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Business organisations. A business (also called a company , enterprise or firm ) is a legally recognized organization designed to provide goods and/or services to consumers .
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Business organisations A business (also called a company, enterprise or firm) is a legally recognized organization designed to provide goods and/or services to consumers. Businesses are predominant in capitalist economies, most being privately owned and formed to earn profit that will increase the wealth of its owners and grow the business itself.
The owners and operators of a business have as one of their main objectives the receipt or generation of a financial return in exchange for work and acceptance of risk. Notable exceptions include cooperative enterprises and state-owned enterprises. Businesses can also be formed not-for-profit or be state-owned.
Basic forms of ownership Although forms of business ownership vary by jurisdiction, there are several common forms: • Sole proprietorship • Partnership • Corporation • Cooperative
Sole proprietorship A sole proprietorship also known as a sole trader, or simply proprietorship is a type of business entity which is owned and run by one individual and where there is no legal distinction between the owner and the business. All profits and all losses accrue to the owner (subject to taxation). All assets of the business are owned by the proprietor and all debts of the business are their debts and they must pay them from their personal resources.
This means that the owner has unlimited liability. It is a "sole" proprietorship in the sense that the owner has no partners (partnership). A sole proprietor may do business with a trade name other than his or her legal name. This also allows the proprietor to open a business account with banking institutions.
Partnership A partnership is a type of business entity in which partners (owners) share with each other the profits or losses of the business. Partnerships are often favoured over corporations for taxation purposes, as the partnership structure does not generally incur a tax on profits before it is distributed to the partners (i.e. there is no dividend tax levied).
However, depending on the partnership structure and the jurisdiction in which it operates, owners of a partnership may be exposed to greater personal liability than they would as a shareholder of a corporation.
Corporation A corporation is a legal entity separate from the shareholders and employees. In British tradition it is the term designating a body corporate, where it can be either a corporation sole (an office held by an individual natural person, which is a legal entity separate from that person) or a corporation aggregate (involving more persons). In American and, increasingly, international usage, the term denotes a body corporate formed to conduct business.
Corporations exist as a product of corporate law, and their rules balance the interests of the management who operate the corporation; creditors who loan it goods, services or money; shareholders, typically in the secondary market, who hold shares related to the original investment of capital; the employees who contribute their labour; and the clients they serve. People work together in corporations to produce value and generate income.
In modern times, corporations have become an increasingly dominant part of economic life. People rely on corporations for employment, for their goods and services, for the value of the pensions, for economic growth and cultural development.
The six largest businesses of the world in 2005 by revenue in millions of dollars
Cooperative A cooperative often referred to as a co-op or coop) is defined by the International Co-operative Alliance’s Statement on the Co-operative Identity as an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise.
It is a business organization owned and operated by a group of individuals for their mutual benefit. A cooperative may also be defined as a business owned and controlled equally by the people who use its services or who work at it. Cooperative enterprises are the focus of study in the field of cooperative economics.
Also… • Economic democracy • Franchising • Joint venture • Holding companies
Holding company A holding company is a company or firm that owns other companies' outstanding stock. It usually refers to a company which does not produce goods or services itself, rather its only purpose is owning shares of other companies. Holding companies allow the reduction of risk for the owners and can allow the ownership and control of a number of different companies.
Economic democracy Economic democracy is a socioeconomic philosophy that suggests transfer of decision-making authority from a small minority of corporate shareholders to the larger majority of public stakeholders. While there is no single definition or approach, all theories and real-world examples of economic democracy are based on a core set of fundamental assumptions.
Proponents generally agree that modern economic conditions tend to hinder or prevent society from earning enough income to purchase its output production. Centralized corporate monopoly of common resources typically forces conditions of artificial scarcity upon the greater majority, resulting in socio-economic imbalances that restrict workers from access to economicopportunity and diminish consumer purchasing power.
Franchising Franchising is the practice of using another person's business model. The franchisor grants the independent operator the right to distribute its products, techniques, and trademarks for a percentage of gross monthly sales and a royalty fee.
Various tangibles and intangibles such as national or international advertising, training, and other support services are commonly made available by the franchisor. Agreements typically last from five to thirty years, with premature cancellations or terminations of most contracts bearing serious consequences for franchisees.
Franchising has been around for many centuries but did not come to prominence until the 1930s in the United States, when the establishment of electricity, vehicles, and, in the 1950s, the Interstate Highway system helped propel modern franchising, most notably franchise-based food service establishments. According to the International Franchise Association approximately 4% of all businesses in the United States are franchises.
Joint venture A joint venture (often abbreviated JV) is an entity formed between two or more parties to undertake economic activity together. The parties agree to create a new entity by both contributing equity, and they then share in the revenues, expenses, and control of the enterprise. The venture can be for one specific project only, or a continuing business relationship such as the Fuji Xerox joint venture.
This is in contrast to a strategic alliance, which involves no equity stake by the participants, and is a much less rigid arrangement. The phrase generally refers to the purpose of the entity and not to a type of entity. Therefore, a joint venture may be a corporation, limited liability company, partnership or other legal structure, depending on a number of considerations such as tax and civil liabilities.
Internal reasons • Build on company's strengths • Spreading costs and risks • Improving access to financial resources • Economies of scale and advantages of size • Access to new technologies and customers • Access to innovative managerial practices
Competitive goals • Influencing structural evolution of the industry • Pre-empting competition • Defensive response to blurring industry boundaries • Creation of stronger competitive units • Speed to market • Improved agility
Strategic goals • Synergies • Transfer of technology/skills • Diversification
Reasons for dissolving a joint venture • Aims of original venture met • Aims of original venture not met • Either or both parties develop new goals • Either or both parties no longer agree with joint venture aims • Time agreed for joint venture has expired • Legal or financial issues • Evolving market conditions mean that joint venture is no longer appropriate or relevant
organisation - how businesses organise themselves All businesses are organised into groups of people. This is so the employees can be organised and controlled to make sure the necessary work is one efficiently. These groups have managers responsible for them. There are different ways of organising the business into groups, and each way has its advantages and disadvantages.
There are additional benefits of organising people into groups, such as making it clearer how communications should be organised. The development of team-spirit also usually improves motivation and productivity.
Comments on this method of organisation: • Specialisation by function is more efficient. Employees get experienced in and competent at one particular job. • Accountability is clear i.e. whose responsibility is it to do what. • Clarity is improved i.e. it is clear who does what. • Communication is weakened by a lack of communication across and between functions. HRM may be doing things Marketing need to know about.
Inertia may set in where departments become over-focussed on their own agendas and lose sight of the overall business objectives. In extreme case the team-spirit may degenerate into tribalism where departments are ‘at war’ with each other and are more concerned with ‘winning’ this war than attending to the overall business objectives. • This system can become overly bureaucratic where flexibility is lost because things have to be done ‘by the book’. • This system may not be suitable for large businesses with many different markets and/or products.
Comments on this method of organisation: • This structure gives focus on individual products, which may be especially appropriate if different products have different problems and concerns. The issue of focus is important because it determines the priorities people will have, and the way they think about those priorities. • Each group can be run as a separate profit centre. This way, healthy competition and rivalry can develop between ‘teams’ which can help motivation and productivity. It is also flexible in that poorly performing groups can be closed down without too much disruption to the rest of the organisation.
Co-operation between teams will improve where it is in the interests of both teams to do so. • There is a danger of duplication of resource use if each team has a Marketing department, a Finance department and so on. • Rivalry can get out of hand and become destructive. • Individual teams can get out of overall management control, especially if headed by a very ambitious person.
Comments on this method of organisation: • Better response to and focus on local customer needs. • Better communication within the locally-based department. • Rivalry between departments. • Duplication of resource use. • Conflict and lack of co-operation between departments.
Comments on this method of organisation: • This method of organisation promotes focus on customers and their different individual needs. This is a major advantage and helps a business to become market oriented as opposed to the previous product oriented structure. • Departments can be organised by market segment which adds to the focus on customer need. • It is sometimes difficult to define exactly which group a particular customer belongs to.
Some customer groups may be small and so individual departments may be inefficient. • There will be duplication of resources. • Individual departments may escape from proper overall management control.
Comments on this method of organisation: • This structure gives focus on production processes which may be appropriate where, as in the example of oil, the processes are quite different with different problems and needs. • Otherwise, this is very similar to organisation by function.
Conclusions on organisational structures All these structures have strengths and weaknesses which a business has to think about before choosing which one to use. Changing that decision, and re-structuring, is very disruptive and very expensive, so it is better to get it right the first time. Communications and control are key issues.
The question of focus is also very important, because the structure affects the way employees think about themselves and their own personal objectives e.g. ‘I am an accountant’ or ‘I am a soap-team member’ or ‘I am a driller’. It is natural for humans to identify with a group of people (a ‘team’) and this can be turned to the business’ advantage by acting as a motivator and helping to raise productivity.
But it is also an important limiting factor. People become very defensive and territorial about the interests of ‘their’ team and this can get in the way of objective problem-solving. In the extreme, a business can disintegrate into a bunch of warring tribes where ‘revenge’ on ‘that lot’ overrides the business’ objectives.
