Types of Business Organizations

 TYPES OF BUSINESS

The simplest form of business is the individual proprietorship or sole trader. For example, a shop (US = store) or a taxi owned by a single person. It several individuals wish to go into business together they can form a partnership ; partners generally contribute equal capital, have equal authority in management, and share profits or losses . In many countries, lawyers, doctors and accountants are not allowed to form companies, but only partnerships with unlimited  liability for debts - which should make them act responsibly. But a partnership is not a legal entity separate from its owners; like sole traders, partners have unlimited liability: in the case of  bankruptcy , a partner with a personal fortune can lose it all.Consequently, the majority of businesses are limited companies (US = corporation ), in which investors are only liable to the amount of capital they have invested If a limited company goes bankrupt, its assets are sold (liquidated) to pay the debts; if the assets do not cover the debts, they remain unpaid (ie creditors do not get their money back.)

In Britain, most smaller enterprises are private limited companies which cannot otter shares to the public; their owners can only raise capital from friends or from banks and other venture capital institutions. A successful, growing British business can apply to the Stock Exchange to become a public limited company; if accepted, it can public a prospectus and offer its shares tor sale on the open stock market. In America, there is no legal distinction between private and public limited corporations, but the equivalent. of public limited company is one registered by the Securities and Exchange Commission.

 

 FOUNDING A COMPANY

Founders of companies have to write a Memorandum of Association (in the US, a Certificate of Incorporation), which states the company's name, purpose, registered office or premises and authorized share capital.

Premises (always with an 's' at the end) - is the technical term of the place in which a company does its business: an office, a shop, a workshop, a factory, a warehouse, etc. Authorized share capital means the maximum amount of a particular type of share the company can issue .

Founders also write Articles of Association (US = Bylaws), which set out the rights and duties of directors and different classes of shareholders. Companies' memoranda and articles of association, and annual financial statements are sent to the registrar of companies, where they may be inspected by the public.

A company that files its financial statements late is almost certainly in trouble. In Britain, founders can buy a ready-made "off-the- shelf" company from an agent, that is, a company formed and held specifically for later resale; the buyer then changes the name, memorandum, and so on

 STEPS IN STARTING A NEW BUSINESS ARE:

• Willing to take risks
• The desire to gain profits
•  Gathering the factors of productions
•  And choosing the suitable form of business organization (The business owners must learn all the can about the law, regulation and tax codes) 

 Elements of business operation

1. Advertisement: to let others know about your business
   
   
2. Expenses: the supplies, raw materials, and equipment that you need to start up your business.
   
   
3. Receipts and Record Keeping: keeping accurate records of expenses and receipts. (Strips of paper documenting a purchase) 
   
   
4. Risk: if you work for a boss, your overall risk is usually small. As your own boss the risk to fail is greater, but the profit you expect to make is your motivation for taking the risk.

Business organization

Business organization: Is and organization under one management set up for the purpose of making profits for its owners.

Types of Business organization

Sole Proprietorship

The definition of sole proprietorship is a business owned by one person, hence the word sole, meaning one and only.

advantage 

1. Easy to set up

2. The owner makes all the decisions. 

3. The owner is not obligated to confer with anyone when it comes to deciding the location of the business, who to hire, what to sell, etc.

4. He or she is the recipient of all profits generated by the business. 

5. The owner is not legally bound to share the profits with anyone else.

Disadvantage. 

1. One huge drawback is if the owner is sued, the owner is held personally liable. 

2. Personal liability means if the person or entity wins the lawsuit, the court can make the owner sell business and personal assets to satisfy the debt. 

3. Lack of capital

4. No continuity/ Limited life: If the owner dies, the business will become defunct or terminate. 

Partnership

A partnership is a business owned by two or more people. 

Advantage of a partnership 

Funding: Each owner can help with financing, start-up costs, or ongoing business expenses. Shared knowledge and experience: a partner may have excellent selling and marketing skills to promote the widget.

Disadvantage 

Shared profit: The percentage split would be agreed upon by each partner or may equal a percentage of how many shares each partner holds. 

This same percentage would be applied if the business were sued; each partner would be liable to the percentage of ownership. 

Corporation

A corporation is a legal entity owned by shareholder(s). What's interesting about a corporation is that it can span from only one shareholder owning 100% of the corporation to the corporation being owned by thousands of shareholders, each defined by their percentage of investment.

Again, one main advantage of a corporation is the limited liability. If the corporation is sued, the liability is limited to the shareholder's investment. Alvin's personal assets cannot be attached. A corporation also allows for business continuity, meaning shares can be transferred or purchased by another shareholder in the event of death.

Despite there being many benefits to a corporation, there are also disadvantages. One is double taxation. If the corporation makes a profit, both the corporation and the shareholder must pay taxes (if profits are distributed to them). In essence, Alvin, as the shareholder, would need to file a personal tax return and the corporation would need to file a separate one.

Another disadvantage is cost. Starting a corporation is expensive, as the entity must be registered with the state. If the corporation is sued, an attorney must represent the entity.

What Is Franchising?

Some entrepreneurs are ready to take an idea, build a business, find their own financing, and take the risk of starting with very little and hopefully building a successful venture. Others want the opportunity to be their own boss, but aren't excited about blazing their own trail. For these more risk-adverse entrepreneurs, franchising may be just what they are looking for.

Franchising is a business model wherein an individual operates their own location of a larger, more established company. For example, when you go to your local McDonald's, Subway, Dunkin' Donuts, or nearly any hotel in the United States, you are most likely at a franchise location.

Franchising Relationships

A franchise is an agreement between two business partners: the franchisee and the franchisor. The franchisee is the entrepreneur that is going to buy the franchise from the larger company, also known as the franchisor. When a franchisee buys a franchise, they are essentially paying the franchisor for their name, general business plan, and help in starting and operating the business.

The relationship between the franchisee and franchisor is extremely important. Obviously, the franchisee needs the support and assistance of the franchisor to succeed, and the franchisor will be paid a percentage of the franchisee's sales, so the franchisor wants to help the franchisee succeed. But, the franchisor must also protect their most valuable assets: their name and reputation.

An entrepreneur running their own business has free reign over every operational decision. They can market how they want to, sell at the price they want to, develop the products they want to, and really, make their own rules. Because a franchisor needs to maintain a consistent reputation throughout their market and among a number of different franchisees, part of buying a franchise is agreeing to a number of conditions set by the franchisor.

McDonald's is a great example. When a customer goes to a McDonald's in New York, California, Hawaii, and any state in between, they expect to see the same menu, taste the same food, and generally pay the same price. All of those are decisions made by the franchiser, not the franchisee. Without that control, you may go to McDonald's in Seattle and order a Big Mac expecting the same sandwich you get at your local McDonald's but be served something different. That wouldn't only confuse customers, it would also tarnish McDonald's image.