Business Organizations PDF

The Business Environment Types of Organisations LO 1 What is a Business Organisation? A business is an enterprise which distributes or provides services where other members of the community need and are able and willing to pay for it. The term "business organiza...

The Business Environment Types of Organisations LO 1 What is a Business Organisation? A business is an enterprise which distributes or provides services where other members of the community need and are able and willing to pay for it. The term "business organization" refers to how a business is structured. It refers to a commercial or industrial enterprise and the people who constitute it. Purpose of Business Organization People need to work together to accomplish goals. Goals are too large, too complex, too expensive to be achieved without cooperation. By working together, people can produce more & better goods and services. Choice of the type of organisation The nature of business is the most important factor Scale of operations i.e. volume of business ( large, medium, small) and size of the market area (local, national, international) The degree of control desired by the owner(s) The volume of risks and liabilities as well as the willingness of the owners to bear it Comparative tax liability Technical Difficulties. Market Competition and scope of the articles in the market. Types of Organisations- Private When an enterprise is so organized that private individuals exercise and enjoy the rights and privileges of an owner in their own interest. The forms are discussed today… Sole Proprietorship: ‘A sole proprietorship is a form of legal organization in which the owner maintains sole and complete control over the business and is personally liable for business debts’. Unlimited liability of proprietor. The person who contributes capital and manages the business is called as sole proprietor. Characteristics of sole proprietorship One man ownership Unlimited liability Enjoyment of entire profit No separate legal entity Simplicity Self employment Advantages/ disadvantages Advantages Disadvantages Low start-up costs. Unlimited liability – Owner is entirely responsible for all the liabilities. Freedom from most regulations. Death or illness endangers business Owner has direct control. Total responsibility All profits go to owner. More difficult to raise finance for business Easy to exit business. Growth limited to personal energies Partnership A partnership is a form of legal organization in which two or more business owners share the management, profit and risk of the business. Characteristics : Agreement Lawful business Sharing of profits Contractual relations Common management Multiplicity of business Advantages and disadvantages Advantages Disadvantages Ease of formation Unlimited personal liability Group talent and Wide resources Divided authority and decisions Sharing of Risk Potential for conflict Easier access to finance Continuity of transfer of ownership. Companies An association of many persons who contribute money / wealth to a common stock and employ it in some trade and shares the profit and loss. There are two types of companies- 1. Private company 2. Public company Private limited companies Closely held by a few people Minimum 2 and maximum 50 shareholders Stocks cannot be traded on exchanges and private equity cannot be raised Less regulations as compared to Public Companies Private companies Contd Advantages Can be incorporated with just two persons. Facilitates easy formation and easy functioning. No need to file with a registrar to act as a director. Disadvantages: Can’t expect democracy. Exempted from conducting statutory meeting. Can work with only two directors. Public limited companies Stocks are held by a large number of people Minimum 7 shareholders and no limit for maximum Can be listed on stock exchange and can go public Must follow many laws with regards to the board composition and Annual General Meeting. Public limited Companies Contd… Advantages Legal Control. Economies of Large Scale. Risk spread out. Limited Liability. Mobilization of Scarce saving. Huge Capital. Accelerated economic growth of Share Transferable. the country is possible through industrialization. Economies Administration. It creates huge employment Democratic. possibilities. Permanent Existence. Disadvantages (Public ltd ) Dishonest directors may exploit the shareholders. Large Complexities. It is democratic in theory only. Delay in Decisions. Favoritism. Difficult labour relations. Lack of initiative and personal interest. Concentration of economic power and wealth in a few minutes. Misuse of internal information. Cooperative organization- -Voluntary association of persons for Disadvantages : the mutual benefits and aims are Lack of secrecy accomplished through self help and collective effort. One for all and all Cash trading for one. Excessive government interference Advantages : Absence of motivation Easy to form Disputes and differences No obstruction for membership Limited liability Surplus shared by the members Government organisations A Government company is one in which not less than 51% of the paid-up share capital is held by the government. A Government company may either be wholly owned by the Government, in which case 100% capital is provided by Government; or May be owned by the Government (holding minimum of 51% share-capital) and private concerns/individuals (holding maximum of 49% share capital). Features of a Government Company Registration Under the Companies Act Executive Decision of Government Separate Legal Entity Whole or Majority Capital Provided by Government Majority of Government Directors Own Staff and Free from Procedural Controls Accountability to the Parliament/State Legislature What pros and cons? Advantages Disadvantages Easy formation Lack of Initiative Internal autonomy Lack of Business Experience Private Participation Change in Policies and Management Easy to Alter Bureaucracy Professional Management Absence of profit motive Public Accountability Undue interference  Voluntary organisations Voluntary organizations are also known as non profitable or non Paid organization and voluntary association Voluntary organization means a group of people working together voluntarily to help the needy persons with their needs and resources available to them. They not work for personal intention, but they work for humanity, welfare of people and development. Particularly for disadvantaged sections of society. Meaning It is that action or activity which is not diverted or controlled by the state. It is an activity which is governed by its own members and not by any outside force. Voluntary organization is a group of people who spend their free time helping others without monetary compensation and do not make a profit from their activities Features…. Objective of serving the social Works on no profit no loss basis/ Need professional and and economic needs of the non profit motive organizational skills society Today, the major role of voluntary organisation is No office bearers from political Voluntary and constitutional cooperating with government parties means of functioning agencies or supplementing their efforts in the implementation of their programs. Types…. Voluntary agencies operate today in these distinct areas. These are: Charity: giving food, clothing, medicine, alms in cash and kind, land, buildings, etc. Welfare: providing facilities for education, health, — drinking water, roads, communication, etc. Relief: responding to call of duties during naturally calamities like floods, drought, earthquakes and manmade calamities like ravages of war, etc Rehabilitation: continuing and follow up of the work in areas struck by calamities and starting activities of durable in nature Services: building up infrastructure in depressed backward areas. Development of Human Beings: Conscious raising, awakening, raising conscience, organizing, recording of priorities to suit social justice Lets test our understanding! Get started by clicking the link below! https://quizizz.com/join?gc=99931038 Responsibilities of the organisations Meeting legal requirements of country or countries in which it is operating Ethical practices Meeting stakeholder interests Dealing with potential conflicts of interest of the stakeholders How they meet their responsibilities? Good policies and procedures, Utilising quality assurance mechanisms, Ensuring their compliance with legal mechanisms Communicating and liaison Timely response to the stakeholders Satisfying stakeholder objectives Taking account of business and competitors Dealing with conflicts of interest Recruitment of expertise  Definition of stakeholders An individual or group with an interest in an organization. Any individual or group who can affect or are affected by the achievement of a firm’s objective. Who are involved in business activity? Stakeholders Various groups of people have an interest in business. Such groups are referred to as stakeholders. – Objectives They include: Owners or shareholders, Managers , Employees , Customers ,Government , Suppliers , The community , and conflicts Competitors Types of stakeholders Internal stakeholders There are three main internal stakeholders, each with their own set of interests in the business’s activities. They include: employees – employment security, wage levels, conditions of employment, participation in the business managers – employment security, salary and benefits offered; responsibilities given shareholders – annual dividends, share price, security of investment. External stakeholders The external stakeholders and their interests include: suppliers – speed of payment, level and regularity of orders, fairness of treatment customers – value for money, product quality, service levels government – jobs created, taxes paid, value of output produced, impact on wider society special interest groups such as: - banks and other creditors – security of their loans and the ability of the business to repay them - pressure groups that want to change a business’s policy towards pollution etc… - community action groups concerned about the local impact of business activity competitors – fairness of competitive practices, strategic plans of the business. Stakeholder Orientation The degree to which a firm understands and addresses stakeholder demands Three activities: 1. Generation of data about stakeholder groups 2. Distribution of the information throughout the firm 3. Organization’s responsiveness to this intelligence Implementing a Stakeholder Perspective 1. Assessing the corporate culture 2. Identifying stakeholder groups 3. Identifying stakeholder issues 4. Assessing organizational commitment to social responsibility 5. Identifying resources and determining urgency 6. Gaining stakeholder feedback  Stakeholder interests All stakeholders have different types of interests: Customers – price, quality, range of supplies, opening hours, facilities, etc Employees – pay, working conditions, job security Owners/shareholders – profit, share price, dividends The local community – road building, pollution, safety, house values, jobs Government – legal issues, environmental issues, competition Pressure groups – interests of members and those they represent Suppliers – price paid for their supplies, further orders Financiers – profits, return on money invested, repayments of loans Stakeholder conflict Businesses have different types of internal and external stakeholders, with different interests and priorities. Sometimes these interests can conflict. For example: owners generally seek high profits and so may be reluctant to see the business pay high wages to staff Stakeholder conflict is usually short- term Addressing these conflicts effectively would lead to success  Dealing with conflicts You will need to look at three major issues: – The type of business organization. The aims & objectives of the business. The source & degree of power of each stakeholder group. Conflict resolution Accommodate - involves taking steps to satisfy the other party's concerns or demands at the expense of your own needs or desires. Compete- tries to satisfy their own desires at the expense of the other parties involved. Collaborate- finding a solution that entirely satisfies the concerns of all involved parties. Compromise- finding an acceptable resolution that will partly, but not entirely, satisfy the concerns of all parties involved. Avoid- tries to ignore or sidestep the conflict, hoping it will resolve itself or dissipate.