The Types of Organizations

Business Environment

Organizations and their Why Uway? Environment

Business organizations are extremely diverse in their forms and functions

Ideal? Difficult to define.

Instead: advantages and disadvantages Successful organizations:

Capitalize on advantages Recognize disadvantages

Analogy - Animal Kingdom

Lion against Hyena

Avoid being prey: being more agile or developing defenses (safe habitats) Symbiosis; To survive: food sources which are easily attainable & abandon competition

Darwin: organisms have adapted in their own way to the challenges of the environment. The fittest survive and ecosystem allows co-existence among organisms

Animal Kingdom : Business Environment

Macroenvironmental change can affect the relationships between species (organizations)

e.g. global recession, calamities, govt

The study of characteristics of participants in the animal world is analogous to the analysis of the characteristics of organizations that make up a BE

WHY? Because..
Businesses need to understand the diversity of different organizational types

Different types of organizations address customers, suppliers, employees in different ways. (e.g. lack of resources of a small business inhibits development of new product)

WHY? Because..

As a seller/supplier of materials to companies: understand that buying behavior varies

Small business vs. large organization

WHY? Because..

Interest in structure of business units at macroeconomic level

Economists:

thriving small-business sector is essential for expanding economy, and domination of large organizations may reduce competition and innovation

Rate of new business creation and trends in composition of business units

Classification of Business How Uhaw? Organizations

Organizations are commonly classified according to their:

Size (assets, employees, geographical coverage) Ownership (public, private, co-operative) Legal form (sole proprietor, limited company) Industry sector

Sole Trader/ Sole Proprietorship

Is a business that is owned by one person or by a husband and wife Also called independent business/ one-man business. Simplest, oldest, and the most natural form of organization

Advantages of Sole Trader/ Sole Proprietorship

Easiest type of business organization to establish. There are no formal requirements for starting a sole proprietorship Decision making is in direct hands of the owner. Profit and loss of the business are reported directly to the owner's income tax return The startup costs for a sole proprietorship are minimal

The sole proprietor is free to choose any kind of business which he thinks will be profitable All the authority and responsibility of sole proprietorship vests in a single person It is easy to maintain secrecy in sole proprietorship Direct contact with customers helps the proprietor in knowing the like/dislike of the customers Direct contact with employees helps in motivation which results in increased efficiency and productivity

Disadvantages of Sole Trader/ Sole Proprietorship

In sole proprietorship, managerial abilities are limited Limited resources for the generation of capital is the another limitation of this form of organization Sometimes overburden of responsibility and authority results in hasty decisions This form of organization is not suitable for large scale businesses

Limited resources of capital, unlimited liability and limited managerial ability limit the scope of expansion of business Due to limited managerial and financial resources and limited scale of operation, it fails to match the market forces Limited resources limit the credit worthiness of the sole proprietor There is not much scope of growth of the sole proprietors business because the whole business is controlled and managed by one person and it is not possible for single person to control the growing business alone

Partnership
A type of business that has more than one owner A range from two builders joining together to a very large accountancy Consists of two or more persons who bind themselves to contribute money or industry to a common fund

Two Types of Partnership

General Partnership: This is a type business with two or more owners with each owner liable for any debts that would occur during the lifetime of their business, all of the assets of the owners could be covered as payment for the debt because they do not enjoy limited liability.

Two Types of Partnership

Limited Partnership: In a limited partnership, one or more general partners have unlimited liability and the limited partners have liability only up to the amount of their capital contributions.

Partnership Agreement
The compensation for partners How long will the partnership last? How will the profit or loss be divided? What type of business is it? What is each partner investing into the business? If the partnership dissolves, how will the assets be distributed?

Partnership Agreement
Provisions for dissolution of the partnership Provisions for future changes to the partnership Define any restriction to expenditures or authority Provisions for death or incapacity

Corporation

History

Need for a trading company to have separate legal personality from its owners: Middle Ages Incorporation was developed: Industrial Revolution

Different types of corporations exist and varies among many countries

LLC, PLC (UK) Sociti Anomi (FRA) Gmbh - Gesellschaft mit beschrnkter Sdn. Bhd. - Sendirian Berhad (MAL) Inc. (USA)

Haftung (GER)

Corporation

Formation

An institution granted a charter (authority of rights) recognizing it as a separate legal entity

Owns privileges and liabilities distinct from those of its members

Recognized by law to have rights and responsibilities as fictional/legal person

Exercise human rights against individuals and state; may be responsible for human rights violation; or be convicted of criminal offenses (fraud and manslaughter)

Corporation

Requirements for compliance with the govt regulations or Corporate Laws

Articles of Incorporation, By-laws, Financial Statements

Formation is formal, expensive, and timeconsuming Rules balance the interests of the management who operate the corporation, creditors who provide loans, shareholders who invest capital, and employees who contribute their labor

Corporation

Types

Limited Liability Company

Shareholders have "limited" liability for the corporation's debts and obligations; their losses cannot exceed the amount which they contributed to the corporation as dues or payment for shares If and when the company goes into formal liquidation and its assets are insufficient to pay its debts and liabilities and the expenses of liquidation shareholders are liable for the shortfall

Unlimited Liability Company

Corporation

Types

Closely-held corporation

no trading of shares to the public owned and managed by a small group of businesspeople or companies; or a family, colleagues rapid decisions are madev(A) stock exchange (PSE) can delegate debt throughout all stockholders smaller hit to own capital (A) at the mercy of the market; variable capital flow (D) Under extreme scrutiny if profit & growth are not evident; often stockholders sell-out (D)

Publicly-traded corporation

Corporation

Types (Examples)

Closely-held corporation

Pascual Laboratories Inc. Sitel Philippines Corp. Makati Medical Center RD Corporation Dole Philippines Inc.

Publicly-traded corporation

Phoenix Petroleum Philippines, Inc. Manila Bulletin Publishing Corp. The Philippine Stock Exchange, Inc. Pepsi-Cola Products Philippines, Inc.

OTHER TYPES OF BUSINESS ORGANIZATION

CO-OPERATIVE

A business organization owned, operated, and controlled equally by its members for their mutual benefit.

CO-OPERATIVE

An individual can be a member of a cooperative by buying one share and is entitled to one vote It is open and voluntary membership Democratic control Limited interest in capital Division of net surplus Cooperative education Cooperation among cooperatives

KINDS OF CO-OPERATIVES

Consumer Cooperative Producers Cooperative Credit Cooperative Service Cooperative Multi-purpose Cooperative

CHARITY or FOUNDATION

A legal categorization of nonprofit organization that typically donates funds and support to other organizations, or provide the source of funding for its own charitable purposes.

WHAT IS FRANCHISING?
This happens when someone develops a business model and sells the rights to operate it to another entrepreneur This the trading relationship between companies themselves in terms of their legal status but have legal separate identities

Franchisor Franchisee

franchisor Promotional and administrative support Monitoring of service standards Research and new product development Agreement on fees, operating procedures, rights and responsibilities Initial franchise fee

Ongoing franchise payments

franchisee