Types of business organizations PDF

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The following facts are discussed in this chapter.
3.1 Basic information on the types of business organizations
Classification of business organizations
Types of business organizations and their characteristics
3.2 Selecting an appropriate business organization
According to the objectives
According to the scale
According to the management procedures
3.3 Registration of a Sole Proprietorship
Steps to be followed for registration
Documents needed for registration
Advantages of registering the business name

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The figure 3.1 depicts different ways of classifying business organizations under
above two sectors based on ownership.
Businesses under the
Central Government,
Provincial Councils
and Local Government
Institutions.
Example :-
Departments
State Corporations
State Companies
Private Sector Public Sector
Partnerships
Sole Proprietorships
Incorporated Companies
Co-operative Societies
Other Associations
Business Organizations
Figure 3.1 Classification of business organizations based on the ownership
Private sector business organizations
Businesses owned by an individual or a group of individuals are known as private
sector businesses. Private sector businesses can be further classified as sole
proprietorship, partnerships, incorporated companies, cooperative societies and other
associations.
Public sector business organizations
Businesses funded and owned by the government are public sector business
organizations. State departments, state corporations, state companies, businesses
registered and owned under Provincial Councils and Local Government Institutions
are the different types of business organizations in the public sector.
3.1 Basic information on the types of business organizations
When the population of a country is increasing, the process of manufacturing and
distributing goods and services has expanded. Therefore, different types of business
organizations are established in order to fulfill the needs and wants of people. A
business organization consists of an individual or a group of individuals working
together to produce goods and services required to fulfill human needs and wants.
Different parties provide funds to businesses. The owners of a business are the
individuals or groups who provide funds and assume the risk by involving in
business. Based on the ownership, businesses are categorized into several categories.
In addition, businesses are conducted to achieve different objectives of the
businessmen. Accordingly, some businesses are carried out to earn profits whereas
others are carried out for the well-being of the society.
Further, a businessman can start either a small scale business or a large scale business
depending on the amount of resources that he has. Out of different types of business
organizations, businessmen should be clever enough to choose an appropriate type.
Classification of business organizations
Businesses are organized in different ways. These different types of business
organizations can be classified as follows depending on various criteria.
Y Based on the ownership
Y Based on the objective
Y Based on the scale
Classification of business organizations based on the ownership
The owners are the individuals who provide funds for the business and assume
risks by involving in it. The owners enjoy the profits earned by the business and
bear the losses of the business as well. Accordingly, business organizations can be
categorized as follows based on their ownership.
Y Private sector business organizations
Y Public sector business organizations

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Classification of business organizations based on the scale
The scale of a business organization depends on different criteria. Some of the
criteria used as follows.
Y Amount of capital invested in a business
YNumber of employees
YAmount of the energy used
YMarket share of the business
Based on the scale, business organizations can be categorized into two parts.
Y Small and medium scale businesses
Y Large scale businesses
Business Organizations
Small and
medium scale
businesses
Large scale
businesses
Figure 3.3 Classification of business organizations based on scale
Small and medium scale businesses
Different institutions have identified
differen criteria in classifying small
and medium scale businesses.
Accordingly, businesses with a
small amount of capital invested,
with a small number of employees
and having a small market share
relative to large scale businesses are
known as small and medium scale
businesses.
Example :-
Businesses employing less than 25 employees according to the
Census and Statistics Department are considered as small scale
businesses.
Figure 3.4
Classification of business organizations based on the objectives
Different organizations are established to achieve different objectives. Businesses
are also conducted by its owners to achieve an objective. Businesses can be classified
as follows based on its objective.
Y For profit businesses
Y Not for profit businesses
The below Figure 3.2 depicts the classification of business organizations based on
the objective.
For profit businesses Not for profit businesses
Partnership
Sole Proprietorship
Incorporated companies
Co-operative Societies
Other Associations Departments
State Companies State Corporations
Business Organizations
Private PrivatePublic Public
Figure 3.2 Classification of business organizations based on the objective
For profit businesses
When the main objective of the business is to earn profits, they are known as profit
oriented businesses. This type of businesses are operated under both private sector
and public sector.
Not for profit businesses
The main objective of these businesses is to ensure welfare of members and the
society. Not for profit businesses are also conducted both under private sector and
public sector.

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Large scale businesses
Businesses that have invested a large
amount of capital, have employed
a large number of employees, have
a large market share and have the
ability to influence the respective
industry are known as large scale
businesses.
Example :-
A factory employing a large number of workers
Next, the above mentioned business organisations will be discussed in detail.
Sole proprietorship
Businesses owned by an individual
are known as sole proprietorship.
This is the most common type of
business organization in almost all
the countries in the world. This type
of business organization is common
because it is easy to commence,
requires only a small amount of capital
and can take independent decisions.
The success of this business depends
on the skills and dedication of its
owner.
Characteristics of sole proprietorship
The following characteristics can be seen in sole proprietorship.
Y Capital is provided by a single person who is the owner
The owner is required to find the necessary capital for the business
individually. Savings or borrowed funds by the owner can be invested as the
capital to the business.
Figure 3.5
Figure 3.6 - A small retail shop
Y Profits or losses to be born alone
All the profits earned by a sole proprietorship belong to the owner. Also,
if there is a loss, the owner should bear it alone.
YUnlimited liability of the owner
In a sole proprietorship, the owners' liability is unlimited. Accordingly,
the liability is not limited only for the capital that had been invested.
In order to settle liabilities of the business, the owner might require to
use his properties external to the business and there is no limit for such
commitment.
YNo legal personality
A sole proprietorship cannot conduct any legal operations by its business name.
It can do so only by the personal name of the owner. For example, entering
in to contracts, purchase of vehicles, obtaining bank loan, filing cases
should be done in the personal name of the owner.
YNo continued existence
Due to such reasons as the death of the owner, being mentally unsound to
conduct the business etc. the business operations of a sole proprietorship
will be discontinued.
YNot mandatory to register
In general, it is not mandatory to register a sole proprietorship.
In addition to the above mentioned characteristics, there are some other
characteristics of a sole proprietorship such as the ability to take decisions alone,
controlling is done by the owner and owner has the opportunity to discontinue the
business at any time he requires.
Advantages of sole proprietorship businesses
Sole proprietorship have following main advantages compared to other types of
business organizations.
Y Convenient to start
Since the legal requirements are minimal and the cost of establishing is low
compared to other business organizations, it is easy to commence a sole
proprietorship.