Forms of Business Organizations
Sole Proprietorship
The sole proprietorship is a form of business which is operated by one person for his or her own benefit.
The features of the sole trader are as follows:
- This type of business is the simplest form of business operations and has no existence apart from the owners;
- Whatever liabilities associated with the business are the personal liabilities of the owner and the business terminates upon his or her death or by voluntary termination;
- The owner undertakes the risks of the business to the extent of his or her assets;
- Although a sole proprietorship is not a separate legal entity from its owner, it is a separate entity for accounting purposes.
Partnerships-General and Limited
A general partnership is an agreement established between two or more persons who join together to carry on a business operation for profit.
The features of partnerships are:
- Each partner contributes capital and other assets and each also shares in the profits and losses of the business;
- Each partner has unlimited personal liability for the debts of the business;
- This form of business operations limits the personal liability of individual partners for the liabilities of the business based on the amount they would have invested.
Joint Stock Companies
Joint stock companies are companies that are owned by investors who would have bought shares in the company. These investors are really shareholders and own a part of the company. There are two types of joint stock companies which are private joint stock company (private limited liability company) and public joint stock company (public limited liability company).
Private Joint Stock or Private Limited Liability Company
The features of a private joint stock company are as follows:
- A private joint stock company is a company that is owned by a small amount of investors or shareholders,
- Legally, the company is a separate entity from the owners. The shareholders are private owners of the company and can even be family members as well as friends and acquaintances.
- One of the main features of such an entity is that the company can only require that shares be issued privately and not publicly as in the case of a public stock exchange.
Public Joint Stock or Public Limited Liability Company
A public joint stock company is one where investors come together to own a company. In these companies, shares are issued in the primary market and then can be bought and sold in the public secondary stock market. Such a market is called a stock exchange.
The features of a public joint stock company are as follows:
- Funding – this comes mainly from the issuance of shares to members of the public,
- Liability - the liability of shareholders are limited to the amount of their investments in the company,
- Legal requirements - this company is a legal entity which must meet all of the legal requirements,
- Owners - investors are shareholders and also owners of the company,
- Dividends - shareholders receive annual dividends if the company makes a profit.
Co-operatives
Co-operatives are autonomous associations formed and democratically directed by people who come together to meet common economic, social and cultural needs. Cooperatives are based on the principles of empowerment, education and community. The most common type of co-operative is the retail co-operative whose members are the owners of their establishment. Another type of co-operative is that of a credit union co-operative which is owned by their members which provide savings, credit and other financial services to their members.
Public Corporations
Public or state-owned corporations are organizations owned by the government. These were formed to provide society with much needed goods and services which the government feels will be provided at a high cost by the private sector.
Multinational Corporations
A multinational corporation (MNC) is a corporation that has its facilities and other assets in at least one country other than its home country. Such companies have offices and/or factories in different countries and usually have a centralized head office where they co-ordinate global management. Very large multinationals have budgets that exceed those of many small countries. Some examples of MNCs are Coke Cola, Pepsi, Mc Donald’s, Burger King, Popeyes and KFC.
Advantages of MNC's for the Host country
- Economic - the investment level, employment level and income level of the host country increase due to the operation of MNC's. This contributes positively to the economic development of the host country.
- Technology - the industries of the host country get the latest technology from foreign countries through MNC's.
- Management expertise - the host country also has an opportunity to benefit from the management expertise of the MNCs.
- Improvement in balance of payments position - the host country can reduce imports and increase exports due to goods produced by MNC's in the host country. Therefore, MNCs contribute to increasing the exports of the host country which can translate into an improvement in the host country’s balance of payments position.