LECTURE TWO

BUSINESS AND BUSINESS ORGANIZATION

2.1 What is a Business?
Business is an entity which uses inputs (factors of production) to produce goods or services that
are to be sold in the market for profit. The main aim of establishing a business is to maximize
profit.

2.2 Nature of Business Organization

1. Subdivision of main work into small groups

2. Based on principles of equality division of different activities ties
3. Selection of suitable personnel and allocation of jobs according to suitability
4. Allotments of rights and authority to those who have been assigned the job so that may be
able to accomplish their job satisfactorily
5. Determination of positions at different levels
6. Focus on continuous and regular product and distribution of goods and services to meet
the demand of the people to make profit.

2.3 Classification of Forms of Business

There are different forms through which Businesses can be classified, among them includes
classification by; sector, size, ownership and scale of operation.

i. Business classification in terms of sector

The primary sector
The secondary sector
Tertiary Sector

The Primary Sector

 This sector is involved in the extraction and collection of natural resources, such as
copper and timber, as well as by activities such as farming and fishing. Primary sector
tends to make up a larger portion of the economy of developing countries like Tanzania
than they do for developed countries.

 The Secondary Sector

The secondary sector of the economy

This sector includes industries that produce a finished usable product or are involved in
construction.

This sector generally takes the output of the primary sector and use them to manufacture finished
goods for consumption or for being used by other businesses, for export, or sale to domestic
consumers or used as production inputs. This sector is often divided into light industry and heavy
industry. Many of these industries consume large quantities of energy and require factories and
machinery to convert the raw materials into final goods.

 The tertiary sector or service sector

The service sector consists of the production of services (also known as intangible goods) instead
of tangible goods.

ii. Classification according to Size

 Micro enterprise
 Small business enterprises
 Medium business enterprises
 Large business enterprises

Business Size No of Employees Capital Investment in

Machinery (TSH)
Micro enterprise 1 to 4 Up to 5 million
Small enterprise 5 to 49 Above 5 to 200 million
Medium enterprise 50 to 99 Above 200 to 800 million
Large enterprise 100+ Above 800 million

iii. Classification of Business According to Ownership

 Sole Proprietorship
A sole proprietorship, also known as the sole trader or simply a proprietorship, is a type of
enterprise that is owned and run by one natural person and in which there is no legal distinction
between the owner and the business entity. The owner is in direct control of all elements and is
legally accountable for the finances of such business and this may include debts, loans, loss, etc.
  Partnership

A partnership is an arrangement where parties, known as partners, agree to cooperate to advance

their mutual interests. It is a legal relationship between two or more persons where each person
invests his/her money in order to carry on a lawful business with a view of earning profit. The
profit will be shared based on the agreement between the partners. The partnership reports the
income it earns to the internal revenue service; however, the partnership itself does not pay taxes.
One important thing to recognize in partnership business is that each partner report their own
shares of the partnership’s income on their personal tax returns and pay any taxes owned.

 Joint venture

A Business arrangement in which two or more parties agree to pool their resources for the
purpose of accomplishing a specific task. This task can be a new project or any other business
activity. In a joint venture, each of the participants is responsible for profits, losses and costs
associated with it. However, the venture is its own entity, separate from the participants' other
business interests.

A joint venture is much like a partnership, but it is formed for a specific purpose and has a
known beginning and an end.

 Limited Liability Company

A limited liability company (or company) may be defined as an artificial creature, invisible,
intangible, and existing only in contemplation of law. As a legal (artificial) person, it is separate
from the owners. It can enter into a contract, sue and be sued in its name, can affiliate with
another company, and open subsidiaries. Examples are: United Bank for Africa Plc,

 Corporation

A corporation is a legal entity that is separate and distinct from its owners. Corporations enjoy
most of the rights and responsibilities that an individual possesses; that is, a corporation has the
right to enter into contracts, loan and borrow money, sue and be sued, hire employees, own
assets and pay taxes. It is often referred to as a "legal person."
Business Classification According to Scale of Production

Small scale Business Operation

This are businesses whose business operations on average are very small and they usually serve a
small market area. Business which operate at a small scale are basically comprised by a small
investment and a very small number of employees. Example; A convenience store

Medium Scale Business

Their employees are directly managed by the business owner and therefore their number is small
but bigger than for small scale businesses. They have a greater number of business operations
daily and often have a significant number of clients and business contacts than small scale
businesses.

Large Scale Businesses

Have more employees, in more complex management hierarchy than in the medium-scale
businesses. They have great number of business operations daily. Such businesses are
characterized by a large number of clients, business contacts, and great volume of business
communication on average.

References
Solomon, M. R., Poasty, M. A. and Martin, K. (2018). Better Business. 5th Ed. Pearson
Education
Ebert, R. J. and Griffin, R. W. (2017). Business Essentials. 11th Ed. Pearson Education.