Business Organization.

What is a Business Organization?

The term business organization describes how businesses are structured and how their
structure helps them to meet their goals. In general, businesses are designed to focus on either
generating profit or improving society. This is where a group of people work for a common
goal.

Business organizations are operating in 2 sectors. They are

1. The Private Sector organization

2. The Public sector Organization

The
Organization

The Public The Private

sector Sector
Organization Organization
What are the differences between the public sector and private sector
organizations?

Private Sector Public sector

Aim/ Objectives  Profit  Create Jobs
 Survival  Rural Development
 Share Price (Increase)  Develop Infrastructures.
 Image and Reputation
 Sales Revenue
 Efficiency
 Quality and Innovations

Capital  Owners Money Through the Government

  Bank Loans From – Taxes
 Shareholders money. Fines

Control Controls by the board of Directors The government appoint a Heads to

who appointed by shareholders. control the organization.

Ownership Individuals or Group of Individuals. The Public

Examples  Sampath Bank  Bank of Ceylon

 Nawaloka Hospital  Kalubovila Hospital
 Lyceum International  Ananda College
School  The Housing and construction
 MAGA construction Authority.

Organizations within the Private Sector

The Private
Sector

Limited Liability
Sole Traders Partnership Joint Venture Franchise Multinational
Company

The Sole Trader Organization

Owner makes all the investments, shares all risks, takes all profits, manages and controls the
business himself. The sole-trader mainly depends up to his own resources, so the business is
generally on a small-scale basis.

 Single owner for the business

 All the capital come from the owner
 There may be employees.
  Small scale business.
 Take all profit
 Share all risk

Advantages Disadvantages
 The main advantage is that the sole  Limited capital
trader is the owner of the business.  Unlimited liabilities
So, he can take any decisions.  Not suitable for large scale
 Keep all the profits. operations
 Easy to set up.  Limited resources
 Low stat up cost.  Limited managerial expertise.
 Flexibility in operations.
 Maintenance of business secrets.

Ex: A small retails stores, small fashion stores, etc.

When sole trader wants to expand the business, he/she can go for a “Partnership.”

Partnership

A business that is set up by a minimum of 2 people but a maximum of 20. Professional

partnership can allow to have 100 partners. Partnership is a group of individuals working
together, sharing ownership. Every partnership must have an agreement including the capital
contribution and the way they are going to distribute the profit/loss.

Most of the partnership followed UK 1890 partnership act.

Advantages Disadvantage
 Easy to form  More laws to follow
 Availability of large resources  Profit has to be shared
 Better decision making.  Limited liability
 Flexibility in operation  Power and the status difference
 Sharing risk between the partners
 Benefit of specialization  Difficult to change the partner
 Difficult in decision making
 Delay in decision making.

Limited Liability Businesses

 This a business structure where the owners (Shareholders) liable only to the amount
they have invested. It is to be treated as a “Separate legal entity”
 Controlled by Board of Directors
 The owners must register the company under company act.
 Limited Liability
 The company capital is broken up to small amounts calls shares or stock and investors
can purchase those shares. Those are sold to the public or friends
 Holders of share called as Shareholders
 In the event the company goes bankrupt, Shareholders will only lose the amount
invested in company.
 Limited Liability
Businesses

Private Limited Companies Public Limited Companies

(Pvt Ltd.) (PLC)

Private limited Companies

They usually sell shares among only family members or with friends. Most of the private
limited companies are family-owned businesses. This company must have minimum one
director.

Ex- Lyceum International School (Pvt) Ltd., Navaloka Hospital (Pvt)Ltd.

Advantages Disadvantages
 Limited Liability of the  Cannot sell shares to the public
shareholders.  Cannot raise much finance like PLC
 Can raise up more capital than sole  Profit are shared (Shareholder
trader and partnership. received dividend as the profit)
 The Founder can maintain more  More complex and expensive to set
controlling power up.
 More resources and more finance
 Business Continuity

Public Limited Companies

These are usually a large-scale business.

They must publish their financial accounting and make them available to the public.

They have to follow lot of rules and regulations.

They can sell their shares to the public and trade those on stock exchange.

Must have minimum 2 Director and two shareholders.

Advantages Disadvantage
 Ability to raise large number of sales  Have to share the profit by paying
 Easier to borrow money dividend
 Limited liability of shareholders  More expensive to set up.
 Can enjoy an economic of scale and  Many legal requirement to full fill.
can reduce per unit cost.  The original funder can lose control
 Government put lot of controls.
 Difficult to manage and control

Ex: Abans PLC, Softlogic Holdings PLC

Joint Venture

A joint venture agreement is a business arrangement between two or more parties agree
(usually companies) to pool their resources for the purpose of accomplishing specific task.
This task can be a new project or any other activity.

Advantages Disadvantages
 Can spread the cost  Lack of experience in new areas
 No cultural crashes or control  Less attractive to finance
 issuers providers
 Easier to terminate  It may be too slow.
 Less risk
 May get access to government
grant

Ex: Samsung + Microsoft: All the Microsoft aps (Word, Power Point, OneDrive Etc) comes
as pre-installed apps in all the new Samsung flagship devices.

Franchise

Franchising is the arrangement between two parties where the first party (the franchiser)
grants the second party (the franchisee) the right to utilize its business processes, produce and
market a service or goods or simply use its trademark. The franchiser collects a one-time
payable franchisee fee as well as a percentage of sales from the franchiser.

Advantage Disadvantage
 Easy expansion capital  Less control over management
 High Growth rate  Innovation challenge

Ex: McDonalds, KFC, Burger King, Pizza Hut

Multinational Companies

The Multinational company is known as a company with headquarter is in one country and its
branches or subsidiary are spread across many countries.

Advantage Disadvantage
 Create job and wealth around the  Can create monopoly in the market.
country.  Can be a threat to small scall
 Economic of Scales. businesses.
 Innovations are easy due to ability to  Profits go to the home country
attract huge investments.  Importing employees from other
  Improvements of local infrastructure. countries.

Ex: Google, Facebook, Microsoft