The different types and scope of business organizations

The different types and scope of business organizations

The major types of organization include:

• Sole trades
• Partnerships
• Limited companies
• Franchise
• Licensing companies
• Joint ventures

The sole trader

This is the most common type of business ownership and has a wide range of activities (e.g. plumbing, electrical work, catering, construction).No ambiguous paper work requirements to start a sole trade business. Decisions can be made quickly and close contact can be kept with ones ‘customers and employees. All profits are enjoyed by the owner who has the responsibility and mandate to build up his business enterprise.

It has some disadvantages .As a sole trader one has to make all decisions by himself, working long hours to achieve the business needs which can be even risky if one gets ill. You also have to provide all the finances by yourself. As sole trader you need to act a jack-of all –trade. This may be unrealistic in that one cannot have all the business skills required just because they are electricians for example.

The partnership

An ordinary partnership is formed by two to twenty partners. However, the partnership Act 2002 which is an act of parliament has made it legal for some forms of partnerships e.g. big law firms to have more partners who have a limited liability. People forming partnerships can share workload and contribute their skills from respective fields of specializations. It’s also easy to share the capital requirement needed. For example two or more lectures are able to pool knowledge on different subjects and can be able to work on shifts. If one falls ill the business can still go on.

Partnerships are usually set up by writing out a deed of partnerships which is witnessed by the solicitor and sets out the important details such as how the profits and loses will be shared .partnerships are particularly common in professional services e.g. accountants ,vets.

Companies

A company is formed by shareholders with directors appointed to give directions to the business. The chief executive is the most senior official within the company with the responsibilities for making major decisions. Appointment of Some specialized managers is done to run and control the business on behalf of the board.

Companies are bodies with legal capacity and a right of existence on their own separate from their owners.so they can sue and be sued on their own name. Funding of the organization is done through purchase of shares. This is done through face value which is also called per value.

The shareholders status is of limited liability which means they are protected from losing a certain amount in case the organization makes loses. All companies have to register with the office of the register of companies and attain an official address.

Limited liability is a form of business protection for company shareholders including some limited partners. For these individuals there is a maximums sum they can lose from a business venture which they have contributed. This is the limit of their liability.

Franchising

Franchising is the ‘hiring out ‘or licensing of the use of ‘good ideas ‘to other companies. A franchise gives permission to sell a product and trade under a certain name in a particular area. In case I have good idea, I can sell you a license to trade and carry a business using my idea in your area. The person taking out franchise puts down a sum of money as capital and is issued wit equipment by the franchising company. The firm selling the franchise is called the franchisor and the person paying out for the franchise is called the franchisee.

Where materials are an important part of it the franchisee must buy an agreed part of supplies from the franchisor, then the franchisor makes profit on these supplies including ensuring the quality of the final product. The franchisor also gets a percentage of final sales of the business, without having to risk capital or became involved in day- to- day management. The franchisee gets benefits from doing business under an established name and enjoys a local monopoly. Training is mostly arranged by the franchisor. The franchisee is his or her own boss and takes most profits.

Joint venture

A joint venture is considered to be more binding than franchise. It’s a mutual agreement between two companies to provide resources to assist each other for agreed period and payment. A joint venture is where two companies come together to attain goal that they could not attain separately. It may be within a short period of time or take several years. For example where one company  have a marketing distribution channel  in place for its products but it lacks the additional products to sell, so it is compelled to enter into a form of a joint venture with a company that  is a manufactures the said  product but doesn’t which in turn does not have the distribution.

Licensing organizations.

These are more like government agencies granting individual s license to allow them trade to business or other individuals their intellectual property .a license acts as a contract through one party can grant another the  right to use its  copyright, trademarks ,patent and logos. The individual or organization getting the patent pays some fees known as royalties to the owner. The agreement therefore does not stand as permanent transfer of ownership for the intellectual property. Through licensing small organizations can be able to expand and grow their sales with no extra capital investment on distribution channels or by risking failure in creating new working areas

Difference between for profit and nonprofit organization

The most significant difference between for profit and nonprofit organization is their reason for existence. Profit organizations are mainly set up to generate income to their owners and their employees whereas nonprofit are commonly established to provide humanitarian service or environmental needs. All funds collected by nonprofit organizations are channeled towards meeting people and environment unmet needs like water, shelter food and education if not so they may be also directed towards issues like forestation and securing endangered species. Profit organization provide products on demand to the market places and money earned on the sales is distributed to the stakeholder in terms of their shares in the business

Difference in Features

Cash and receivables come as sales revenue to profit making organisations.The organization depend on collected capital arrangements coming in form of their earned income and some credit arrangement from their lenders and suppliers to fund their operations. For profit organizations however, get their funds from the government mostly .other funds can come in form of grants and donations from well-wishers and other interested organizations.

The methods of acquiring income by both entities determine how they get to use the proceeds in their functions .nonprofit organizations ensure that they spent their income in ways that derive maximum utility to their recipients.in the case of profit driven organizations they have to ensure their debts and other expenses are cleared and then the profit is spent as per a laid down structure.

Tax and liability factors

Profit making organizations have a tax structure which depends on the nature of organization. Sole proprietors and partnerships incomes are treated as personal income and owners are liable for all their business debts. Nonprofit making organizations are can be accepted from tax by registering as such.Organisations contributing to nonprofit organization is offered some tax incentives as well for

Workforce composition

Workforce composition is different between the two organizations. For profit employees take a form of salaried and part time paid employees, with some occasional trainee’s .Nonprofit organizations however employ a certain small workforce and large percentage of volunteers. The process for hiring and firing is also different, employee motivation direction and communication protocols may also vary between the two organizations for both paid and volunteer employees.

Difference in organizational structure of small, medium and large organization

Organization structure makes a foundation over which most businesses operate and grow.

Organization structure is different in small and large organizations where by small organization is represented by few layers of managers and less employees in their chart. Large organization is represented by organization structure of many layers with a load of employees ranging from senior officials to ground supervisors. Small organization keeps the protocol simple to avoid complexities and beuracracies in large organizations on leadership and communication procedures

Decision making process

Long term decision making is centralized in the smaller organizations as compared to large organistions.within the first years large organization can cope with decision making but with increase in capacity to handle it becomes more complicated and not a single or few people can do it.The allows decision making to move away from the main offices or the headquarters to the various branches thus creating different layers of management

Individual responsibility

In large organizations each individual has his work clear cut while in smaller organizations one has to handle a wider area of responsibility than his counterpart in large organization.

Locations

Large organization have numerous number of offices , retail outlets and service centers whereas small organizations are less spread out .This is because large organization need to serve a large population whereas small organizations have a specific target population that they concentrate upon. Their main aim is to ensure complete satisfaction to their clients and gain control of their targeted clients.

Communication

Organization structure have some formal communication structure or flow of information.in small organist ions these communications are handled in person between employees and the executives who may be having their offices within the organisation.Communication in the level of interpersonal level becomes less as the organization grows .these calls for use of electronic means of communication in terms of phone mails and faxes in large organizations due to distance.

Different business purposes

Purpose involves an organizational statement of long term plans which is known as the mission of the organisation.it explains the reasons why a company is in existence. Goals define the actions necessary for the organization to get to its objectives. Originations also have objectives which are short term goals

Implementation

Laying down organization goals is the priority process, where the senior management should be in the forefront. Depending with organizations size divisional leaders may also be involved. Other employees also should be involved to include their input so that it could be a collective effort and everybody is brought on board.

Considerations

Organizations can gauge their performance by financial growth of their enterprise. The financial indicator that can be used include; liquidity, asset utilization, profitability. Taking an example of growing company by getting targeted profit margins, having a strong cash balance and low inventories. Some nonfinancial indicators include new applicants of patents, which show the innovation within the company and market acceleration.

Global, transnational, international and multinational company

Each one of these terms is distinct with a specific meaning that defines the degree and scope of interaction taking their operations away from of their “native” country. International organizations are known to import and export; they may have no investment outside their native country.Multinational companies invest in other countries, but have no coordinated product access in each country. They are more focused on gaining access to each individual local market.Global companies invest in many countries. They major in marketing their products by the use of similar coordinated image/brand across all markets. Generally the same corporate office is mandated for global strategy. Emphasis is on volume, efficiency and cost management. Transnational companies are seen to be more complex organizations. They invested more in foreign operations; they have a centralized corporate facility but prefer to do decision-making and marketing powers at each single foreign market.

Market forces and economic operations

Industry analysis can be done using the five Michael porter’s forces which is a very useful tool for a strategist in business. The analysis is based on observation that margins of profit may vary between industries which are then explained through the structure of an industry. The purpose of the five forces is to ascertain the attractiveness of the industry. More so the analysis gives an insight on formulating a strategy and understanding competitive landscapes of completion between companies.

Porter’s Five Forces Analysis

The framework consists of these five competitive forces:

Bargaining power of buyers- buyers with collective bargaining and sensitive in prices have a power to push prices down.

Industry rivalry-high competition between players in the industry lead to less profit margins as all companies are competing for the same dollar.

Threat of substitutes- the availability of alternatives to market products creates the possibility of shifting from one commodity to another, these reduces the prices of products.

Bargaining power of suppliers- highly powerful suppliers can have a higher hand in demanding premium prices than uncoordinated suppliers.

Barriers to entry-this acts as hindrances to new competitors which makes high profits enjoyable.

Industry analysis and competition

Competition in an industry is grounded in the economic structure and it goes beyond the existing behavior of the current competitors.

This state of competition within an industry is grounded upon five essential competitive forces. The strength aboard these forces forms a base of profit potential in the industry. Profit potential in an industry is measured using   long-term return on invested capital. Different kind of   industries have different profit potential—just as those collective strength of porters five forces differs between industries.