Different Types of Companies, Forms of Organization and External Factors Impacting Business

This article discusses different types of companies based on size, forms of organization, and external factors impacting business. It also covers functional and divisional organizational structure and PESTLE analysis.

Business In Practice

TABLE OF CONTENTS
INTRODUCTION ..........................................................................................................................3
MAIN BODY...................................................................................................................................3
Different types of companies and how they work.......................................................................3
Different form of organization.....................................................................................................6
Organizational structure and external factors impacting business...............................................8
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Business practice refers to information related to business, its functions, business plans,
products or services, personnel and business relationships. The aim of project is to gain
knowledge of about different types and sizes of business. The project contains discussion on
different types of companies along with characteristics of each. It will further highlight
characteristics and examples of sole traders, partnership and corporative and how they are
different from company. There will be an analysis on different organizational structure and
external environment of business using PESTLE analysis which would include the impact of
both on business and its performance.
MAIN BODY
Different types of companies and how they work
Entities can be classified on differ basis and size of entity is one of the basis of
classification. On the basis of size entities can be classified into four- micro, small, medium and
large.
Micro businesses
Definition and example
Micro business is business that employees less than 10 employees and turnover of
company is not more than £2 million. These businesses provide products and services in local
areas (Mago and Modiba, 2022). Types of businesses that are considered as micro business are
plumbers, street vendors, shoemakers, farmers, etc.
Characteristics
 Micro business is owned and managed by single person or individual.
 These are more flexible and adaptable to changing environment.
 Resources used by micro environment are local and easily available resources. They are labour- intensive with very less capital investment.
How they work
Micro business requires very less capital investment that can be raised through micro
credits or small loan from micro finance. The loans raised from these sources are invested in
funding working capital, inventories, furnitures and machines that are used for production. It is
very difficult for micro business to raise funds, so they invest capital through grants from
government. The contribution of micro business in economy of a country is very high that's why

government has taken many steps to promote these businesses. With limited funding micro
business provides various employment opportunities.
Small businesses
Definition and examples
Small businesses are business that produces goods and services on small scale with fewer
employees and less annual turnover. The employees employed in small businesses are less than
50 and more than 9. Turnover of company should not be more than £10 million (Munada, 2022).
The examples of small businesses are grocery stores, medical stores, bakeries, cottage industries,
etc.
Characteristics
 The capital investment in these business is little high in comparison to micro business.
 Small business has flatter hierarchies.
 Resources of company are very limited. Motive of these businesses are to satisfy needs and demands of local community.
How they work
Small business operates in market by developing a strong relationship with customers and
suppliers. The funds are raised through bank loans, angel investors, friends or family, venture
capital, etc. The contribution of small business in economy is high so these are supported and
promoted by government through various schemes. Marketing plans used by small business are
similar to that of large business as they follow ideas of large business to reach their local
customers.
Medium businesses
Definition and examples
Medium businesses are type of business that engages less than 250 employees and has a
turnover of less than £50 million. The examples of medium businesses in UK are Verdant
Leisure, smith Brothers Ltd., etc.
Characteristics
 Restricted to limited geography.
 There is limited or no separate business unit.
 Favours flexibility and innovations. Creates more competitive and healthier economy.

How they work
The focus of medium enterprises is on economic growth, innovation, job formation and
to provide products and services according to needs of customers (Pech and Vrchota, 2020). The
investment required in this business is more in comparison to small and micro businesses. They
raise funds through banks and financial institutions, venture capitalists, angel investors,
factoring, etc. As employees engaged in this business is limited so there is no requirement of
complex organizational structure.
Large businesses
Definition and examples
Large businesses engages more than 250 employees and has annual turnover of more
than £50 million. These businesses account for 40% of employment in UK with large amount of
investment. The examples of large businesses are Unilever, Tesco, Tesla, Marks & Spencer, etc.
Characteristics
 Professional and skilled employees
 Better access to finance
 Large resources and capital for expansion and growth Structured organization with clear division of business functions
How they work
The economic contribution of large business is high though number of large businesses is
less in comparison to small and medium enterprises (Handayani and Handoyo, 2020). They have
the highest total capital income and the highest taxes. The wages paid to employees are also high
as they hire skilled and talented workers. To mitigate all expenses and invest in new projects,
funds are raised through various sources such as banks, venture capitalist, selling of shares (in
case of company), retained earnings, etc.
Different form of organization
The legal form of business depends on various factors such as size and scale, ownership
and management, capital, growth and expansion, etc. The different forms of business
organization that are discussed below are sole trader, partnership, limited liability business,
public limited liability business and cooperative.
Sole trader

Sole trader is the simplest form of business which is owned and managed by an
individual. They are solely liable for all business related debts and liabilities are unlimited. The
formation of sole trader is easy and low cost as there is no such legal requirements for formation
of business. They are required to get registered with HMRC and national insurance (Rye, 2020).
Sole traders are generally small and medium business and examples are electricians, gardeners,
plumbers, etc.
Characteristics
 There is no separate legal entity i.e. business and owner are same.
 The sole trader business is dependent on owner and business may cease in case of death,
retirement or bankruptcy of owner.
 The liability of owner is unlimited.
Partnership
A partnership business requires two or more individuals who agree to form a business
entity and share profit and losses of business. Every partner is responsible for actions of each
other and liability of business is unlimited (Different types of business, 2018). A partnership
agreement may be formed where sharing ratio and other terms and conditions of business are
mentioned to avoid future disputes among partners. They are also required to get registered with
HMRC and file return and pay tax. Examples of partnership in UK are Social chain, Pret A
manager, Bremont, etc.
Characteristics
 Two or more individuals are required to form partnership.
 Written or verbal agreement between partners.
 Business can be carried by all partners or any one acting for all.
 Non transfer of partnership shares to any other partner.
Limited liability partnership (LLP)
Limited liability partnership is a part of partnership business which allows liability of
each partner limited to amount invested by them. Each partner of LLP is not responsible for each
other's misconduct or negligence (Cott, 2021). The partnership is formed under Limited liability
partnership act, 2000. They are required to register themselves with Companies house and
HMRC. At least two of the partner must be designated partner who will be responsible for
sending information to Companies house.

Characteristics
 Separate legal entity from members or partners.
 Liability of partners are limited to investment made by them.
 Must be registered with Companies House.
 Accounting and filing requirements of LLP are similar to companies.
Public limited company (PLC)
A public limited company is company structure that is managed by directors and owned
by shareholders. The business has separate legal entity from its owners i.e. company can sue or
be sued. This type of business provides protection to shareholders from liabilities and debts. The
shareholders of company can be individual or other companies (Yusof, 2019). They are required
to register with Companies House and HMRC and it is responsibility of directors to file income
tax return and make payment of tax annually. PLC are required to file annual returns to
Companies House. Some examples of PLC are Barclays Plc, Marks & Spencer, J Sainsbury,
Tesco, etc.
Characteristics
 The liability of shareholders are limited.
 Separate legal entity from shareholders or owners.
 No restriction on transfer of shares.
 Formation of PLC is costly as it requires lot of paperwork.
Cooperatives
Cooperatives are form of business that are jointly owned and controlled by its members.
These are trading enterprises that provides goods and services and generate profits that are not
distributed among shareholders. The members of cooperative mutually decides how to use the
profits. Examples of cooperative are ARLA foods which is farmers cooperative, community
pubs, credit unions, etc.
Characteristics
 Open and voluntary associations that are owned and managed by members.
 Democratic structure with each member having voting rights.
 The main purpose of business is providing useful services.
Organizational structure and external factors impacting business
Organizational structure

There are different types of organizational structures i.e. hierarchical, functional,
divisional, flat, team based and matrix structure. The organizational structure discussed in this
project are functional and divisional structure.
Functional structure
Functional structure refers to structure that organizes entity into different departments
based on area of specialization. These departments are served as functional units and managed
by functional or departmental managers. Example of functional structure are human resource
department, sales department, production department, finance department, etc. (Joseph and Gaba,
2020). The functional structure has both positive and negative impact on business productivity.
The setting of functional structure enables employees to work more effectively and efficiently
due to specialization. The skills and specialization enables employees to complete task with
minimal supervision. This also helps in skill development and employee satisfaction. The
similarity of work is reduced which has reduced cost. The negative impact is that there may be
conflicts and competition among different functions.
Divisional structure
Divisional structure refers to division of segments in accordance to different product lines
or markets. Each division has divisional manager who is responsible for performance of each
division. These divisions are further divided into functional units such as finance, sales,
production, etc. This type of organizational structure is beneficial for companies engaged in
variety of products or are operating in various areas (Soderstrom and Weber, 2020). The
advantage of divisional management on business productivity is that it creates more
accountability and transparency. Each division is required to accomplish their goals and
objectives which enables overall achievement of organizational goals and objectives. It enables
organizational culture which help people to interact with each other. Each division is required to
focus on its own products or region which helps them to focus better on external factors. All this
enables organization to improve its productivity and earn more profits.
External environment and their impact on business
External environment of business can be analysed using PESTLE analysis. This includes
political, economical, social, technological, environmental and legal factors that may impact
business performance.
Political factors Economic factors Social factors

 Corporate taxation
 Fiscal policies
 Free trade disputes
 Antitrust or other
competitive issues Political stability
 Interest rate
 Foreign exchange rate
 Inflation rate
 Unemployment
 Economic growth/
decline
 Demographic
consideration
 Consumer behaviour
 Lifestyle trends
 Cultural norms and
expectations
Technological factors
 Automation
 Innovation and
development in
technology
 Cyber security Technology incentives
Environmental factors
 Climate change
 Carbon footprints
 Weather
 Geographical locations
Legal factors
 Industry regulations
 Employment and
consumer protection
laws
 Licences and permits
 Changes in legislations
External environment may directly or indirectly impact the business operations and
revenue. This environment changes constantly and are uncontrollable therefore, organization is
required to continuously monitor the changes and take corrective measures to mitigate negative
impact of changes on business performance (Impact of external environment, 2022). The change
in external factors can positively and negatively impact business. It is dependent on coordination
of internal and external factors of business. The change in external environment may have
positive impact on one business and at the same time negative impact on another. It is all upon
organization how they take changes in external environment and make strategies to take
advantage of change or to mitigate losses incurring from those changes.
CONCLUSION
The project was about classification of business on the basis of different factors. It
included different types of companies on basis of size with characteristics of each business.
There was a discussion on different forms of organization along with characteristics of each
organization. Different forms of organization highlighted in this project are sole traders,
partnership, limited liability partnership, public limited company and corporative. It also
included functional and divisional organizational structure with impact of each on business

productivity. At last, it highlighted external factors of business using PESTLE analysis and its
impact on business performance.

REFERENCES
Books and Journals
Cott, P., 2021. Legal matters: What is the best business structure for you?. Electrical Connection.
pp.36-37.
Handayani, R. and Handoyo, R. D., 2020. Better Performance Prospect of Large-Medium
Enterprises: The Role of Innovation. Journal of Economics, Business, & Accountancy
Ventura. 22(3). pp.411-423.
Joseph, J. and Gaba, V., 2020. Organizational structure, information processing, and decision-
making: A retrospective and road map for research. Academy of Management Annals.
14(1). pp.267-302.
Mago, S. and Modiba, F. S., 2022. Does informal finance matter for micro and small businesses
in Africa?. Small Business International Review. 6(1). p.e415.
Munada, S., 2022. FINANCIAL LITERACY ANALYSIS OF SMALL AND MEDIUM MICRO
BUSINESSES IN RAWAMANGUN URBAN VILLAGE EAST JAKARTA. Jurnal
Pendidikan Ekonomi, Perkantoran, dan Akuntansi-JPEPA. 3(1). pp.291-298.
Pech, M. and Vrchota, J., 2020. Classification of small-and medium-sized enterprises based on
the level of industry 4.0 implementation. Applied Sciences. 10(15). p.5150.
Rye, J., 2020. What is the difference between a sole trader and a limited company?. In Setting Up
and Running a Therapy Business (pp. 132-134). Routledge.
Soderstrom, S. B. and Weber, K., 2020. Organizational structure from interaction: Evidence
from corporate sustainability efforts. Administrative Science Quarterly. 65(1). pp.226-
271.
Yusof, A., 2019. Tesco Plc likely to exit Asia business, focus on home country, EU. New Straits
Times. pp.1-1.
Online
Different types of business, 2018. [Online]. Available through:
<https://www.wellersaccountants.co.uk/blog/what-are-the-different-types-of-business-
structures-in-the-uk>
Impact of external environment, 2022. [Online]. Available through: <https://innovation-
entrepreneurship.springeropen.com/articles/10.1186/s13731-021-00147-7>