Forms Of Business Organisations and The Business Environment PDF

www.covenantuniversity.edu.n Raising a new Generation of Leaders FORMS OF BUSINESS ORGANISATIONS AND THE BUSINESS ENVIRONMENT Dr. (Mrs.) Adegboye F.B. Banking & Finance Department Objectives The vario...

www.covenantuniversity.edu.n Raising a new Generation of Leaders FORMS OF BUSINESS ORGANISATIONS AND THE BUSINESS ENVIRONMENT Dr. (Mrs.) Adegboye F.B. Banking & Finance Department Objectives The various forms of business organizations The sources of their capital The relative benefit of each over the other and The challenges confronting each of them. The environment under which these businesses operate. 2 Forms of Business Organisations Sole Proprietorship Partnership Limited Liability Company  Private Limited Liability Company  Public Limited Liability Company 4. Public Corporations/Enterprises 5. Cooperative Societies 3 Features of Sole Proprietorship The ownership of the business is by one person The liability of the proprietor is unlimited The capital used in forming and running the business comes from the proprietor. It is not a legal entity The aim is to make is to make profit. The process of establishment is very easy. 4  Sources of Capital for Sole Proprietor Personal savings of the owner Borrowings from friends and relatives Borrowing from financial institutions Plough back profit of the previous year Trade credits 5  Advantages of Sole Proprietorship It Requires Small Capital It is Easy to Establish Profits Belongs to the Owner Quick Decisions are taken It is Easy to Manage. Privacy Neighbourhood Personal Relationship 6  Disadvantages of Sole Proprietorship Unlimited Liabilities No Separate Legal Entity Limited Capital No Perpetual Existence No Sharing of Risks Managerial Problems Lack of Economy of Scale 7  Partnership A partnership is a form of business that exists between two or more persons with the sole aim of making profit. That is any two (2) or maximum of twenty (20) persons can combine together their skills and money worth to establish a partnership business. There are two categories of partnership namely:  Ordinary Partnership and  Limited Partnership 8 Types of Partners Active or General Partner Dormant or Sleeping Partner Nominal or Passive Partner 9  Sources of Capital for Partnership Contributions of each partners Borrowing from financial institutions Plough back profit Trade credits Borrowing from partners 10  Advantages of Partnership Access to Relatively Large Capital Division of Labour is Possible Better Decisions can be made It is Relatively Easy to Establish Expansion is relatively Easier Risk and Liabilities are Shared Continuity Privacy 11  Disadvantages of Partnership It is not a Legal Entity Disagreement Unlimited Liability Slow Decision Making Limited Capital Loss of Personal Interest 12  Limited Liability Company Private Limited Liability Company: According to the Companies and Allied Matters Act of 1990 (section 22),  a Private Limited Liability Company is one, which is stated in its Memorandum of Association to be a private company.  At least, two persons may form a limited liability company and a maximum of fifty persons excluding persons who are bonafide workers in the employment of the company Public Limited Liability Company: According to CAMA (section 24)  a company other than a private company shall be a public company and must state so in its Memorandum of association.  A minimum of two (formerly seven) persons is required to form a public company while the maximum is not definite but limited to the number of authorized and issued shares of the company 13 Limitations  Limited by Shares: ‒one in which the liabilities of its members are limited to the amount paid on their shares.  Limited by Guarantee: ‒one in which the liability of its members is limited to the amount as its members may respectively undertake (guarantee) to contribute to the assets of the company in the event of its being wound up.  Unlimited: ‒one that has no limit placed on the liability of its members. 14  Private & Public Companies’ Similarities They are both artificial persons They have perpetual succession They are both incorporated companies They both enjoy limited liability They enjoy large scale of production because they have access to large capital The minimum membership for both is two They both issue bonds and debentures Their formation is in similar manners 15  Differences Name Membership Shares Quoted Shares Account Management and control Raising of Capital 16  Sources of Capital Owners funds Loans from banks Retained Earnings Trade Credits Shares 17  Advantages Separate Legal Entity Limited Liability Large Economies of Scale Perpetual Existence Access to Large Capital Employees may become co-owners Shareholders Interest are safeguarded Transfer of Share ownership Division of Labour 18  Disadvantages High Cost of Formation Lack of privacy Lack of Personal Initiatives Bureaucracy Separation of ownership from management Large Capital Requirement 19  Public Corporations Legal Status Access to Large Capital Large Economics of scale Provision of Essential Services Perpetual Existence Prevent Exploitation of the Consumer Generation of Employment Opportunities Even Distribution of Income 20  Disadvantages Appointment in not based on Merit Government Interference Inefficiency Bureaucracy Slow Decision Making Mismanagement of Resources 21  Features of Cooperative Societies It is a democratic organization of one-man one vote. It is open to all regardless of sex, age, race, cultural and religious differences. The minimum requirement membership is two. Dividend paid to members is based on patronage. Little interest is paid on capital. Elected members run the society on behalf of members. It is a voluntary association. The society is not affiliated to any political parties and should not be. 22  Types of Cooperative Societies Consumers Producer Credit & Thrift 23  Advantages Cooperative societies encourage savings among members. They provide credit facilities either through cash or hiring of equipment They educate their members either in the area of production process or process of buying and selling. They enhance the welfare of members and improve the level of their standard of living. They are democratic in nature, as anybody that fulfils minimum entry requirements is allowed. Cooperative societies are legal entities and are usually registered for recognition. They encourage economic growth and development through encouragement of mass production and distribution process. 24  Disadvantages Lack of interest by members on how the societies are managed. Elected members may not have the managerial ability before been elected and this might lead to mismanagement. Cooperative societies like all other human organizations face problem of inadequate capital to solve or attend to members’ need and request. High enrolment rate of members can make the size too large for effective coordination. Most members are illiterate who do not understand how cooperative societies function or their principles. 25 The Business Environment The Internal Environment  Shareholders, Management, Worker The Industry Environment  Competitors, New Entrants, Threats of Substitutes, customers, Suppliers The External Environment  Economic, Social Cultural, Demographic 26 Thank You 27