Business Organizations Notes PDF

**Unit I -- Business Organisations** **Forms of business organisations** **Embarking on the journey of starting your own business involves choosing the right type of business organization. A business organization is a venture that offers goods and/or services to consumers with the primary goal of...

**Unit I -- Business Organisations** **Forms of business organisations** **Embarking on the journey of starting your own business involves choosing the right type of business organization. A business organization is a venture that offers goods and/or services to consumers with the primary goal of making a profit. Various forms of business organizations exist, and each type of business organization differs in terms of ownership, capital raising, risks, and the sharing of profits or losses. The most common ones are :** **Types of business organizations** 1. **Sole trader** 2. **Partnership** 3. **Company** 4. **Cooperative** 5. **Franchise** **Company** **A company is established by raising capital through the issue of shares (**a voucher that represents a unit of capital)**.** The owners of a company are called **shareholders**. They invest money in the business by buying shares. Shareholders own the company, but their **liability is limited** to the amount they invest. (If the company fails, shareholders may lose their investment, but their personal assets are protected). A **share certificate is an official document stating the number of shares owned by shareholders. Shareholders** receive a portion of the company's profits in the form of **dividends.** The company is managed and controlled by the **Board of Directors**, who are appointed by the shareholders. Directors make key decisions about how the business operates, while shareholders approve major decisions during **AGM (Annual General Meeting)**. An AGM is a **yearly meeting where shareholders elect directors and approve the business\'s annual report.** **Companies are easily identifiable as their names must include \"Company Limited\" or \'Co Ltd.\' Companies need to be officially registered at the Registrar of Companies and must follow specific legal rules of the Companies Act.** **Registrar of Companies** To register a company, an application must be made to the Registrar of Companies. This includes submitting documents such as the Memorandum of Association and Articles of Association. The **Registrar of Companies** is the authority responsible for registering companies and issuing the necessary documents to allow them to operate. One of these documents is the **Certificate of Incorporation**, which officially allows a company to start its business operations. **Memorandum of association and Articles of association** When registering a company, two documents are required: the **Memorandum of Association** and the **Articles of Association**. The Memorandum of Association includes details such as the company\'s name, office address, shareholders\' names, and the objectives of the company. The Articles of Association, on the other hand, outline the company\'s internal rules, including the rights and duties of directors, meeting procedures, and governance structures. **Two types of companies** 1. **Private Limited Company - Raises capital from a small number of shareholders, such as friends and/or relatives.** 2. **Public Limited Company - Raises capital by issuing shares to the general public, typically larger than a private limited company.** **Features of a Company** 1. **Registration: A company must be incorporated at the Registrar of Companies, obtaining a distinct legal identity.** 2. **Ownership: Shareholders are the owners, acquiring shares with one voting right each.** 3. **Control: Managed by a Board of Directors who make decisions and present accounts at an Annual General Meeting.** 4. **Risk: Shareholders have limited liability.** 5. **Profits: Company profits are distributed to shareholders as dividends.** **Advantages of a Company** 1. **Limited liability: Shareholders only lose the invested capital in case of bankruptcy.** 2. **Separate legal identity: Companies have a distinct identity from shareholders.** 3. **Continuity: Companies persist even if shareholders change; shares can be sold to others.** 4. **Capital: More capital can be raised through the issuance of shares.** 5. **Management: A Board of Directors, often experts, manages and makes effective decisions.** **Disadvantages of a Company** 1. **Registration: The registration process can be time-consuming.** 2. **Disclosure of accounts: Companies must disclose account details to the Registrar of Companies and shareholders, compromising business privacy.** **Cooperatives** A cooperative is a business organization collectively owned and managed by its members, who share the profits or benefits. This model is commonly utilized by small businesses. Members contribute capital by purchasing shares and each member holds one voting right in decision-making processes. In Mauritius, various cooperatives, particularly in the agricultural sector, have facilitated the growth of small entrepreneurs. Setting up a cooperative involves several steps, including application to the Cooperatives Division, registration, and obtaining a certificate of registration. Features of cooperatives include registration with the Cooperatives Division, ownership by members who purchase shares for capital, democratic control with each member having one vote, limited liability for members, and sharing of profits as dividends among members. Advantages of cooperatives include job creation, collective ownership and control fostering collaboration, profit-sharing among members, and governmental support through grants and financial assistance. However, drawbacks may include the necessity for extensive consultation among members leading to slower decision-making and typically lower profits due to competitive pricing. **Franchise** A franchise business is typically a well-established enterprise with global recognition, granting licenses to franchisees to sell its products or services. In Mauritius, various franchise businesses operate across different sectors, such as KFC. Setting up a franchise involves a franchisee purchasing a license from the franchisor, who provides support, training, and operational guidelines. Franchises feature ownership by the franchisee, who operates and manages the enterprise, leveraging the established reputation of the franchisor\'s brand. Advantages include a reduced risk of failure due to brand recognition, support and training provided by the franchisor, and direct supply of most products from the franchisor. However, disadvantages may include high initial investment costs, strict control by the franchisor over pricing and business layout, and payment of a portion of profits to the franchisor annually. **Multinationals** A multinational company (MNC) is an enterprise that operates production or service facilities outside its home country. MNCs are increasingly prevalent due to globalization, allowing businesses to expand operations globally. While headquartered in one country, MNCs conduct business across various nations, often manufacturing products with consistent features, logos, or names worldwide. In Mauritius, numerous multinational businesses operate across diverse sectors. **Selecting the right business organisation for my enterprise** Choosing the right business organisation is one of the most important decisions an entrepreneur has to make before setting up an enterprise. The factors that influence entrepreneurs\' decisions are main ownership and control, risks, expansion, registration and procedures and continuity. Entrepreneurs are usually influenced by a number of factors in selecting the appropriate type of business organisation. The entrepreneur should ask the following questions before taking a decision. - **Who will own and run the enterprise?** - **Will I have control over my enterprise?** - **What are the risks I might have to take?** - **Who will be responsible of my enterprise when I am not available?** - **What are the formalities involved in setting up the enterprise?** **Some entrepreneurs enjoy taking risks but others may be unwilling to do so. Some entrepreneurs change their type of organisation because they must raise more capital to grow their enterprise. Others might be discouraged because registration is complicated and registration fees are expensive.**