A business organization is an organization established for the purpose of making a profit. Any organization that does not have the profit motive is not business oriented. What differentiates one organization from the other is the motive or objective. For example, if I decide to buy and sell textbooks for profit, I am a businessman because I am doing it to make a profit. However, If I buy and sell at the same price or just enough to cover transportation, I am not a businessman because I did not make any profit. You can call it philanthropy although it would truly be one if I gave it freely. I gained nothing from the transaction. To sustain any enterprise or organization, there must be sources of funds. In business organizations, this is from the owner’s capital and profits. A business simply means making a profit from a business. It follows that any organization set up to make a profit is a business organization.
FORMS OF BUSINESS ORGANISATIONS
There are many forms of business organizations. These are:
- Sole trade
- Private limited company
- Public limited company
- Business Trust
- Joint Venture
FACTORS DETERMINING THE FORM OF BUSINESS ORGANISATIONS
The following factors would determine the form of business organization to be set up:
- Amount and source of capital: The amount needed to establish a business enterprise is very important when considering the form of business organization to set up. Where the capital available is small and the ownership is just one person, a sole trade business enterprise is the ideal. Where two or more persons contribute the money needed to start a business, it could be a partnership or company (private or public). Where workers cooperate to buy and sell to their members, it could be a cooperative society and so on.
- Tax advantage: The Federal and State governments collect statutory taxes from business enterprises monthly and annually. Even the local governments also collect taxes from businesses in their council area. Sometimes these taxes can be burdensome and only well-funded organizations would be able to pay easily. To avoid much taxes some entrepreneurs may decide to trade as sole traders and avoid corporation taxes. However, when the business grows to a certain extent, they may be forced to upgrade. Business organizations like sole trades and cooperatives enjoy comparatively low tax advantages over companies.
- Ease of Commencement and dissolution or termination: It is very easy to start as a sole trader than other forms of business organizations. You can start from a shop in front of your house or rent one at a low cost. Companies require larger space, registration and documentations with various government agencies to commence business.
To wind up a sole trade business is also very easy. The owner can take the decision today and close instantly by selling off its stock. There are procedures stated by law for companies to wind up. This makes it difficult for private or public companies to wind up overnight and disappear. Can you imagine a company like United Bank for Africa (UBA Plc) or MTN Plc folding up overnight? They have too many vested interests or stakeholders. It will take quite a while for companies to foldup operations.
- Possibility of transfer of ownership: It is easy to transfer ownership in companies that are quoted in the stock exchange. You can buy and sell the shares of such companies easily daily through stockbrokers. It is not so easy to transfer ownership in private companies and partnerships without much consultations and documentations. The issue of transfer of ownership could lead to the closure of some businesses if there is no consensus among the members about the new co-owners.
- Legal Status: Unless registered as a business venture, a sole trader has no legal status different from the owner. Even with registration, the business and the owner are still seen as one person before the law when the veil is lifted. For instance, business venture owners can pay cheques issued in their names into the business account because they are the only Director, Managing Director and signatory to the account with the bank. Companies, partnerships and Joint Ventures have distinct legal status from the owners. They are recognized by law as legal entities that can carry on business in their names, sue and be sued as artificial persons before the law. The ownership is joint and not personal.
- Availability: An engaged entrepreneur who is interested in investing in many organizations should be considering public liability companies. These companies only need money to trade and pay dividends at the end of the trading period. Civil servants and others engaged in other activities but interested in business also patronize stockbrokers to acquire equity in companies of their choice. They do not take part in the running of these businesses daily. They concentrate on their primary jobs or assignments and wait for dividends. If they are not satisfied with one company, they could sell their shares and buy shares from another company/ies with the proceeds.
The prospective business owner must carefully examine the above factors before deciding on the form of business organization to invest in.