Types of business units

Business Organization

An organization which uses resources to produce goods and services to satisfy human needs and wants.
Private Sector Organization

• Which are owned and controlled by private people.

• Finances are provided by personal sources of owner.

• Generally are run to earn profit.

Public Sector Organization

• Which are owned and controlled by the government.

• Finances are provided by the government.

• Generally run to provide people with basic necessities, at a affordable price.

Limited and Unlimited Liability

Unlimited Liability: Creditors can claim a owner's personal assets to pay off any debts. Even if the debts are caused by other partners.

Limited Liability: This means the company's finances are separate from the personal finances of their owners.

Types of Private Sector Organizations

Sole Trader

Owner: One, with or without assistance of employs.

Capital: Limited and provided by loans or personal savings.

Liability: Unlimited.

Status: No legal activity.

Scale or operation: Very small output.

Registration: No legal formalities.

Tax Burdon: Low

Examples: Food stall, laundry and tailor.

Advantages:

1. Simple formation.

2. Easy management.

3. Owner is his own boss.

4. All profit is retained by the owner.

5. Low taxes.

6. Labour intensive.

Disadvantages:

1. Unlimited liability.

2. Uncertain life.

3. Resourcefully not very strong.

4. All burden of management is on the owner.

Partnership

Owner: One to twenty.

Capital: Small to medium.

Liability: Unlimited in case of ordinary partnership. Limited in case of limited partnership but at least one partner should be with unlimited liability.

Control: Owners with limited liability are called Dormant partners/sleeping partners/ inactive partners/ passive partners, they have no role in business management and their share in profit is less.

Scale or operation: Small to medium.

Examples: Common in professional practices like doctors.

Investment of capital: Cash (money), Kind (providing asset to the company), Expertise.

Advantages:

1. More capital as there are more than one owner.

2. Responsibilities can be shared.

3. New ideas can come into business.

4. Low taxes.

Disadvantages:

1. Unlimited liability of some owners.

2. Uncertain life.

3. Unwise decision of one partner becomes obligations of other partners.

4. Bad reputation of one partner can damage the business.

5. There can be disputes in decision making.

Private Limited Company
Owner: Two to fifty.

Capital: Medium to large. Obtained by selling shares to limited number of people.

Liability: Limited to its registered capital.

Status: Separate legal entry.

Scale or operation: Medium to large.

Formation: Complex done under company law.

Tax: High Tax rate. Cooperate tax on declared profit of business and on dividends to the shareholders.

Life: Certain, long.

Advantages:

1. More capital as there are more than one owner.

2. Responsibilities can be shared.

3. Limited liability.

4. Long and certain life.

Disadvantages:

1. Difficult formation.

2. Can not issue shares to general public.

3. Difficult management.

4. Double taxation.

5. High Tax rate.

Public Limited Company

Owner: Seven to unlimited.

Capital: Large (raised by selling shares to general public).

Liability: Limited.

Formation: Complex done under company law.

Scale or operation: Large.

Life: Long and certain.

Management: Complex

Tax: High tax rate.

Formation of Limited Companies

Documents required before getting the status of a company
1. Memorandum of Associations
i. Name of business.
ii. Objectives.
iii. Registered address.
iv. Authorized share capital (the maximum amount of capital a business is allowed to raise)
v. List of directors.
2. Articles of Association
i. Internal management of the company.
ii. Rights and responsibilities of Directors and Shareholders.
iii. Appointment of legal advisors and auditors.
iv. Quorum of Annual General Meeting.
v. Profit sharing.
3. Certificate of incorporation
A certificate issued to business to act as a limited company.

Calculations of Dividend

Face value of shares X No. of shares issued X Rate of dividend

Cooperative

Owner: Unlimited.

Capital: Large, with shares.

Return on capital: Members are given fixed rate of interest on their share whether profits are earned or not.

Liability: Limited

Status: Separate legal entry.

Scale or operation: Large.

Formation: Complex. Registered under Cooperative Ordinance.

Management: Difficult.

Aim: Profit is not the main aim.

Advantages:

1. More capital.

2. Professional management.

3. Limited liability.

4. Separate legal entry.

Disadvantages:

1. Inefficient control.

2. Inability to compete.

3. Limited return on capital.

4. Ownership of shares is limited to certain amount.

== Public Sector Organization

Public Utility Corporation ==

Owner: Government

Capital: Financed by the government.

Function: Generate items of utility at a very low rate. These organizations do not aim for profits, and sometimes run on loss financed by the government. Large scale business organizations.

Advantages:

1. Promotion of public interest.

2. Government has a control over essential goods and services.

Disadvantages:

1. Non Profitable business.

2. Difficult management.

Multinational/Transnational/Supernatural Companies

• Normally work in form of private limited companies.

• A business which has its branches in a number of countries.

Advantages:

1. Saves international freight charges.

2. Making products according to desires of host country.

3. Bigger market means more sales.

4. Cheap labor.

5. Lesser chances of competition from host country.

Disadvantages:

1. Difficult to manage.

2. Host government can change its policies. Nationalization.

3. People of third world countries normally have hostile attitude towards multinational companies.

4. Requires lot of direct investments.

== Article by Muhammad Hassan Nadeem
==
--Hassanlhr (talk) 10:33, 15 September 2008 (UTC)Hassan

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