Types of Business Organization

Types of Business Organization

There are few types of Business Organization but in this lesson, we only focus on the main four and there are

1. Sole proprietorship/sole trader

2. Partnership

3. Private limited company

4. Public limited company



Sole proprietorship/sole trader

Characteristics:



 This business is owed and control by only one person where he/she can employed worker for their assistant

 All profits and losses go to the owner of the business (sole proprietor)

 He can obtain the capital from personal saving, loans from relatives, friends or the bank

 Example of sole proprietorship: Food stall, sundry shop, beauty saloon



Advantages:


 It is easy to set up the business - Not paperwork are required to set up the business, the owner just need to register the business name under the Registration of Business Act

 All profit belong to the owner, so the owner has a greater interest in the success of the business

 The owner has can make decisions quickly

 The owner can give personal attention to the customers

 No income tax - only in Brunei but in other countries, they only have to pay a low income tax



Disadvantages:


 Limited capital – The owner has to provide the money to start or expand the business by using his/her own saving or by borrowing from the banks or friends

 Unlimited Liability – The owner is personally liable for all debts incurred by the business in the event of a business failure

 No one will carry out the business if the owner is ill or on holiday

 The firm ends when the owner dies or goes bankrupt



Partnership

Characteristics



 This business is owned by two or more (but not more then 20) people where they combine to carry on a business with the aim of making profit

 The profit and losses are divided among the partners depending on the partnership agreement. But if there no agreement is made, the profit and losses are divided equally among themselves

 Capital is obtained from the partners’ contributions and loans

 Example of a partnership: Clinics, accountants or architects’ firm



Advantages

 It is easy to set up the business - Not paperwork are required to set up the business, the owner just need to register the business name under the Registration of Business Act

 Pooling of expertise – This ensures a greater of specialization, resulting in more efficient management of the business

 If one of the partners is sick or on holiday, there is still someone to carry on the business

 More capital is available because of the partners’ contributions and loans

 Losses is divided among the partners

 No income tax - only in Brunei but in other countries, they only have to pay a low income tax



Disadvantages

 Decisions may be delayed by disagreements because a number of people are involved

 All partners have unlimited liability expected for limited partnership

 Death, bankruptcy, insanity or retirement of a partner may end a partnership

 All actions or decision by a partner have to be agree by the other partners

 Limited capital – Expansion of the business is limited to the amount of the capital contributed by the partners



* Limited partnership – a partnership where the limited partner’s limited is restricted to the amount of capital invested in the business, but at least one of the partner must bear with unlimited liability*

 
 
Limited Company




Characteristics:

1. Companies must be registered with the Registrar of Companies where the companies must submit a Memorandum of Association and an Articles of Association
2. Memorandum of Association includes all the “External” rules of the company such as

i. Its name

ii. Its Address

iii. Its Objective

iv. The amount of capital to be registered

v. Statement stating that shareholders have limited liability


3. Articles of Association includes all the “Internal” rules of the company such as

i. The number of directors

ii. The voting rights of shareholders

iii. Method of electing board of directors

iv. Procedures for calling meetings of shareholders



4. The Registrar will issues a Certificate of Incorporation once he is satisfied with the documents which confirms the legal existence of the company
5. Shareholders are the owners and risk-takers of the company
6. All shareholders have limited liability up to the value of shares they have brought

7. The board of directors are elected by voting shareholders and they will manage the company
8. Capital is raised by issuing shares to the shareholders

9. Profits are distribute in the form of dividends




Private Limited Company

Characteristics:



 This business is owned by two to fifty shareholders who must be family member

 There may have one or more directors

 The company must use “limited” or “LTD” after the company name

 The shares cannot not be offered to the general public therefore it can’t be quoted in the stock exchange



Advantages


 Shareholders have limited liability - The shareholders does not liable for all debts incurred by the business in the event of a business failure

 More capita is available for expansion by issuing more shares to existing or new shareholders

 Greater continuity as it has separate legal existence

 Specialization is possible as company is managed by elected board of directors



Disadvantages:


 Capital is limited as maximum of only 50 shareholders

 The company needs to follow rules and regulations set up by the Companies Act

 There will be less care shown by shareholders as they are not involved in the management of the firm



Public Limited Company

Characteristics:


 This business is owned by any member of the public since share are freely transferable and sold

 There must have a minimum of two directors

 The company must use “Public Limited Company” or “plc” after the company name

 They can raise more money by issuing loan certificates to the public called debentures where these debenture holders are eligible for interest at a fixed rate



Advantages:



 Large capital is available as the number of shareholders is unlimited

 Shareholders have limited liability

 Greater continuity as it has separate legal existence

 Specialization is possible as company is managed by elected board of directors



Disadvantages:


 Formation is time consuming and expensive

 The decision making can be slow

 Interests of shareholders may not be same as the board of directors

 Annual accounts need to be published and submitted to the Registrar of Companies