What Are The Different Forms Of A Business Organizations (Structures)?
Businesses and entrepreneurship are the key factors to the growth and development of every society. A business is any activity that is consistent in the production of goods and services. It is also that activity that deals with the buying and selling of goods and services for a value.
Entrepreneurship on the other hand, can be seen as innovation, and the creation of new business organizations and structure by entrepreneurs through risks bearing.
When we see the United States of American today being one of the richest countries in the world and attracting many foreigners all over the world. Thanks to the works of entrepreneurs. Companies like: Facebook, Twitter, Instagram, YouTube, Google, and others, which are their services used all over the world are owned by American business men.
Also, for more details about what is a business, characteristics of a business activity, click on the link below: What Are The Features Of A Business
Looking at the entrepreneurial business structures (organizations), there are three different forms in which you can venture into; Sole proprietorship, Partnership, and Cooperation. See a detail explanations as you read below.
What Are The Different Forms Of A Business Organization?
Business organization is the most important choice you will make regarding your company. The form of business you adopt will affect a multitude of factors , some of which will decide your company's future.
As said earlier, there are three main forms of a business structure that you as an entrepreneur can venture in depending on the nature of your business.
When venturing in to a business organization, you need to look at the capital you need, and your scope of production. By so doing, it will be easier for you to choose either to get into a one man's business, a partnership, or a cooperation
We have detailed each form below with their advantages and disadvantages.
1. A Sole Proprietorship From of Business
A sole proprietorship form of business organization is one of the most primitive form and is also commonly referred to as One Man's business.
This is a business where ownership, decision making and control is done by a single individual. He provides capital for the business, runs and control the business alongside the risks involved and at the end enjoy the profits.
Examples are, Most restaurants, saloons and stores.
Merits (advantages) of Sole Proprietorship form of Business
- Requires little capital to start up a sole proprietorship
- All profits make from the business is subjected to the owner.
- Owner finds it very easy to reach a conclusion regarding their business as compare to other forms like partnership where each member most agree before implementation.
- Individuals can easily switch to other lines of business (flexibility). This is due to the fact that they operate in smaller scale.
- It is easier of sell a sole proprietorship form of business to another individual.
Demerit (Disadvantages) of Sole Proprietorship Form of business
- In a sole proprietorship form of business, each partner is 100% responsible for the debts and loses in the business.
- The dead of the sole proprietor might means an end to the business structure, since he solely controls the entire business unless a family member decides to continue with the business.
- They usually do not enjoy economic of large scale production. This because their objective is not to grow their business but to make profit that can sustained their families and their daily life style.
- It is very difficult to take a loan from financial institutions as a sole proprietor as compare to other forms of business organization.
2. A Partnership form of Business Structure
Just as the name implies, a partnership form of business organization is that which two or more persons(usually less than 20 persons) come together, and agreeing to put resources together in order to carry out a business venture with the aim of making profit and to grow in the business.
There are two main types of partners in a partnership business structure: a General partner and a Limited Partner. Understanding in details the different types of partners, will guides you regarding the type of partner you can choose to be, and also your rights and responsibilities.
- General partnership: Here, both partners invest their money, properties, labor, and their technical know-how in to the business and are 100% liable for any debts or losts in the business. That is to say that even if you invest just a small capital into the business, you are still potentially responsible for all debts. It don't require a formal agreement, as it can be verbal or implied between two individuals.
- Limited partnership: Here, a formal agreement is need between partners. They most also file a certificate of partners to limit their own liabilities for business debts, according to their portion of ownership or investment. They are not 100% liable for company's debts and lost.
Advantages of Partnership Form of Business organization
- Many shared resources combine provides more capital for the business and makes it easier to establish and start up the business.
- Each partner enjoys the total profit of the company and there is a high possibility to split income.
- It is easy to borrow money from financial institution.
- There are limited external regulations.
Disadvantages of Partnership Forms of Business Organization
- Partners have unlimited liabilities to the debts of the business. That is, each partner is liable for their share of the partnership debts as well as being liable for all the debts.
- It is difficult to reach a conclusion during decision making due to disagreements and friction amongst partners.
- Each partner is an agent and in liable for actions taken by other partners in partnership.
- Ending a partnership might be difficult.
3. Cooperation As a Form of Business organization
A cooperation is a business structure operating under a legal system, recognized by law as a legal person and having the right to sue and be sued in a court of law.
Also see here: What Is Legal Personality
Cooperation are for tax purposes, separate entities and are considered as legal persons. This means that the profit generated by a cooperation is taxed as the personal income of the company and then any income distributed to the share holder as dividend or profit are taxed again as the personal income of the owners.
Merits of Cooperation as a Form of Business
- Owners have limited liability in case of any loses or debts and the personal properties like cars, houses are not liable to the cooperation.
- It has the legal ability to sue and even enter into contracts.
- Profit made are shared by owners without double taxation.
Demerits of a Cooperative form of Business
- Ownership is limited by certain state laws.
- Agreement must be comprehensive and complex
- Starting up a cooperation is costly due to its legal requirements.
Conclusively, we say that any form of business organization that you venture will either be subjected to a limited liability to the debts and loses of business or an unlimited liability.
Being aware of the merit and demerits of every form of business and also having a basic understanding about each will guide you in venturing into any form of business.
Below are some related articles about business and entrepreneurship which might be of great help to your business carrier.
- What Are The Sources Of Capital For An Entrepreneur Starting Up A Business?
- Different Stages(Phases) Involved In A Business Lifecycle
- What Is Entrepreneurship And Who Is An Entrepreneur
- What Are The Different Types Of Bank Accounts?
- What Are The Duties Of A Banker/Customer In A Banker-Customer's Contract?