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Business Organisation
in which a
business is organized and controlled will depend largely on its size and what
it does. There are four types of business organization: 1) the one man
business(sole trader) 2) the partnership 3) the private limited company 4) the
public limited company.
When
considering business organizations three questions must always be asked: 1 Who
owns the business? 2 Who controls the business? 3 Who provides capital for the
business?
The One Man
Business(Sole Traders)
This is the
smallest type of business organization and is owned and controlled by one man. It
is often a retail shop. When a person wishes to start a one man business, he
raises the capital from: 1) his own resources 2) by borrowing from friends and
relatives. He may have difficulty in obtaining a bank loan.
Advantages.
1 The owner has full control and is the sole owner. 2 All of the profits are
taken by the owner 3 He sets his own working hours, conditions, holidays, etc.
4 The business succeeds or fails according to the efforts made by the owner.
Disadvantages.
1 The one man business has “unlimited liabilities”. This means that if a
business goes into debt, the creditors can lawfully take the owner’s private
assets, i.e. an unsuccessful businessman has to sell his house, car, etc. to
play his business debts. 2 If the owner is ill the business may have to close
down. 3 He may have to work very long hours. 4 If he makes no profit he gets no
wages.
The
Partnership
A successful one man business may often grow into a partnership. Ideally
partners may bring more capital into the business and have an expert knowledge
which will help the firm.
The partnership has both advantages and disadvantages. The advantages are: 1) the business will grow
and the profit will be larger 2) the original owner can now delegate
responsibility to the new partners 3) the business has more capital available
for expansion. The disadvantages are: 1) the original owner has to snare both
ownership and control with the new partners; 2) the profits of the business
must be shared between the partners 3) the original owner is not the sole
master of the destiny of the firm.
Up to 20 partners may be included in the partnership and a “deed of
partnership” must be drawn up setting down full details of arrangements made
between the partners.