Unit 1 – Business and the Business Environment

2.1 - Introduction to different types of organisations

(Part 01)

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By the end of this unit a student will be able to:

1. Explain the different types, size and scope of organisations.

2. Demonstrate the interrelationship of the various functions within an

organization and how they link to organizational structure.

3. Use contemporary examples to demonstrate both the positive and negative

influence/impact the macro environment has on business operations.

4. Determine the internal strengths and weaknesses of specific businesses and

explain their interrelationship with external macro factors.

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Pass and merit and distinction criteria For this section

P1 Explain different types and purposes of organizations; public, private and

voluntary sectors and legal structures.

P2 Explain the size and scope of a range of different types of organizations.

M1 Analyse how the structure, size and scope of different organisations link to
the business objectives and product and services offered by the organisation.

D1 Provide a critical analysis of the complexities of different types of business

structures and the interrelationships of the different organizational functions.

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2.1. Introduction to different types of
organisations:

§ 2.1.1 Differences between for profit and not for profit and non-government organisations
(NGOs).

§ 2.1.2 Micro, small, medium-sized enterprises (SMEs).

§ 2.1.3 The range of legal structures associated with different forms of business

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Business Organization

§ An entity aimed at carrying on commercial

enterprise in a physical place or in a virtual space
by providing goods or services, to meet needs of
the customers with the aim of earning profit or
enhancing social well being.

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Business Environment

§ The literal definition of an organization’s business environment includes a superset of both

internal and external factors that influence the operations of a company on the ground in
all the facilities it operates.

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2.1.1 Differences between for profit and not for profit
and non-government organisations (NGOs).

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Types of Business organizations

§ Private Sector
§ Public Sector
§ Voluntary
§ Charitable/ Non profitable

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Private Sector
• The private sector is :
ü A part of a country's economic system
ü Run by individuals and companies,
ü Intention of making profit
ü Financed by private money from shareholders and by bank loans.

• The profit from private sector organizations benefits the owners, shareholders and
investors.

• The private sector is a key stakeholder in both urban and economic development, being a
major contributor to national income and the principal job creator and employer.

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Classification of the Private Sector

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Objectives of Private Sector
Business

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Sole Trader

§ A person who do business for himself

§ Without formally creating a business organization.

§ This is the oldest and simplest form of business organization.

§ The businessman invests capital, employs labor & machines.

§ Owner enjoys the profits and suffer the losses in the business.
Examples :
ü Consultants,
ü Professionals
ü Saloon
ü Book Shop and etc.
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Ø Fewer legal requirements

Ø Retain control and freedom

Ø Retain contact with customers and employees

Ø Receive entire profits

Ø Great secrecy of business finance

Ø Ease of dissolving firm.

Ø Direct interaction with the customers.

Ø Time saving in decision making process

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Ø Limited input on business matters
Ø Unlimited liability
Ø Responsibility for business debt
Ø Limited finance
Ø Lack of expertise / competitiveness
Ø Likely to remain small
Ø No continuity
Ø Less job security
Ø Owner cannot be the master of all functions of the
business
 Partnership
• A partnership is an arrangement which two or more individuals
share the profits and liability of business venture.

ü It is one stage beyond the sole trader.

ü Introduce more capital or combine skills.

ü Each partner contributes an agreed amount of capital.

ü An agreed method of sharing profits, salaries and interest.

ü Like a sole trader, the partners exert considerable influence over

the business.

ü Fully liable to outside parties in the event of financial failure.

Joint Stock Company
• A joint-stock company is a business entity in
which shares of the company's stock can be
bought and sold by shareholders.

• Each shareholder owns company s t oc k i n

proportion, evidenced by their shares.

• Shareholders can transfer their shares to others

without any effects to the continued existence of
the company.
Main types of joint stock Companies

1.Private limited company.

2. Public limited company

• Organizations which are directly funded by the government

• Organizations where most of the shares are owned by the government

Private Limited Company

• A private limited company is :

ü Having less than two and not more than 50 members,
ü Limited Liability among the member’s (Limited to the amount invested in shares)
ü The transfer of shares is limited to its members
ü Not allowed trade the shares with the general public
ü Less government interfere in the working of the company.
• Requirements : -
ü share capital
ü company accounts
ü Legal acceptance
Examples
- David Pieris motor company Ltd.
- MAS Holdings (Pvt) Ltd
- MAGA engineering (Pvt) Ltd
Public Limited Company
• Operates as a separate legal entity from its owners.

• It is formed and owned by shareholders.

• Shares of a public limited company are listed and traded at a stock exchange market freely.

• Shareholders of a public limited company are having a limited liability

Examples
• Cargill’s (ceylon) PLC

• Distilleries Company of Sri Lanka PLC (Alchocol)

• Pelawatte Sugar Company Ltd

Franchise
A franchise (or franchising) is :

• A method of distributing products or services involving a franchisor and a franchisee.

ü Franchisor - who establishes the brand's trademark or trade name and a business system

ü Franchisee - who pays a royalty and often an initial fee for the right to do business under
the franchisor's name and system

• Franchising is based on a marketing concept which can be adopted by an organization

as a strategy for business expansion.
Implementation of a franchising

A franchisor licenses its know-how,

procedures, intellectual property, use of
its business model, brand, and rights to
sell its branded products and services to
a franchisee.

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Advantage and Disadvantages of
Franchising : FRANCHISEE
Advantage and Disadvantages of
Franchising : FRANCHISER
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