4.

Types of business organisation

1. Sole Traders

It is that type of business organization which is owned, managed

and controlled by a single owner. The word “sole” means “only” and
“proprietor” notes to “owner”. A sole proprietor is the beneficiary of all
profits. All risks are to be borne by the sole proprietor.
Features of Sole Proprietorship:

(1) Formation and Closure

•. This type of business organization is formed by the owner himself.
•No legal conventions are obliged to start the sole proprietorship form of
organization .

(2) Liability
•In the sole proprietorship business, the sole owner has unlimited liability.
•In this case, the owner is himself liable to pay all the liabilities. If he takes a loan
for its business then he will be liable for all the debts.

3) Sole Risk Bearer and Profit Recipient

A sole proprietor is only the one who bears all risks which are related to its business.
All the profits or losses which are earned from the business are to be enjoyed by the
sole owner.
4) Control
•As all the rights and responsibilities lie with the sole proprietor that is why he
controls all the business activities.
•No one can interfere in the business activities of a sole proprietor.
•Hence, only the sole proprietor can modify his plans accordingly.

(5) No Separate Entity

•According to the accounting system, the owner and the business are
considered as two separate entities.
•But the law does not make any distinction between the sole trader and its
business.
•Hence, without the sole trader, the business has no identity because he is the
only person who performs all the business activities.

(6) Lack of Business Continuity

•Death, imprisonment, physical ailment, insanity or bankruptcy of the sole
proprietor will directly affect the business or it may cause shutting down of the
business.
•In the case of the beneficiary, successor or legal heir of sole proprietor, he can
run the business on behalf of the proprietor.
Advantages and Disadvantages of Sole Traders.
Partnerships
Advantages
1. Easy to set up a Deed of
Partnership.
2. Greater access to finance.
3.Shared decision making
Leads to better decision.
4.Shared management and
workload.
5.Benefits of specialisation.
Disadvantages
1. Unlimited liability
2.Share the profit
3.Business ceases if one
partner leaves.
4.Decision binding on all
partners.
5.Difficult to raise finance.
Private Limited and public limited Companies

• Legal documents, including article of association and

memorandum of association must be completed during the
formation of the business.
•Shareholders invest their capital by purchasing the shares in the
business
•Ordinary shareholders are the owners of he company.
•Shareholders have limited liability.
•There is continuation of business even if the shareholder dies.
•Profit belongs to the ordinary shareholders.
•The companies can raise funds by selling the shares
•Profit is divided to the shareholders in the form of dividend.
•Shareholders vote on major decisions taken by the company.
•The companies financial accounts are available for public to look at.
Franchises

The owner of a business (the franchisor) grants a licence to

another person or business (the franchisee) to use their business
idea with trade name logo and products in exchange for fee –
often in a specific geographical area. Fast food companies such as
McDonald’s and Subway operate around the globe through lots of
franchises in different countries.

Ex. Subway
Westside
Puma
KFC
Baskin Robin etc.
Benefits and limitations of franchising a business.
Benefits
Less chances of failure
because of well established
brands
Franchisor often provides
training and advice
The franchisor will finance
the promotion of the business
The quality supplies are
checked and assured by the
franchisor.
Limitations
The initial cost is very
expensive
The franchisor takes a part of
profit as revenue
Strict control by the franchisor
over the business
Local promotions should be
bared by the franchisee other
than provided by the
franchisor.
Joint Ventures

A joint venture is a combination of two or more parties that seek the

development of a single enterprise or project for profit, sharing the risks
associated with its development. The parties to the joint venture must be at
least a combination of two natural persons or entities.

Main reasons for joint venture :

1. It reduces the risk for each business and cut costs.
2. Each business brings different expertise to joint venture.
3. Market and product knowledge can be shared to the benefit of the
businesses in the joint venture.
Advantages
Reduces risks and cuts costs
Each business brings different expertise to the joint venture
The market potential for all the businesses in the joint venture is
increased
Market and product knowledge can be shared to the benefit of the
businesses

Disadvantages
Any mistakes made will reflect on all parties in the joint venture, which
may damage their reputations
The decision-making process may be ineffective due to different
business culture or different styles of leadership
Advantages of Joint Venture
The most important joint venture advantages can help businesses to grow
faster, increase their productivity and generate profits. Benefits of joint
ventures include:
•Access to new markets and enlarge their audience.
•Increased the capacity.
•Sharing of risks and costs on a wide surface basis.
•Access to new knowledge and expertise in business which includes
specialized staffing necessity.
•Access to higher resources, for example, the technology and the finance.
•Joint venture partners help in providing a huge pool of resources together.
Disadvantages of Joint Venture

Joint ventures can pose significant risks, the disadvantages are like the
follows:
•The communication between partners is not great as they belong to
different societal classes.
•The partners expect different things from the joint venture, their
interests may clash.
•The expertise and investment level may not match well.
•Work and Resources are not distributed equally.
•Different cultures and management styles may create barriers to the
organization.
•The contractual limitations may pose risk to a partner's core business
operations.
Public Sector Corporations

Public sector corporations are businesses owned by the government and run by
directors appointed by the government. They usually provide essentials services like
water, electricity, health services etc. The government provides the capital to run
these corporations in the form of subsidies (grants). The UK’s National Health
Service (NHS) is an example. Public corporations aim to:

•to keep prices low so everybody can afford the service.

•to keep people employed.
•to offer a service to the public everywhere.
Features of public Corporation are:

1. It is owned and controlled by the state.

2. They are financed mainly through taxation.
3. It is a separate legal entity.
4. It has social objectives rather than profit objectives to
meet the needs of public.
5. The services are often provided to the population free or
at a low price.

Examples:
Transport facilities provided by the state government.
Health facilities provided by the government at a subsidy
price.
Education ,fuel (LPG),Ration etc.