Professional Documents
Culture Documents
Grade 8
Business organisation is a person or a group of people organized to
produce goods and services to accomplish a specific goal or some
specific goals (It can be profit motive or welfare motive). In addition to the
entrepreneur, the production of goods and services requires the factors of
production land, labour and capital. These resources need to be organized for
production to satisfy our wants. It is the responsibility of the entrepreneur to
organize resources in a business or a firm. Business organizations are classified
into public sector and private sector.
Private sector
Public sector
Private
sector
Business
organizatio
ns
Public
sector
Partnership
Private
Limited
Companies
Limited
Companies
Public
Limited
Companies
Cooperatives
Worker Coopratives
Multinationa
l Companies
Consumer
Cooperativies
Public
Corporation
Municipal
Enterprises
Firm
A firm is a unit of management. It is an organization which trades under a
particular name, and which controls the way in which land, labour and capital are
employed.
Industry
An industry consists of a group of firms producing similar goods and services.
Sole Trade
Sole trade is defined as a business organization which is owned and
controlled by only one person. A sole trader may employ more than one
employee. It is the oldest and the simplest form of business organisation. Sole
trade is common in retailing, farming, personal services (like hair dressing), craft
works and repair worksetc.
4. A single profit gainer The sole trader himself enjoys all the profits as there is
nobody to share the profit with.
5. Easy to maintain business secrets The secrets of the business can be kept
within the business as there is a single owner. Moreover, sole trade can
maintain its privacy and secrecy.
6. Flexibility As sole trade operates in a narrow scale and it is easy for a sole
trader to bring changes to his business. If the present business activity is not
successful, he can shift to a different business activity.
1) Sole trader lacks capital It is very difficult to raise capital as bank loans are
expensive and banks are reluctant to lend money to small scale businesses. In
addition to that, there is a single person to arrange the necessary finance.
2) Disadvantage of unlimited liability It means that the sole trader is liable to
lose everything in his personal possessions in order to pay off the debts at any
event of bankruptcy.
3) Greater risk The sole trader must bear the losses of the business. He is
directly responsible for the losses and risks of the business. There is a single
owner to bear all risks and losses.
4) Lack of continuity Anything happens to the sole proprietor may interrupt or
cease the functioning of the business. Death, physical injury, retirement or
bankruptcyetc of the sole trader may bring the business to an end.
Partnership
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Place and nature of the business along with the duration of the
partnership
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and losses
Features of partnership
Advantages of partnership
Disadvantages of partnership
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Although both ordinary partnership and limited partnership have got many similarities in common there are few differen
Do you know? Active partners are the partners who contribute the
capital and take part in the management of partnership business.
Sleeping partners are the partners who contribute the capital but, do
not take part in the management of partnership business.
Limited companies are often described as joint stock companies, and they
are far more important than any other form of business organization. The term
joint stock refers to the fact that a number of people have contributed to a
common stock of capital which is to be used for setting up and running of the
company. This stock of capital is divided into small units called shares, and
people who buy these shares are shareholders. Shareholders are the owners of
the company. According to United Kingdoms companies Act, the minimum
number of shareholders of limited company is two and there is no maximum
limit.
Profits are divided among the shareholders according to the number and
types of shares they hold. The profits paid to shareholders are known as
dividends.
The word limited is included with names of limited companies because the
liability of the owners is strictly limited to the value of the shares he or she has
agreed to buy. Once the share holders have fully paid for their shares, they have
no further liability for the companys debt. The two types of limited companies
are private limited companies (private companies) and public limited
companies (public companies).
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Articles
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Private limited company is defined asdirectors,
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organization
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limited liability and its shares are not freely transferable. Most of the
private limited companies are relatively small and many of them being owned
by families or a group of friends.
1) The name of these companies must end with the word limited (ltd) and it is
optional to add private (pvt or pte) before the term limited.
2)
Private limited companies have limited liability. Hence, the owners
(shareholders) are not personally liable for the debts of the business.
3) A private company is a separate legal entity as the business is considered a
separate legal artificial person by law.
4) These companies cannot invite general public to buy their shares.
5) Shares in private companies are not freely transferable. The shares can only be
sold with the consent of existing shareholders or sometimes with the approval of
board of directors (BODs).
6) These companies are managed and controlled by board of directors elected by
shareholders.
7) Profits of the business are shared between shareholders.
1) Formation of private limited company is easier and cheaper than Public Limited
Company as they can start the business from the date they receive Certificate of
Incorporation.
2) These companies can enjoy more capital than sole trade and partnership as
there can be more owners.
3) The owners (share holders) have limited liability. The shareholders are only liable
for debts to the amount they invested.
4) These companies have a separate legal identity. It gives grater continuity to the
business. The business carries on even if a major shareholder dies or sells her or
his shares.
5) Unlike public limited companies, a minimum share capital is not required to
setup the business.
1) Difficult to raise capital as the company cannot issue shares to general public.
This hinders the efforts of the business to expand and diversify.
2) The shares of these companies are not freely transferable. The share ownership
can only be transferred with the consent of existing shareholders.
3) It is difficult to maintain privacy and secrecy as they have to file the copy of
their accounts annually.
4) These companies must be registered and formation is more expensive and
more difficult compare to sole trade and partnership.
Do you know? Transferability of shares explains the possibility of
transferring the ownership of a business possessed by a person. It can
be sold, transferred or given away to another person. The shares of
private limited companies are transferrable but not freely transferrable.
The shares of public limited companies are freely transferrable.
1) The name of a public company must end with Public Limited Companies (plc or
PLC).
2) Public limited companies also have limited liability. Hence, the owners
(shareholders) are not personally liable for the debts of the business.
3) A public company is also a separate legal entity as the business is considered a
separate legal artificial person by law.
4) There is a minimum required share capital for public limited companies.
According to United Kingdoms Companies Act, it is 50000.
5) These companies can issue shares to general public.
6) Shares in public companies are freely transferable.
7) These companies are also managed and controlled by board of directors (BODs)
elected by shareholders.
8) Profits of the business are shared between shareholders.
3) The owners (share holders) have limited liability. The shareholders are only liable
for debts to the amount they invested.
4) These companies have a separate legal identity. It gives greater continuity.
5) These companies are larger in size and can enjoy the advantages of economies
of scale.
Shares
They dont normally have the voting right and cannot take part in the
management.
Types of preference shares
a) Cumulative preference share: - It carries a right to any arrears of
dividend which have accumulated during a year when the company did
not earn enough profit to pay the dividend.
b) Participating preference share: - It not only carries the right to a
fixed rate of dividend but also additional payments out of profits when the
company has a particularly good year.
Debentures
A company is a legal person and can therefore take over the ownership of
another company. Since the owners of a company are the shareholders, a
company can be purchased by another company by buying more than 50% of
the shares.
A company may be formed for the sole purpose of holding shares in other
companies. Such a company is known as a holding company.
Multinational Companies
Co-operatives
co-operatives)
and
consumer
co-
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Public corporations
Municipal enterprises
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A comparison of a Public Corporation and Public Limited Company
Sector
Ownership
Capital
Management
Aim
Public Corporation
It belongs to public sector.
It is owned by government.
Capital is contributed by
government.
The business is managed by board
of directors appointed by
Government.
The main motive the business is
maximizing public welfare.
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Nationalization
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Privatization
Privatization is defined as the process of transferring a public owned
asset, enterprise or industry to private ownership. Privatisation is the
opposite of nationalization.
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