After this study the reader should be able to understand the forms and structure of business organisation, their characteristics, advantage and disadvantages.
In an economy, in which free enterprise is allowed and encourage by the government ,Business organization take different forms in this situation , we will discuss four different types of business organization.
- sole proprietorship
- Limited liability company
- Public enterprise
forms of business organization structure
advantages of sole proprietorship
disadvantages of sole proprietorship
- all profits and losses are to be shared equally between the partners
- No interest is allowed an capital and current account
- No remuneration will be paid to a partner
- Any advance loan made by a partner in excess of his agreed share of capital will attract interest at 5% per annul.
- The amount of capital to be provided and maintained by each partner.
- The rate of interest to be paid on capital
- The extent to which drawing are allowed and the rate of interest to be charge on drawings.
- The remuneration to be paid to partners for their services
- The interest to be paid on any advance or loan made to the firm by a partner over and above his agreed capital.
- The proportions in which profits and losses are to be shared after taking account of any adjustments.
The main advantages of partnership
- More finance is available
- Higher performance may be achieved since two heads are better than one.
- Decisions making is also swift since partners are friends and the others are not many
The disadvantages of partnership
- The major disadvantages is that the liability of members of the partnership is unlimited
- The amount of capital the partners can raise is too small to enable them carry out large investments
- The deaths and bankruptcy of a member may lead to the dissolution of the firm.
- Disagreement may occur between the partners. This may find out that they are not compatible which may lead to the dissolution of the partnership.
Limited liability company
The following are the different types of companies
- Private limited liability company
- Public limited liability company
- Company limited by guarantee
- Unlimited liability company
Advantages of Limited liability company
- The liability of the shareholders is limited to the amount they have subscribed to the firms capital if the company goes bankrupt
- It can raise substantial amount of capital from the numerous shareholders or from financial institutions .
- The chance of survival is high because the company is controlled and managed by highly skilled proffesional management team appointed by the board of directors who are elected by and answerable to the shareholders.
- The limited company is a separate legal entity distinct from its members. It can sue and be sued in its name
- Unless it is wound up, a limited company has perpetual secession so that it is not affected by the death, bankruptcy, mental disorder or retirement of its members .
- Floating charges can be created by a limited company
- Share in a public company scan be transferred without the consent of other members
Disadvantages of limited liability company
- Formation of limited liability company requires costly legal expenses
- Decisions making may be delayed due to bureaucratic bottlenecks.
- The members of the company have no power to manage it's affairs .
- much legal and publicity formalities are observed for example filling of annual returns annual general meeting.
Advantages of public enterprise
- Some activities such as the generation of electricity, provision of port facilities and rail transportation service involve huge financial considerations which the private entrepreneurs cannot provide. These facilities must be provided to quicken the pace of of econimic development and industrisl growth
- It enable some natural resources ,especially minerals to be effienctly exploited and effectively managed
- Some essential goods or services if left in the hands of private business may not sufficiently provided or may be provided at exorbitant prices. Thus , the common people will not be able to afford them as a result of which their conditions of living will worsen.
- The public company can borrow money externally by issuing bonds or debentures. This is not possible for private company.