Chapter 2 - Organizing Flashcards
3 Elements of effective organization within the brokerage.
- Creating organizational structure.
- decide which organization structure to use. - Defining employee relationships.
- clarify authority and responsibility. - Establishing position descriptions.
- title, purpose, primary responsibilities, and scope of position.
3 Forms of organizational structure
- Line organization
- Functional organization
- Line and staff organization
3 Advantages of line organization
- Simplicity
- Clear delegation of authority
- Quick decision making
3 Disadvantages of line organization
- Line managers must be fully knowledgeable in a wide range of areas for efficient decision making.
- Power concentrated at top, senior management makes all decisions.
- Limits employees growth by stifling innovation.
Line organization
- Authority concentrated at top, flows vertically downward.
- Responsibility flows upward.
- Each subordinate has one person to report to.
- Best suited for small brokerage where senior management personally directs activities.
Functional organization
- Activies grouped together by function.
- Departmentalized.
- Departments are headed by specialists with authority over the area.
- AKA Matrix System
- Created to overcome weakness of line organization (ie. too many activities, too few managers)
- Difficult to implement properly.
2 Advantages of functional organization
- Provides employees with expert advice.
2. Decisions made by management specialist.
3 Disadvantages of functional organization
- Employees have several bosses, resulting in conflicting instructions.
- Slow decision making.
- Too many managers distracts employees from serving clients.
Line and staff organization
- Combines strengths of line/functional organization.
- Best suited for large corporations.
3 Advantages of line and staff organization
- Authority is clearly defined.
- Readily available expert advice results in quick decision making.
- Encourages co-operation and communication on all levels.
3 Legal forms of organization
- Sole propietorships.
- Partnerships.
- Corporations.
3 Advantages of sole proprietorship
- Right to all profits.
- Easy to start.
- Simple decision making.
3 Disadvantages of sole proprietorship
- All liability rests with owner.
- Expertise limited to owner.
- Business lives and dies with owner.
General or Limited Partnership.
- General Partnership: all owners have same rights/obligations.
- Limited Partnership: At least one general partner and one limited (silent) partner.
- liability of silent partner is restricted to the amount of the investment.
4 Advantages of partnerships
- Broader expertise.
- Liability shared.
- Business carries on after death.
- Earning “all the profits”.
3 Disadvantages of partnerships
- More potential for conflict.
- Difficult to dissolve.
- Partnership agreements should be in place.
2 Advantages of corporations
- Liability is limited to corporate asses only.
2. Tax advantages.
3 Disadvantages of corporations
- Start-up fees.
- Legal fees.
- Income tax considerations - under greater scrutiny.
Operating Affiliations are not legal forms. What are the four types?
- Loosely knit affiliations.
- meet/discuss informally. - General purpose groups.
- formalized version of loosely knit. - Clusters.
- sharing “back room” services, maintaining ownership of book of business. - Common identity groups.
What would you consider before joining an operating affiliation?
- Services and support
- Exclusivity
- Fees
- Contractual agreement
- Financial strength
Exclusivity - questions to ask.
- How many other brokerages in the area will be allowed to join?
- What is the legal nature, and how tight is the contract?
- What is the reputation of brokerages already part of the affiliation?
Why should a lawyer review a contractual agreement?
- Determine responsibilities of the brokerage.
2. Determine benefits of the contract.
Law of Agency
Rights and responsibilities that arise when one entity represents another.
Types of authority
- Express authority.
- written, clearly stated. - Implied authority.
- not stated. - Apparent authority.
- Perceived by third party.
Sub-brokers
- Brokerage appoints individual to represent it.
2. Brokerage places business through another brokerage.
What is ratification?
Retroactive approval.
General purpose group
- More formalized extension of loosely knit affiliation.
- Often a fee to participate.
- Provides resources like education, information, advice.
- Non-competitive, non-threatening.
Common Identity Group
-Gives participating brokerages an image and resources of national or international strength.
Implied Authority
-Not stated in the contract, but law and custom permit other acts to be undertaken in conjunction with the express authority. (example: A brokerage uses an insurer logo in their advertising)
