Entrepreneurs engage in different forms of business ownership in an effort to satisfy their business goals and objectives. Different types of organizations and organization structures are available in the present business world influenced by the type of environment a business operates in. This discussion focuses on four types economic concepts namely: Sole proprietorship, partnership, public sector organizations, and not for profit organizations.
Sole proprietorship
As the name suggests, a sole proprietorship is a form of business organization owned and managed by a single person. It forms the simplest type of a business to start because it does not fall under the categories of legal entity businesses. The person who owns a business takes control of all its processes and takes responsibility of all debts and profits achieved by the business. In addition, a sole proprietor has the power to operate a business under his or her own name, or come up with a trade name that creates more attraction to target customers. Because of its simplicity, low starting costs, and ease of operation, this form of an economic concept is very popular. In order to operate a sole proprietorship business, an individual only registers a business with the necessary authorities and acquires a business license.
Merits of a sole proprietorship
The most appealing merit of a sole proprietorship business concept is the ability of a person to own and operate a business alone. The business performs all business activities without having to consult other people and takes complete control of the business. Being responsible for all business activities makes the sole proprietor enjoy all the benefits of the business irrespective of the amount of profits generated. In addition, the business owner can easily mix personal assets with business assets.
Secondly, a sole proprietorship business structure is the easiest, fastest, and least expensive form of business ownership. A person can start a sole proprietorship business will very little capital because the business requires less initial costs. In addition, the business does not require a lot of legal procedures that incur business owners much costs.
Limitations of a sole proprietorship
One of the limitations of this type of business ownership is the fact that sole proprietors are subject to unlimited individual liabilities for losses and debts incurred by the business. In case a business incurs losses, the sole proprietor shares the losses along, and other business liabilities.
Secondly, the sole proprietorship business has limited abilities of raising capital. Investors rarely invest in this kind of a business structure and owners are unable to sell interests to raise capital. Sole proprietor business owner have no other option than to use their own personal credits to raise capital.
Partnership
As opposed to a sole proprietorship, a partnership is a form of business structure made up of two or more persons who forma business enterprise with an aim of making profits. Each person in a partnership business has a responsibility and authority to perform functions of that business and decision making processes. A partnership business structure can be formed in many ways such as a handshake. People who partner together to form a business enterprise always make their views clear to each partner, and come up with a business agreement in form of a constitution with the assistance of a legal advisor. Unlike the sole proprietorship, a partnership is a legal entity because it requires an intervention of an attorney. A written agreement is a necessity when forming any partnership business because it helps in dispute resolution especially when a business was formed through oral arrangements. An agreement caters for the following:
- How the business will be financed
- Measures taken when any partner wishes to leave the business
- Measures taken when a partner dies
- The type of business and who will take what responsibility
Merits of a partnership economic concept
In a partnership, owners can easily and inexpensively start a business because capital is shared among partners. The presence of more than one individual increases the ability to raise funds needed for a business start-up. In addition, unlike a sole proprietorship two or more partners have higher chances of acquiring credits from lending firms such as a bank, as long as they have a valid business plan.
Secondly, a partnership business structure enjoys diversity of ideas contributed by different partners. Ideas from different partners benefit a business enterprise and contribute to growth and development. In addition, many partners provide a wider pool of knowledge and skills leading to proper conflict resolutions and effective decision making processes.
Limitations of a partnership business structure
In a partnership, each owner is subject to unlimited personal liability for losses, liabilities of the business and debts. If a partnership is not a limited partnership of a limited liability partnership, business owners incur many liabilities when a business operates in a loss. Partners take responsibility of individual partner’s actions.
Secondly, profits must be shared in a partnership depending on individual capital contribution and activities. The issue of profit sharing in a partnership introduces quarrels especially when some members are dormant and demand equal shares with active members.
Public sector organizations
A public sector organization is a form of business enterprise controlled and funded by the government. Public sector organizations deliver public goods, services and programs. The process of establishing public sector organizations is a complicated one because they not only perform core government operations, but also may be incorporated with private sectors, or not-for-profit businesses. Public sector organizations exist in any of the following four levels namely: International, National, Regional, or Local. Irrespective of the level an organization falls in, a public sector organization consists of the following organizations.
Core government: This forms the governing unit with defined rules. It includes all ministries, departments, and branches of the government that form integral parts of an organizational structure.
Agencies: Formed by public organizations that form part of a government. Agencies are responsible for delivering programs, services and products. They exist as legal entities and operate with limited degree of independence. Board of directors or commission often head agencies.
Public enterprises: These form agencies responsible for delivering public programs, goods or services. They are an independent body and have their own sources of revenue, thus never depend on core government for funding.
Merits of public sector organizations
Secondly, public sector organizations co-ordinate plans from a central control. The government takes responsibility of all activities carried out on public sector organizations and any problem occurring during the delivery of goods, services and programs is answerable to the relevant authorities.
Limitations of public sector organizations
Public sector organizations fail to give incentives for employees especially when there is no share on the profit or lack of bonuses. Employees working in public sector organizations only depend on their salaries because of lack of other allowances, and when approved they take ages to be implemented.
Secondly, the size of the organization leads to inefficient results. Public sector is a government owned organizations with high number of employees and long chains of operations from the time a product or service is ordered to when it gets to the final consumer creating inefficiencies because of delays.
Not-for-profit organizations
A not-for-profit organization is a business enterprise incorporated for charitable or education reasons, and the organization trustees and shareholders gain no financial benefits. Not-for-profit business organization is a legal entity involving non-profit tax status. These organizations are exempted from paying income taxes to state and federal governments because they are established to benefits citizens at no costs. These organizations are established as social clubs, charitable organizations, social welfare organizations, or veteran organizations. All money earned by a non-profit organization is retained and used for organizational expenses, programs and operations such as paying salaries to workers, buying food for the needy, improving their infrastructure, or donations. Some of the well known not-for-profit organizations in United States are the Red Cross organization, United Way, and Habitat for Humanity.
Merits of not-for-profit organizations
Firstly, the organization enjoys ability to receive gifts and contributions from well wishers. These donations play a vital role in the development and growth of the organization and saves pioneers the costs of operations and other programs carried out by the organization. In addition, gifts and donations given contribute to personal income tax statements and are deducted as charitable contributions. In addition, the organization enjoys many financial benefits such as special postage rates and exemption from certain expenses. Secondly, not-for-profit organizations are exempted from federal and state income taxes. All revenues and profits earned by the organization are devoted to charitable activities and not for paying taxes as required of other profit making organizations.
Limitations of not-for-profit organizations
Not-for-profit organizations are not allowed to conduct lobbying activities. Any activity that suggests an organization’s involvement in any political activity leads to cancellation of the non-profit status. This limits the organization from directly engaging with politicians, who are the main sources of funds generated by non-profit organizations. Secondly, organizations are not allowed to earn substantial profits from unrelated activities. A not-for-profit organization that spends much of its earnings on unrelated activities, generates income from unrelated activities may make the government to revoke the not-for-profit license.
Bibliography
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Dube, Sikhungo. Supplemental Guidance: Public Sector Definition, (The Institute of Internal Auditors, 2011, pp. 2-3). Retrieved from:
https://na.theiia.org/standards-guidance/Public%20Documents/Public%20Sector%20Definition.pdf
Gartner, William., & Bellamy, Marlene, Creating the Enterprise, (Thomson, South-West: Cengage Learning, 2009, pp. 119-122).
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