Lecture 3: BUSINESS ORGANISATION/BUSINESS UNIT

 OUTLINE
 Definition of business organization
 Identify the sources of funds available to business organisation or firms.
 Identify the forms/types of business organisation.
 Advantages and disadvantages of the various types of business organisation.

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 Definition of Business Organization

 A business organisation is any firm established for the purpose of carrying out some kind of economic activities such
as production and distribution of goods and services.
 A business organisation may be owned and controlled by the private individuals and hence referred to as private
enterprise or may be owned and controlled by the state/ government and hence referred to as public enterprise.

 Sources of Funds Available to Business Organisation/Firms

o Personal savings.
o Borrowing from friends and close relations.
o Borrowing from the bank and other institutions.
o Ploughing back profits.
o Hire purchase.
o Issuing of shares.
o Issuing of debentures/bonds.
o Sale of assets.
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 Forms/Types of Business Organisation
 Sole Proprietorship.
 Partnership.
 Joint Stock Company.
 Co-operative Society.
 Public Corporation
 Joint Venture.

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 SOLE PROPRIETORSHIP
 A sole proprietorship is a form of business organisation in which one person owns, controls the affairs of the
business, and assume the responsibility of bearing any risk of production.
 It is the oldest, simplest, and most common form of business organisiation.
 There is no legal distinction between the business and the owner

 Features/Characteristics
• The business is usually owned by one person.
• It is simple and easy to form because it does not require completion of any document.
• Capital is contributed by one person/sole proprietor either from personal savings, loans from banks, friends, or
relatives.
• Decision is taken by the owner alone without consulting anybody so quick decision is taken.
• The business has unlimited liability.
• The business has no separate legal entity.

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 Advantages and Disadvantages of Sole Proprietorship
 Advantages
 Ease of formation.
 Complete control
 Privacy
 Enjoys profits
 Direct relationship/contact with customers.

 Disadvantages
 Limited access to capital
 Unlimited liability.
 Lack of continuity.
 Limited management skills
 Stress and workload

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 PARTNERSHIP
 The partnership is a form of business organisation where two or more individuals, known as partners come together
to carry out a business venture with the goal of earning/making profit.
 A partnership requires at least two partners.
 The maximum number of partners is usually regulated by law, often up to 20 in many countries, except for professional partnerships
like those in law or accounting, which may have different rules.
 A partnership is often governed by a partnership agreement called Partnership Deed.
• It outlines the terms and conditions of the partnership, including the rights, responsibilities, and profit sharing agreements among
the partners

 Types of Partnership
 General partnership
 Limited partnership

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 Features of Partnership

o A partnership is jointly owned by two or more individuals who contribute their resources, skills, and expertise to the
business.
o Decision is taken by all members who own the business.
o Capital is contributed by partners
o Control and management are in the hands of all the partners except in the case of a limited partnership.
o The liability of each member is unlimited except limited partnerships.
o Profits are shared among the partners based on the agreed-upon profit-sharing ratio outlined in the partnership
agreement.
o Continuity and Succession: A partnership does not have perpetual succession.

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 Types/Kinds of Partners

 Active or Working or General Partner: Actively participates in the day-to-day operations and management of the
partnership.
 Dormant or Sleeping Partner: Invests in the business but does not participate in its daily operations.
 Nominal or Holding Out: Does not have an actual interest in the partnership but allows their name to be used as a
partner.
 Limited Partner: Invests in the partnership but has limited liability and does not manage the business.

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 Advantages and Disadvantages of Partnership

 Advantages
 Larger amount of capital is raised.
 Effective decision-making.
 Better management and greater efficiency.
 Longer continuity of the business.
 Sharing of risk among members.
 Enjoyment of economies of scale.
 Disadvantages
 Unlimited liability.
 Delay in decision making.
 Disagreement among partners may collapse the business.
 Lack of continuity.
 Limited capital.

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 JOINT STOCK COMPANY/LIMITED LIABILITY COMPANY

 A type of business entity that is owned by shareholders who hold shares of the company’s stock
 It is also known as a Corporation
 Types
 Public Joint Stock Company ( Public Limited Liability Company)
• Shares are traded publicly on stock exchanges and are subject to regulatory requirements for public disclosure
• Has a large and diverse group of shareholders
• Shareholders' liability is limited to the amount they invested in the company.
• A minimum of seven members with no maximum
• Managed by a board of directors elected by the shareholders

 Private Joint Stock Company (Private Limited Liability Company)

• Shares are not traded publicly on stock exchanges
• Restrictions on the transfer of shares and the number of shareholders
• Shareholders' liability is limited to the amount they invested in the company.
• Can be formed by a minimum of two members and a maximum of fifty members.
• Managed by a board of directors appointed by the shareholders 10
 Features of Joint Stock Company

 Limited liability
 Transferability of shares: Shares of a joint stock company can be bought and sold on stock exchanges, providing
liquidity and flexibility for investors
 Continuity
 It is managed by Board of Directors elected by the shareholders
 It has large capital outlay because it could easily issue shares and debentures to increase its capital.
 Day to day decision-making process of the business is in the hands of Board of Directors
 It has a separate legal entity.

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 Advantages and Disadvantages of Limited Liability Company

 Advantages
o Enjoyment of limited liability.
o Continuity of business is assured.
o Accessibility to large capital which enhance growth.
o Ownership is separated from control.
o Enjoyment of economies of scale.
o Enjoyment of a legal entity.
o Transfers of shares.

 Disadvantages
o Difficult to form.
o Limited control of the business by owners.
o Exploitation of shareholders.
o Delay in decision making.
o Possibility of conflict of interest.
o No business secrecy 12
 COOPERATIVE SOCIETY

 A cooperative society is a form of business organisation established by people with a common interest who pool their resources for
mutual benefit.
 It is formed mainly by consumers, traders, farmers, workers, and craftsmen to satisfy their common needs and interest.
 Types of Cooperative Society
 Producer Co-operative Society
 Consumers Co-operative society
 Marketing Co-operative Society
 Credit and Thrift Co-operative Society
 Features
• Membership is open to everyone who fulfils certain conditions stipulated by the society.
• It is formed by a minimum of two persons but no maximum number of persons
• Decisions in a cooperative society are made democratically, with each member having one vote, regardless of their shareholding
• Members contribute capital to the cooperative, and the return on this capital is usually limited
• The liability of members is limited to the extent of their capital contribution.
• The primary motive is to provide service to members rather than to maximize profit
• It is a separate legal entity 13
 Advantages and Disadvantages of Cooperative Society
 Advantages
o It provides members with opportunities for training in various activities.
o The activities of a cooperative society help to raise the standard of living of its members by making goods available to them at
affordable prices.
o It helps to keep prices of goods low since it can sell to members at lower prices because its profits are not taxed.
o Members can obtain loans for productive purposes at lower rates of interest.
o Habit of saving is encouraged by thrift and credit societies.
o It is democratic in nature since members have equal voting rights.
o Members’ liability is limited to their capital contribution, protecting personal assets.

 Disadvantages
o Problem of securing efficient management to run the organisation.
o Decision-making can be slow due to the democratic process and the need for consensus.
o Potential for conflicts among members with differing interests and priorities.
o Raising capital can be challenging as it depends largely on member contributions.
o Difficulty in recovering loans.
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o Embezzlement of funds.
 PUBLIC CORPORATIONS/STATE ENTERPRISES

 Public Corporation is a large-scale business enterprise established by an Acts of Parliament, owned and controlled by the
government to provide essential services to better the lives of the citizens.
 Public corporation is also called Statutory Corporation, State Owned Enterprise, and Public Enterprise.
 Examples of public corporations in Ghana are Ghana Railway Corporation, Ghana Broadcasting Corporation, Ghana National
Petroleum Corporation, Volta River Authority, Ghana Grid Company Limited (GRIDCo), etc.

 Features
• It is owned by the state or the general public.
• It is formed through the Act of Parliament but in the case of a military government, it is formed through a decree.
• The management of a public corporation is in the hands board of directors whose chairman and members are appointed by the
minister in charge of the particular ministry.
• Capital needed to finance the organisation is provided by the government from the consolidated funds through taxation and loans
from both internal and external sources.
• The main motive of a public corporation is to provide welfare services to the general public.
• Public corporations are accountable to the government and, by extension, to the public.
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 Reasons for the Establishment of Public Corporations

 To provide essential goods and services at reasonable prices.

 To develop and maintain critical infrastructure that supports economic growth, such as ports, railways, and highways.
 By participating in key sectors, public corporations can prevent monopolies and promote competitive markets,
ensuring fair pricing and preventing exploitation by private entities
 To create employment opportunities.
 Due to huge initial capital requirements.
 Government gets involved in business in order to raise revenue.
 To provide certain products and services for security reasons.
 Undertake long-term investment projects that may not yield immediate returns but are essential for sustained
economic growth and development

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 Problems Facing Public Corporations/Why SOEs Fail in Their Operation

 Financial Problem/Inadequate Funding.

 Frequent Government/Political Interference.
 Appointment of unqualified personnel or inefficient management.
 Unpatriotic attitude of the workers.
 Poor remuneration / Poor working conditions.
 Inadequate supply of resources.
 Embezzlement and corruption.

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 Advantages and Disadvantages of Public Corporations

 Advantages
o Public corporations often provide essential services that may not be profitable but are crucial for the public welfare,
such as water supply, healthcare, and public transportation.
o They often have access to government support, which can provide stability and enable long-term investments in
infrastructure and services.
o They can create employment opportunities and contribute to economic stability
o The government can regulate prices to ensure that essential services remain affordable for all citizens.
o They help control and eliminate excessive private monopoly.

 Disadvantages
o Risk is borne by the innocent taxpayer what has not taken part in the poor running of the organisation.
o Inefficient and inadequate supervision leading to wastage of resources.
o Management exploits and embezzles state funds.
o Political interference especially politicians whose party is in power.
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 Solutions to the Problem of SOEs

o Provision of measures to attract top-class managerial personnel to effect adequate supervision.

o Ensuring better attitude of workers through the provision of incentives to motivate them.
o Employment of managerial staff should be based on merit and not on political affiliation.
o Provision of adequate funding or financial resources.
o Corrupt practices such as embezzlement or pilfering of government property should be checked.

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 JOINT VENTURE

 A joint venture is a business that is jointly owned by two or more independent firms who continue in their original
business but pool their resources in another line of business.
 In other words, it is any business in which a private investor and government are in partnership.

 Features
• Each party contributes assets, capital, expertise, or technology to the joint venture.
• It is usually formed when there is a need for foreign expertise which is lacking in recipient country.
• It is usually created by an Act of Parliament/ a decree by the host country.

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 Advantages and Disadvantages Joint Venture

 Advantages
• It paves way for sufficient capital resources.
• It leads to creation of jobs for labour in the host country.
• It enhances government revenue through taxation.
• It gives firms access to the needed markets.
• It gives firms access to new and improved technology

 Disadvantages
• Increased balance of payments through repatriation of capital and profits by the foreign partners.
• It may result in incomplete projects when the foreign partners abandon the project for some reason such change of government.
• It may result in lopsided development of the host country since they tend to favour specific sectors of the economy.

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THANK YOU