BUSINESS

ORGANISATION
TOPIC 1 : The Purpose and Types of Business
Organisation
DEFINITION OF AN ORGANISATION

■ Buchanan and Huczynski (1997) defined an organisation

as “ a social arrangement for the controlled performance
of collective goals”.
DEFINITION OF AN ORGANISATION

■ Social arrangement –The organization is made up of

individuals in an agreement to meet their collective goals.
■ Controlled performance –It has a system to ensure that
it meets the performance standards of its objectives.
■ Collective goals –The existence of the organisation is to
meet the collective goals of an individuals in it.
DEFINITION OF AN ORGANISATION

Business organisation primary purpose :-

■ Make a profit
■ Maximum the wealth of the owners
Purpose of Business Organisation

■ People need to work together to accomplish goals.

■ Goals are too large, too complex, too expensive to be

achieved without cooperation.

■ By working together, people can produce more & better

goods and services.
Why Are Organisation Formed?
■ Specialisation -individuals are divided based on what they
do best and required to specialize. As they specialize, they
become more familiar with the jobs

■ Synergy -specialisation can complement each other,

combined output will exceed the sum of their individual efforts

■ Better Performance –specialisation and synergy leading to

works get done more efficiently and effectively
Why Are Organisation Formed?
■ Saves Time –tasks can be completed quicker rather than working
alone

■ Benefits from a Knowledge Pool –knowledge and expertise can

be shared
TYPES OF BUSINESS
ORGANISATION
Sole Proprietorship

■ ‘A sole proprietorship is a form of legal organization in which the

owner maintains sole and complete control over the business
and is personally liable for business debts’.

■ Unlimited liability of proprietor.

■ The person who contributes capital and manages the business is

called as sole proprietor.
 Advantages and Disadvantages of
Sole Proprietorship
Advantages: Disadvantages:
■ Low start-up costs. ■ Unlimited liability – Owner is entirely
responsible for all the liabilities.
■ Freedom from most regulations.
■ Death or illness endangers business
■ Owner has direct control.
■ Total responsibility
■ All profits go to owner.
■ More difficult to raise finance for
■ Easy to exit business. business
■ Hence efforts and rewards are directly ■ Growth limited to personal energies
related.
■ Personal affairs easily mixed or
■ Owner’s interest and care directly confused
affects the profit of the business.
Partnership

A partnership is a form of legal organization in which two or

more business owners share the management, profit
and risk of the business.
 Advantages and Disadvantages of
Partnership
Advantages: Disadvantages:
■ Ease of formation ■ Unlimited personal liability
■ Group talent ■ Divided authority and decisions
■ Wide resources ■ Potential for conflict
■ Easier access to finance ■ Continuity of transfer of
ownership.
■ Sharing of Risk
■ Lack of harmony
■ No corporate income tax
■ Difficult to get rid of bad partner
■ Death, withdrawal, or bankruptcy of
one partner
Limited Companies

■ An association of many persons who contribute money / wealth to a stock /shares

and also shares the profit and loss.
■ A limited company (LC) is a general term for a type of business organization wherein
owners' assets and income are separate and distinct from the company's assets and
income; known as limited liability.
Types of Limited Companies :
■ Private Limited companies
■ Public Limited companies
Advantages of Limited Companies
■ Limited liability

The owners of a business are responsible for losses only up to the amount they invest.

■ Ability to raise more money for investment

To raise money, a corporation sells OWNERSHIP(STOCK) to anyone interested.

■ Size

Because companies can raise large amounts of money, they can build modern facilities.

They can also hire experts in all areas of operation.

They can buy other corporations in other fields to diversify their risk.

■ Perpetual life

The death of one or more owners does not terminate the corporation
Disadvantages of Limited Companies
■ INITIAL COST
Incorporation may cost thousands of dollars and involve lawyers and accountants.
■ DOUBLE TAXATION: Company income is taxed twice.

– The CORPORATION PAYS TAX on income before it can distribute any

dividends to stockholders.

– The STOCKHOLDERS PAY TAX on the income they receive from the
corporation.
■ DIFFICULTY OF TERMINATION:
A corporation is relatively difficult to end
■ EXTENSIVE PAPERWORK
A company must keep detailed records.
THANK YOU