendency that
they maybe wrong or mag not be the most appropriate for the situation at hand. If this occurs it
negatively affects the enterprise and its performance.
3)limited size; sole trade finds it difficult to go above a certain size because expansion is
difficult. This is a s result of limited capital or the inabilities of traders to operate on a larger
scale.
4)Absence of economies of scale; traders will hardly enjoy the benefits of large-scale
production because they operate on small scale.
5)Unlimited liability; this means that in the case of bankruptcy, both the business and private
properties will be lost for the repayment of his loans.
6)Prospects of continuity. There are no prospects of continuity. This is because in the absence
or the death of the trader, there will be possibility of continuity.

B) partnership

This is an unincorporated business owned by 2- 20 people with the aim of sharing profits and
risk. The owners are known as partners.

Characteristics of partnership

1)Liabilities; here, ordinary partners have unlimited liabilities while limited partners have
limited liabilities.

2)ownership; partnerships are owned and controlled by the 2-20 people who contribute capital
to carry out the business.

3) Objective; just like all other businesses, the objective of partnership is to maximize profits.

4) separate legal entity; this business is not a separate legal entity. This implies that the owners
are not separated from the management. This is seen most especially in the case of ordinary
shareholders. Therefore, the business cannot sue or be sued. Cannot owe or be owed.
Advantages of partnership

1)Risk bearing; the risk in partnership is distributed among the partners, this means that each
partner will suffer a limited risk.

2)Accurate decisions; the decisions taken in this form of business are seen to be more accurate
as compared to the case of sole proprietorship. This is because many people come together to
contribute the ideas before the final decision is adopted.

3)size; The size of the business in this case is bigger than in the sole proprietorship. thus, is
because the capital here is contributed by many persons who intend to benefit from the profits
thereof.

4)Economies of scale; partnership businesses enjoy economies of scale because of their size.
They enjoy financial economies of scale which permits them to easily get loans and insurance
from renown institutions.

5)liabilities; some partners like the limited partners enjoy limited liabilities. This means that in
the case of bankruptcy or inability of the business to pay its debts, the limited partners will only
lose what they contributed in to the business in the form of share capital.

6)prospects of continuity; the partnership will always continue to exist except the shareholders
decide otherwise. This is because the withdrawal, poor health or even the death of one
member, everything being equal, will not affect the existence of the venture, considering that
there are still other members to continue with the management.

Disadvantages of partnership

1)profits; Here the profits are shared amongst all the partners according to the partnership
deed or the partnership act of 1890. This is disadvantageous because no partner has the
opportunity of enjoying the profits alone.

2)Unlimited liability; Ordinary partners do not have limited liability. In the case of business
failures, they will not only lose their share contribution but will also lose their personal
belongings.

3)Slow decision making; The procedure involved in making a decision is lengthy. It takes more
time for conclusion to be made because every partner’s opinion counts. Thus, making the
process to be slow.

4)Conflict of interest; The ordinary partners may start putting their personal interest first. This
may lead to disagreements and if it persists, the outcome could be the closure of the business.
5)Key members; if the highest or most important partners die or resigns, it will have a negative
impact on the productivity of the business and may even lead to it down fall.
Types of partnership businesses
Generally, there are two main types of partnership businesses.
i)Ordinary or general partnership; it is a partnership business in which all the partners have
unlimited liabilities. that means their private belongings can be seized to pay the companies
debts.
ii)Limited partnership; in this type of partnership, some of the partners have limited liability as
such they can’t lose the private properties for the repayments of the debts. However, in a
limited partnership, there must be limited and unlimited partners who will run the business as
required.
Types of partners
1)Active or ordinary partners: these are those partners who participate in the day to day
running of the business. they have unlimited liabilities. they receive salaries as stated in the
deed of partnership.

2)dormant or sleeping partners; These are those who contribute capital to the business but do
not take part in the day to day running of the business.
3)Nominal partners; These are those who allow their names to be used in the partnership
business. They equally contribute capital.
4)Quasi partners; These are partners who have retired from active participation in the business
but leave behind their capital as loans to the business and the they receive interest on
it.
Partnership deed
These are rules and regulations that govern the partners in the course of the business. it can be
written or verbal. The following are some elements found in the partnership deed.
-Name of the business
-Names of the various partners
-The capital contributed by each partner
-Provisions and allocation of the salary to active and dormant partners.
-the methods of sharing profits
-the duration of the business
-the conditions for closure.
-the conditions for the admission of new partners
NB; in the absence of a partnership deed, the partnership act of 1890 can be used to guide the
partners in the course of the activities. The partnership act of 1890 states that;
-profits and losses are shared equally
-interest is not paid on capital
-drawings are not allowed
-no salary payments should be made to partners for extra work done.
Partnership dissolution
This is the official closing down of the partnership business. when this is done,
-the partners will pay the business debts
-Capital contributed will then be redistributed to each partner.
-If there are surpluses, it will be shared among the partners based on the ratio of profit sharing.
Reasons for partnership dissolution
The following reasons may cause a partnership business to dissolve.
-if the objectives or the purpose of the business have been attained.
-if the business becomes unlawful or illegal
-In the case of bankruptcy or
- the death of key partners
Profit sharing in a partnership
In a partnership business profits can be divided based on
-Equity
-According to capital contributed
-Based on the ratios stated in the partnership deed
Interest can be paid and salaries given to active members.
Exercise;
1)Mr. Asong, Mr. Mbom and Mrs. Atud have a business worth 15million. If at the end of the
trading period the company realized 500,780,000frs.
i)how much will Mr. Asong receive as a permanent partner provided the profit are shared
equally?
Solution
Total profits=500,780,000f
Number of partners=3
Method of sharing= Equity
Therefore, the amount to be received b Mr. Asong is 500,780,000/3= 166,928,666.7f
2) Peter and Paul contributed 4,000,000fand 3,500,000f respectively. If the profits for the year
stood at 15,750,000f. what will Paul receive if the partnership deed states that profit should be
shared proportionately?
Solution
Total profits= 15,750,000f
Contributions= 4,000,000 and 3,500,000
Ratios= 4;3.5
Sum of ratios=7.5
Peter’s share= 4/7,5*15,750,000= 8,400,000f
Paul’s share= 3.5/7,7* 15,750,000=7,350,000f
Alternatively,
Sum of capital contributed=7,500,000f
Total profits= 15,750,000f
Paul’s share= Paul’s contribution * profit
Sum of capital contributed
3,500,000/7,500,000*15750,000=7,350,000f
3)A partnership business was formed between Tom and Jerry where they both agreed that
profits will be shared in the ratio of 2;3. They contributed a capital of 10,000,000 and
20,000,000f respectively. What will each receive if the profit for the year stood at
150,000,000f?
Solution
Sum of ratios =5
Total profits = 150,000,000f
Tom’s share= 2/5*150,000,000=60,000,000f
Jerry’s share= 3/5*150,000,000=90,000,000f
Joint stock companies
A joint stock company is an association of persons form for the purpose of making profits. The
shareholders contribute money for commencement and in turn share the profits gotten known
as dividends. Private limited companies such as Amour Mezam ltd and public limited companies
like Guinness Cameroun plc are examples of joint stock companies in Cameroon. All joint stock
companies are privately owned companies and their main objective is to maximize profits.
Characteristics of joint stock companies
1)limited liabilities; shareholders enjoy limited liability. In times of bankruptcy, only the
business properties and not their personal properties will be lost to settle the business debts.
2)registration; joint stock companies have to be registered with the registrar of companies
before operations can start. These means that those forming the company (company
promoters) are expected to submit documents to the registrar. Some of the documents include
the article of association, memorandum of association etc.
3)Legal entity; they are separate legal entities. That is, the business is different from its owners.
This explains why the business can owe and be owed. Sue and be sued in its own name.
4)Prospects of continuity; the existence of these companies does not depend on the life of its
shareholders. When a shareholder dies, his successor takes over. A shareholder can also sell its
shares if he’s not more interested in the company.
5)directors are elected by shareholders (management); shareholders meet in their annual
general meeting to elect B.O.D. it is in this meeting that they can vote or maintain the existing
managers of the company.
6)ownership; it is owned by shareholders who contribute their capital to take the venture from
which they receive dividends.
7)Objectives; their main aim of existence is to maximize profits.
Company formation
Joint stock companies are incorporated businesses. Company promoters are therefore
expected to uphold their businesses. For this reason, the following documents have to be
presented;
Memorandum of association
This is a legal document which governs the external affairs of the business and provide basic
information about the company to members of the general public. It contains the following;
-the name of the company; the name should be unique. That is, different from others. It should
also end with ‘ltd’ or ‘plc’ for private and public limited companies respectively.
-the objective of the company; this is the reason behind the existence of the business. it should
be clear and should cover all the lines of the business.
-The name of the promoters; the names of the founders are to be included in this article.
-the authorized capital; the capital should be much enough to sustain the activities of the
business. the required capital depends whether the business is a public or private limited
company.
-It should also contain the undertaking signed by the promoters of the company.
It should be recalled that the illegal actions of the business outside its memorandum of
association is known as ultra vires.
Article of association
This is a legal document which contains the internal rules and regulations of the business. it is
regarded as a code of conduct to the business. The content may vary from one company to
another. It contains the following points.
-The procedures and the voting rights of the members
The seal of the company
-methods of sharing profits
-How to deal with shares; If the registrar of companies is satisfied with the provided
information, he will then issue the certificate of incorporation.
Certificate of incorporation
This is a document which shows that the business has presented the required documents. After
the registrar gives a certificate of incorporation, the private limited company can start business
but not the public limited company. It consists of;
-the signature of the registrar of companies
-the registration dates
-the registration numbers
-the name of the company
After receiving this document, the public limited company needs the certificate of trading
before it can go operational.
Certificate of trading
This is a document issued to the public limited company showing that they have enough capital
to start up. It permits them to subscribe their shares to the general public.
Prospectus
This is a document issued by the public limited company to the general public inviting them to
subscribe or buy shares. It contains the following;
-Name of the company
-Number of shares available for subscription.
-the price or value of each share
-An over view of the company’s financial position.
Differences between private limited companies and public limited companies
Even though both are joint stock companies, they still differ in the following ways;
Documents required; with the certificate of incorporation, private limited companies can start
business but the public limited companies only start after receiving the certificate of trading.
-Number of directors; The private limited company can start or operate with one director but
the public limited company must have at least two directors.
Subscription of shares; the private limited companies cannot subscribe their shares to the
general public but the reverse is true with public companies. This is because the public
companies have a certificate of trading.
-publishing of annual results; by law, the private limited companies are not obliged to publish
their final results. But they are to present it before the registrar to assure him that the
enterprise is in good state. However, this is not the case with the public companies as they are
obliged to publish their annual results.
-Transfer of shares; With the private limited companies, shares cannot be freely transferred
without the consent of other shareholders. But in the public companies, shares can be
transferred freely without the consent of other shareholders. In PLCs, shares can be transferred
through the stock exchange market.
Advantages of joint stock companies
1)limited liabilities; Here, shareholders enjoy limited liability as in the case of business failures
they only lose what was contributed in to the business as shares.
2)Large capital; joint stock companies have a larger capital because of their number. Their
capital is gotten from shareholders contributions amongst others.
3)better decisions; there are qualitative decisions being made here since they are taken mostly
at the general assembly. In this way, many opinions are raised and only the best are taken.
4)continuity; there are very high prospects of continuity because the absence of one member
can’t greatly affect the business. More to that, there is separate legal entity. Implying that even
if a shareholder is not the managers of the business are to continue. Not also forgetting the fact
that shareholders have successors who can take over in their absence.
5)Large scale production; Joint stock companies are able to produce on a large scale because of
the capital available to them as such they enjoy from large scale production. This is mostly in
the form lower cost of production.
6)Separate legal entity; The good thing with joint ventures is that those with capital can still
participate without the required business skills. This is because the business is managed by
managers.
Disadvantages of joint stock companies
1)Taxation; the government imposes very high taxes on these companies
2)Transfer of shares; In private limited companies, there is no free transfer of shares.
3)decision making; The process of decision making is very slow here because a lot of time is
waisted obtaining each person’s opinion.
4)Formation; A lot of procedures are involved in setting up the companies. This is even more
complicated with the PLCs.
5)Risk takeover; The business risks being taken over by competitors due to the transfer of
shares.
6)lack of personal interest; since most directors are not owners, they may undertake risky
projects that can lead to the collapse of the entity.
Capital for joint stock companies
The main source of capital for joint stock companies is share contributions. However, other
sources include debentures, bank loans, overdrafts etc.
A)debentures; these are bonds or long -term securities which show that the company has
loaned money from the general public. The creditors of such loans are called the debenture
holders. They have the following characteristics;
-The debenture holders are creditors and not the owners of the business
-the receive interest and not dividends
-they have a fixed rate of interest.
They are the first to be paid. Their interest does not consider whether the company is making
profits or not. In case the company is unable to pay the debenture holders, court action can be
taken.
Types of debentures
a) Naked or unsecured debentures; these are debentures which are not backed by any
collateral securities. It is the riskiest form of debentures and if the company fails to pay the
loan, only court action can be taken.
b) mortgage or secured debentures; These are debentures which are backed by collateral
security. Therefore, if the company fails to pay the asset can be seized. It is the safest form of
debenture.
c)Convertible debenture; These are debentures in which there is possibility of transferring the
debenture holders to shareholders.
B) shares; A share is an amount of money paid to an individual to become a shareholder in a
company.
Types of shares
i)Ordinary shares; these are shares of companies that carry voting rights, ownership rights etc.
and earn dividends in years of practice. They have the following features;
-they have the rights to proxy. That is, the vote and be voted for.
-they don’t have a fix rate of dividends.
- they receive dividends only in years of profits and this makes it risky.
-they are the last to receive dividends. This also makes it risky because if there is no profit after
paying the debenture holders, ordinary shareholders will not receive any dividends.
-Ordinary shares are the owners of the company.
Types of ordinary shares
Ordinary shareholders can be simple, preferred, promoters or founders.
i)preferred ordinary shareholders; these are share holders which have fixed rates of dividends,
they receive dividends before ordinary shareholders but after debenture holders. They are
considered creditors of the company since they don’t have ownership rights.
Types of preference shares
they are;
- simple preference shares
- cumulative preference shares and
-participative preference shares.
Issuing shares
This refers to the offering of shares to members, the existing shareholders or to the general
public for sale. Prospective shareholders need to apply for shares. This act of applying for
shares is called subscription. It could be in excess (over subscription) or in shortage (under
subscription).
Methods of issuing shares
a)To existing shareholders or to private issue. This method is used by PLCs and LTDs.
i)Right issue; this is the selling of shares to existing shareholders based on current number of
shares they have. Here, the shares are issued at a cheaper price than the current market price.
ii)Bonus issue; this is when shares are offered free of charge to existing shareholders and the
cost of the share is taken care of by the company reserves.
b)Issue of shares to the general public; this method is only used by the public limited
companies. This is because they have a certificate of trading which permits them to freely
transfer their shares.
i)direct issue or public invitation or issue by prospectus; this is when shares are issued to the
public without the use of intermediaries. Here the company prepares a prospectus and sends to
investors for subscription. A prospectus is a legal document which is used to invite members of
the general public for the subscription of shares. It contains the name of the company, the
number of shares available for subscription and the price of each share.
ii)Offer for sale; this is when a company offers shares to members of the general public through
intermediaries who buy the entire shares and sell to the public at higher prices so as to make
profits.
c) Issue by placement; This is when the company offers to sell its shares to the public through
intermediaries who sell on behalf of the company for a commission.it can be a private
placement. That is out of the stock exchange market or public placement. That is through the
stock exchange market.
d)Issue by tender; this is when a company offers shares to the public for investors to propose
their prices and the number of shares they intend to buy. The company will then sell at a
striking price. That is, the highest price.
Cooperative societies
This is a business organization which is owned and controlled by the members for the mutual
benefits. It is a non - profit making organization aimed at satisfying her members. Cooperative
societies are commonly known as co-operative movements.
Types of co-operatives
i)producer’s co-operatives; this is an organization through which many producers come
together in order to facilitate the production of their good. Small producers put their resources
together in order to produce on a large scale and enjoy economies of scale. Here, there is the
joint purchase and usage of expensive equipment. It is also called the worker’s co-operatives.
The workers contribute the capital by themselves, elect managers among themselves to run the
business and the power is shared. That is, ‘one man one vote’ bases. The profit realized is
shared according to the agreed formula.
ii)consumers co-operative; it is an organization in which consumers come together to facilitate
the purchase of consumer goods. Consumer co-operatives buy goods at lower prices and retail
them cheaply to members. This is because their interest is not to make profits but to provide
goods cheaply to the members. Hence, boasting their living conditions. Any profit realized is
shared to members according to their purchase from the co-operative store. It is very common
in urban centers where the working class is interested in improving their material wellbeing.
iii)Market cooperatives; this is a co-operative formed by farmers to market their products. It
serves as a market channel for small farmers who are members. Such a co-operative carries out
the collection, sorting, grading, packaging and distribution of farmers’ products.
Characteristics of co-operative movements/societies
1)ownership; It is owned by the shareholders. Any purchase of shares gives rise to
membership.
2)aim; the main aim of co-operative societies is not to make profits but to serve the members.
Today co-operative societies are very active in the commercial sector. They are creating saving
institutions such as credit unions. These are micro finance institutions which collect small
savings from members. It equally grants loans at very low interest rates to members.
3)control and management; this is the responsibilities of members who democratically elect
and manage the board. Election is done on ‘one man one vote’ basis. Voting is done during the
general assembly of shareholders.
4) source of capital; A co-operative society is financed by its members who contribute capital in
form of shares.
Advantages of co-operative movements
1)Democratic management; the affaires of a co-operative are managed in a democratic way to
ensure the interest of the majority. Each member has one vote no matter the number of shares
invested.
2)Economies of scale; Consumer co-operatives buy in bulk from the manufacturer. This gives
rise to marketing economies of scale which members enjoy sometimes in the form of lower
prices, free delivery etc.
3)the absence of middlemen; Middlemen such as retailers are absent in the co-operative
business. The middlemen like the retailer and the whole seller in other businesses usually robe
the producers of their profits and also cause higher prices in the markets.
4) No conflict of interest; In other businesses, buyers interest conflict with seller’s interest.
Buyers want to buy at the lowest price possible and sellers want to sell at the highest price
possible. This type of conflicts doesn’t exist in co-operatives because owners are the same
people who buy from the co-operative movements.
Disadvantages of co-operatives movements
1)Inefficiency in management; Most members of the management board are elected on the
basis of popularity rather than professional experience. A popular member who has no business
experience may be elected as a manager or as one of the directors.
2)Inadequate capital; Most members are reluctant to pay high subscription or buy many
shares. This limits the source of capital necessary for expansion.
3)partial involvement; Most co-operatives have been used as channels of political ideas. Some
members of the co-operatives use it as a channel for their political ambition instead of
members interests.
4)lack of interest (APATNY); Most members don’t attend the annual general meetings. This is
mostly due to lack of interest and education about co-operative movement as well as
importance of meetings. This altitude retards the growth of co-operative movements.
Public corporations
These are enterprises owned and controlled by the government. They can be created directly or
through nationalization. Nationalization is the transfer of private companies to the state.
Characteristics of public corporations
-ownership; Public corporations are owned by the central government. An example in
Cameroon is CRTV.
-Control; they are managed by a board of directors appointed by the state.
-Objectives; The main reason for the existence of public corporations is to provide essential
goods and services to the citizens.
-Size; In most cases, public corporations are larger than privately owned enterprises.
Reasons for nationalization.
-provision of pubic goods; they are created to provide merit and public goods to citizens which
are not provided by the private sector because these goods are not profitable. Example is
security.
-Capital; Some sectors require heavy amounts of capital for the start. This cant be afforded by
the private sector. Thus, there is need for public corporations to be set up. Some of those
sectors include the shipping and aircraft.
-Employment; public corporations are used to provide jobs for the citizens especially in areas
where the firms are closing down.

-strategic reasons; some sectors are considered to be of strategic importance to the state. They
include the aircraft, shipping and the arm sectors.
-government policy; Some firms are created to promote certain government activities and
stabilize the economy. A good example is BEAC created to control the flow of money.
-Natural resources; The state must nationalize some firms or industries in other to prevent over
exploitation of natural resources by private individuals.
Reasons against nationalization
1)Inefficiency; Most nationalized firms are monopolists and are therefore inefficient because of
the absence of competition.
2)Government expenditures; public corporations increase government expenditure since, most
of them are loss making firms.
3)Mismanagement; Most public corporations are poorly managed by the directors who are
appointed on the basis of political status and not based on the business knowledge.
4)political interference; the government ruling party always intervenes in most public
corporations and this affects the organizations.
Privatization
This is the transfer of state- owned enterprises to the private individuals or private institutions.
Privatization is of varied forms namely;
i)Denationalization; it is a situation whereby the state corporation is sold to the business men.
The government can;
-completely sell the enterprise
-sell more than 50% of its share capital
-sell her existing shares in the public companies.
ii)contracting out; This is when the government gives out some of her shares on contract. An
example is the contract between Cameroon government and HYSACAM.
iii) Deregulation; this is when the government removes the law which prevents the private
sector from performing certain activities.
iv)Leasing; This is when the government gives out her assets on rents. An example is renting out
council halls for marriages.
The state may decide to sell or transfer her assets to the private sector for the following
reasons;
1)To raise revenues; privatizations increase government revenues since it involves the leasing
or selling of properties.
2)reduce Government’s expenditures; Public corporations are often finance by the state. The
state may decide to privatize some of her enterprises in other to reduce her expenses.
3)Efficiency: Most public corporations are monopolists and as such, there is no competition.
The state may decide to encourage competition through privatization.
4) Investment; The government may decide to privatize her enterprises in order to promote
private investments.
Arguments against privatization
Privatization has the following limitations;
1)wastage of time; With privatization, there are many firms who use more resources as
compared to a situation where there is only one firm.
2)Exploitation; privatization encourages the exploitation of consumers in the form of high
prices.
3)public and merit goods; these are neglected by the private sector because they are not
profitable. As such they are in contrast to the goals of the business men in this sector.
4)Government Control; privatization weakens the authority of the government in that
economy. This happens especially in the capitalist economy.
5)harmful products; they may start producing dangerous goods like cocaine and marijuana
which leads to high crime wave in the society.