Types of organisations K. Mulenga April 2020 Thursday, April 23, 2020 K. Mulenga, April 2020 1 Definition of an organisation • An organisation is a social arrangement for the controlled performance of collective goals. • An organisation can be defined as a group of people who have come together to achieve specific goals or objectives.
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Examples of organisations • A multinational company making and selling cars-Toyota/ Nissan • An accountancy firm - Grant Thornton • A charity-Oxfam, Red Cross • A local authority-Lusaka City Council • A trade union- MUZ/ZNUT • An army- The Zambia army • A political party-The PF/UPND/NDC Thursday, April 23, 2020 K. Mulenga, April 2020 3 Classifying Organisation Ownership Private and Public sector Control Shareholders, managers and trustees Activity Manufacturers, retailers, distributors Legal structure Partnership or limited company Accountability Shareholders, government Commercial or non-commercial Companies, non-profits orgns objectives charity Sources of finance Borrowing, the state, investments Thursday, April 23, 2020 K. Mulenga, April 2020 4 Business organisations • A business organisation exists to profit. Profits are not incidental to its activities but the driving factor. • Types of business organisations include sole tradership, partnerships and limited companies (public and private).
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Sole Tradership • A sole tradership is a business owned and run by one individual perhaps employing one or two assistants and controlling their work. • The individual’s business and personal affairs are for legal and tax purposes identical.
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Merits of Sole Tradership • No set up procedures • All profits • Closeness to customers and employees • Independence and self- accountability • Personal supervision over operations
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Demerits of Sole Tradership • Lack of economies of scale • Dependence on individual skills • Expansion has to be financed from profits • Individual lacks all- round business skills • Loss of personal wealth through unlimited liability • Death of sole trader means sale to pay tax or succession problems Thursday, April 23, 2020 K. Mulenga, April 2020 8 Partnerships • Partnerships are arrangements between individuals to carry on business in common with a view to make profit. • Partnerships however involve obligations to others, and so a partnership will be governed by a partnership agreement.
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Advantages of partnerships • Expansion of capital resources • Wider range of skill • Spread of financial and operating responsibilities • Privacy (no need to file accounts)
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Disadvantages of partnerships • Unlimited liability • Disputes may paralyse business • Need to consult partners • Lack of separate legal identity • Joint liability for partners’ acts • Capital tied up in business
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Limited Companies • The limited company has a separate legal personality and the liability of its shareholders for debts of the company only extends to the capital they contributed. • The shareholders (owners) cannot be sued for the debts of the company. This is called limited liability. Thursday, April 23, 2020 K. Mulenga, April 2020 12 Limited Companies Cont. • Moreover, the ownership and control of a limited company are legally separate even though they may be vested in the same individuals: • Shareholders are the owners, but they have limited rights, as Shareholders, over the day- to-day running of the company. They provide capital and receive a return. • Directors are appointed by shareholders to run the company. In practice they have a greater deal of autonomy Thursday, April 23, 2020 K. Mulenga, April 2020 13 Merits of limited companies • Continuity of operation • More human resources • More professional appearance • Can raise capital easily and therefore grow • Separation of business from owners • Owners have limited liability and therefore can take risks Thursday, April 23, 2020 K. Mulenga, April 2020 14 Demerits of limited companies • Larger overhead costs • Greater formalities • May become less responsive to customers • May become less responsive to changes in the environment • May become less flexible in structure Thursday, April 23, 2020 K. Mulenga, April 2020 15 Types of Limited Companies • Private Limited Companies- Antelope Milling, Game Stores and Power Tools. • Public limited companies (PLCs)- Zambeef PLC, Zambia Sugar PLC, CEC, Bata PLC.
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Private Limited Companies • Most private companies are owned by a small number of shareholders. • A private company’s share capital will normally be provided by: –The founder –Business associates of the founder or employer –Venture capitalists Thursday, April 23, 2020 K. Mulenga, April 2020 17 Public Limited Companies • Public companies are owned by a wider proportion of the investing public. • A public company’s share capital, in addition, can be raised from the public directly, or through institutional investors (NAPSA, ZSIC).
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Control of Limited Companies • The board of directors controls management and staff, and is accountable to the shareholders, but it has responsibilities towards groups, owners and employees alike.
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Shareholders • Shareholders may consist of large institutional investors, such as insurance companies, building societies and pension funds. • They might be private individuals. • Employees can also become shareholders.
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Directors • Directors are often shareholders. • Executive directors participate in the daily operations of the organisation. • Non-executive directors do not take part in the day-to-day running of the organisation.
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Management • Operational management usually consists of career managers who are recruited to operate the business and are accountable to the board.
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Non- commercial organisations • Non- commercial organisations do not exist to make profits.
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Examples of non- commercial organisations • Trade unions e.g. Mine Workers Union of Zambia (MUZ) • Professional associations- Engineering Institute of Zambia (EIZ), Zambia Institute of Marketing (ZIM), Zambia Institute of Chartered Accountants (ZICA). • Employers’ associations- Zambia Federation of Employers (ZFE) • Charities e.g. Red Cross, Oxfam Thursday, April 23, 2020 K. Mulenga, April 2020 24 Advantages of Non-commercial Organisations • Dedicated staff • Trusted by users • Answer social needs • No profit/social objectives conflict
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Disadvantages of Non-commercial Organisations • Lack of clear objectives • Difficult to measure efficiency and effectiveness • Lack of financial and marketing expertise • Conflict between services wish to provide and funds available • Have to obtain funds in competition with similar bodies
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Public Sector Organisations • A public sector organisation is an organisation controlled directly and/ or indirectly and/or funded by central and/or local government.
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Examples of Public Sector Organisations • The Army • Local authorities or councils • The Police Service • Government ministries and departments • Public schools, hospitals and universities
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Advantages Public Sector Organisations • Economies of scale • Provision of non-profit facilities • Allocate resources fairly • May be more efficient • Ready finance by taxes or government backed borrowing
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Disadvantages of Public Sector Organisations • Ignoring waste as taxpayers bear loss • Political considerations affecting decision-making • Cautious management because of fear of public accountability • Conflict between economy of operation and adequacy of service Thursday, April 23, 2020 K. Mulenga, April 2020 30