1.2 types of Business organizations

Question 1

7 Types of Profit making/commercial organizations

Answer 1

● Sole traders
● Partnerships
● Companies/corporations
● Cooperatives
● Micro-financiers
● Public-private partnerships

Question 2

3 types of for profit social enterprises

Answer 2

● Cooperatives
● Micro-financiers
● Public-private partnerships

Question 3

Benefits of Sole traders

Answer 3

● Own boss/complete control
● Limited accountability
● Business close to customers
● Easy registration, minimal legal formalities
● Easy accounting (for tax authorities)
● Flexibility in working hours, procedures etc
● Potentially more enthusiasm

Question 4

4 Limitations/disadvantages of a sole traders

Answer 4

1. Ineffectiveness if one person has to make all important decisions
2. Lack of continuity if health issues or death/
3. No human/financial resources to expand/forced to remain niche
4. Unlimited liability for debts and mistakes /no legal distinction between business and the founder/owner

Question 5

What is a partnership?

Answer 5

A type of business formed by 2+ people with similar/related skills, such as doctors, lawyers, business consultants etc. with unlimited liability for debts and mistakes.

Question 6

Benefits of a partnership

Answer 6

● Less accountability& formalities than corporation, although more than a sole trader
● Decisions are made jointly
● Finance more available than for sole trader
● Diversified services than sole trader - different partners different different skills
● Sleeping partners possible (not working, only providing finance and getting a share in revenue)
● Easy accounting (for tax authorities)
● Flexibility in working hours, procedures etc
● Potentially more enthusiasm, than in corporations
● With more continuity, there is less risk and more access to external finance, although less than for corporations

Question 7

4 Limitations of partnerships

Answer 7

1. Decisions may be harder to agree than for sole trader or corporations
2. There may be issues with sharing profit between sleeping and active partners, or even active partners with different financial contribution or different level or activity, particularly, if there is no DEED of Partnership (the legally binding document)
3. Each partner may be accountable for the mistakes of others up to 100%.
4. Less access to external finance (then for corporation)

Question 8

Types of companies/corporations

Answer 8

● Joint stock (unlimited shareholders) or
● Limited companies (limited number of shareholders and some personal liability for public debt), like:
INC
LLC
PLC
LMT etc.

Question 9

To what is the shareholders liability limited?

Answer 9

To their investment in company. In case of liquidation, they are the last party to receive any remains from sale of the company assets.

Question 10

What are the rewords for a shareholder?

Answer 10

1. Price/value increase of their shares
2. Dividends

Question 11

3 main causes of share price fluctuations?

Answer 11

1. if profit/dividends are retained or payed out and the value of company and its shares changes respectively
2. Investor expectations of future profits increase/decrease
3. Investor sentiments/attitudes about risks change

Question 12

Benefits of a company

Answer 12

● Limited liability
● Vast source of finance in the form of shares
● Continuity
● Larger pool for talent, as well for management
● Improved risk profile and respectively improved access to external finance

Question 13

Sole trader?

Answer 13

Who owns and runs business and has full control over decisions

Question 14

Public limited company?

Answer 14

Allowed to offer shares on a public place, such as a stock exchange
“the company which is going public” may gain fund in their initial public offering (IPO) or afterwards.

Question 15

5 main issues/limitations for a Public limited company?

Answer 15

1. High degree of overall accountability: audited annual financial statements (provided to authorities or published openly), in some countries disclosure of shareholding entities, Director salaries etc
2. Shareholder do not run/control the business, their involvement is restricted to the voting on Annual/extraordinary General Meeting
3. Setting up/registration/legal issues may take time and money
4. If Initial public offering is unsuccessful, the result will be the fact that the company/previous shareholders have sold itself for little cash.
5. NO control who buys the shares

Question 16

Private limited company?

Answer 16

● Less/around 20 shareholders allowed, no right to offer shares publicly
● Less accountability than Public limited company

Question 17

Benefits of Public limited company

Answer 17

1. More access to finance - Lowered risks for investors based on more transparency and respectively more readiness to invest, increase value of shares
2. Larger business with more efficiency, economies of scale etc
3. Established (partly mandatory, such as for board of directors) organizational structure

Question 18

2 obligatory documents to register a Public limited company

Answer 18

1. Memorandum of association (objectives; share capital)
2. Articles of association (rights/responsibilities of shareholders, board member roles etc)

Question 19

Memorandum vs Articles of Association

Answer 19

While the MOA sets out the company’s constitution, and so it is the cornerstone on which the company is built. Conversely, AOA comprises bye-laws that govern the company’s internal affairs, management, and conduct. Both MOA and AOA, require registration, with the registrar of companies (ROC), when the company goes for incorporation.

Question 20

Social entreprise?

Answer 20

A enterprise/business with social purpose (to improve human, social, environmental well-being) which takes priority over maximizing sales, growth etc.

Question 21

Cooperative?

Answer 21

A form of partnership, where members own and run the business, but their number is not limited.

Question 22

5 types of cooperatives?

Answer 22

There are more, but 5 most widespread:
1. Financial cooperatives (like credit unions)
2. Housing cooperatives (may select who can buy the apartment and manage rents, invest the surpluses of the rents in the building)
3. Workers cooperative (the workers take over failing business, managers are payed less, etc)
4. Producers cooperatives (farmers, who share costs for equipment etc)
5. Consumer cooperatives

Question 23

Micro-financiers

Answer 23

Started in Bangladesh, small credits, no/less collateral, no obligation passed to other persons.

Question 24

Benefits of Public private partnership

Answer 24

● Collaboration of Public bodies and private businesses makes large projects possible, which could be otherwise non-viable
● Business provides business functions and efficiency whereas Public bodies provide additional funds, oversight, stakeholder support

Question 25

2 main obstacles of PPP-s

Answer 25

1. Decision-making may be complex and time-consuming
2. Low margins (because of social purpose) may not be sufficient for maintenance, improvements or growth

Question 26

Non-profit social enterprise?

Answer 26

● No intention of profit at all, but run as a business and has some revenue.
● Another name is NPO (non-profit organization), such as Red cross
● They may have some revenue, but the revenue less costs is called the surplus, not the profits.

Question 27

NGO?

Answer 27

● Focus on development,
● Providing :
consultancy,
trainings,
research
to governments, communities etc.
● May have just social, environmental, or even Political aims. Working on a singe issue or a wide range.

Question 28

2 Types of NPOs

Answer 28

1. NGO (more focus on development, providing consultancy, trainings, research to governments, communities etc,)
2. Charity (focus on direct support/philanthropy)

Question 29

Limitations of NPOs

Answer 29

● Almost no control and oversight, which may result:
● inefficient in use, appropriation of funds
● Undesirable lobbying/actions
(like gun owners of America)

Question 30

Financial cooperatives

Answer 30

like credit unions, social aims may prevail, such as lower rates for credits or other services

Question 31

Housing cooperatives

Answer 31

Members may select who can buy the apartment and manage rents, invest the surpluses of the rents in the building

Question 32

Workers cooperative

Answer 32

the workers take over failing business, managers are payed less, etc

Question 33

Producers cooperatives

Answer 33

e.g. farmers, who share costs for equipment etc

Question 34

Consumer cooperatives

Answer 34

To enjoy purchasing economies of scale

Question 35

A company CARE builds a hospital building and then leases it to the government. Government provides funds for treatments and is as well responsible for the management of medical staff. CARE then acts as landlord, providing housekeeping and other non-medical services.

Which type of organisation is this?

Answer 35

Public Private partnership