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Choosing the form of organization
When you want to chose the form of organization you should consider these
factors:
Objectives
Growth
Finance
Limited liability
Types of business organisations
Sole trader
Partnership
Limited companies
Franchise
Joint ventures
Sole trader
A business owned and managed by one person
One person makes the decisions
Profit is not shared, sole trader enjoys the entire profit
If business loses money, the sole trader has to sell his/her personal assets to
pay off creditors (unlimited liability)
Partnership
The business is owned and managed by 2-20 people
Partners make the decisions
Profit is shared among the partners
If businesses lose money, the partners have to sell their personal assets to pay
off creditors (unlimited liability)
Limited company
A business owned and managed by a group of people
Directors make the decisions
Profit is shared among the shareholders
If businesses lose money the shareholders don’t have to sell their personal
assets to repay creditors
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Franchise
To use the name of a large business to conduct business activities
Franchisee uses the name
Franchisor grants the permission to franchisee to use the name for a fees
Eg.
Mc Donald’s has many restaurants all over the world which are mostly run by
the franchisee
Joint venture
Joint venture happens when two separate companies join hands to complete a
project
They share knowledge and expertise to complete the project successfully
Difference between sole traders and partnerships
Sole trader
1 owner
Decision made by 1 person
Limited capital
Sole trader enjoys all profits
Sole trader has to suffer all losses
Partnership
2-20 people are owners
Decisions are made by partners
Extra capital
Partners have to share the profit
Partners have to share the losses
Difference between unincorporated buninesses and limited company
Unincorporated business
Example: Sole trader, partnerships
No shares can be issued
Unlimited liability
Not a legal entity
Less capital available
If the owner dies business dies
Limited company
Example: Private limited company
Shares can be issued
Limited liability
Legal entity
More capital available
If the owner dies th business still
exists
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Difference between internal communication and external communication
Internal communication
Communication within the company
Mostly oral communication
Informal
External communication
Communication outside the company
Mostly written communication
Formal
Why multinational companies are created
To operate in many different countries and provide goods and services all
around the globe
The begin business activities in other countries to avoid trade barriers
They want aim to understand the tastes and needs of their customer by
employing their marketing staff in the country
Reasons for the growth of multinational companies
Reduced costs by operating in 3rd world countries
People demanding foreign products
Globalisation
Businesses want to avoid trade barriers
It is very important to understand the behavior of people in order to make
them customers
Advantages of multinational companies to the countries
Employment opportunities
Tax revenue to the country
Providing goods and services
Global image
Country is introduced to new technology
Disadvantages of multinational companies on the countries
Domestic market is badly affected
Dumping may ruin the entire industry
The revenue is taken back by the multi-national company
Technology may not be applicable
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Control and responsibility
The organisational structure defines the roles and responsibilities of the
people in a company
It also shows who has to report to whom
Span of control
Span of control is the number of employees who directly report to their
superior
The number of people a manager directly controls
Scalar chain and hierarchy
Scalar chain is the number of layers ranging from top to bottom levels in a
organization
Hierarchy is a ranking of people from top to bottom level. The person at the
top of the hierarchy the possesses the most power
Delegation
When the superior gives his/her subordinate the power to complete a task or
make important decisions
Role and function of Entrepreneurship
The role of function of entrepreneur is to combine all resources in an effort to
make profit
A person incurring loss in business is also called a entrepreneur
Risk
The entrepreneur takes the risk of his money and time to provide goods and
services with the aim of earning profit
Limited liability
If the business is unable to pay his/her creditors the owner does not have to
pay his/her personal assets to repay the money
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Functions of management
Planning
Organizing
Staffing
Directing
Controlling
Ownership and control
In a limited company ownership and control are divided
The shareholders own the company
The directors and managers control the company
Directors have to safeguard the interests of shareholders
Different means of communication
Internal communication
External communication
Concept of communication
The exchange of information between people is called communication
The exchange of information can be on individual or organizational level
Importance of communication
To motivate employees
To get the decisions implemented
To get feedback
How communication takes place
Sender
Message
Medium
Receiver
Feedback
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Barriers to effective communication
PhysicalNoise
AttitudeDisinterest of either the sender or receiver
Technical knowledgeThe receiver might not understand it
LanguageMight not know the language
How to overcome the barriers
Choosing the suitable medium
Keep the message simple and precise
Always ask for feedback
Positive attitude by both sender and receiver
Message should be given in a place where there is no noise
Effective communication
When both sender and receiver know that the information has been conveyed
and understood
Consequences of a breakdown in effective communication
Frustration
Wrong decision implemented
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