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Types of business organizations

Sole proprietors
Partnerships
Private companies
Public companies
Multi-nationals
Co-operatives
Public corporation

Sole proprietor
Sole proprietor is a business owned and managed by one person
Sole proprietor is often referred to as the sole trader
Sole trader has unlimited liability
Sole trader has limited finance
Sole trader makes all the decisions
Sole trader business is easy to set up

Partnership
Partnership is a business owned and managed by at least 2 persons
Owners of partnership are referred to as partners
Partner have unlimited liability
Partnerships raise more finance
Partners make decisions after consultation
Partnership business is easy to set up

Private companies
Private limited is a business owned and managed by at least 2 persons
Owners are referred to as shareholders
Private companies have limited liability
Private companies raise finance by issuing share
Cannot sell share without consent of the other shareholders

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Public companies
Public limited is a business owned and managed by at least 2 persons
Public limited companies have plc after their company name eg. FET plc
PLC companies have limited liability
Public limited companies raise large amount of finance by selling shares
Can sell shares to general public

Multi-nationals
A company which produces or provides services in more than one country
The advantages and disadvantages they provide to the country where they
operate are:
– Advantages: employment, tax revenue, quality products
– Disadvantages: harm to domestic industry

Co-operatives
Cooperatives are owned and managed by its members persons
Cooperative operate for the welfare of its members
Owners are referred to as the members
Different co-operatives have different objectives
Can sell shares to general public

Public corporations
Public corporations are owned by the government
There are no shareholders in public corporation
Main aim is to work for welfare of the general public
Run by a management appointed by the government

Effect of changes in structure of business organizations

When public corporations are sold to the private sector it is called
privatisation
Effects of privatization:
– Business efficiency (low cost, high quality)What determines the
demand for factors of production

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What determines the demand for factors of production

The following factors determine the demand for factors of production:
– Consumer- entrepreneurs produce the products which consumers
want
– Productivity
– Cost

Costs
Total costs
– Total expense of producing an output or a product
Average cost
– Total cost divided by output

Costs
Fixed cost
– The costs which stays same irrespective of the fact that the business
produces or not
Variable cost
– A cost which changes as the production of the business changes

Total and average revenue

Total revenue
– The sum of units sold and selling price
Average revenue
– Total revenue divided by output or number of units sold

Principle of profit maximization

Firms strive to achieve maximum profits.
They do this by keeping the difference between total revenue and total cost
highest and in a positive figure

Pricing and output policies in perfect competition

Large number of buyers and sellers
The firms charge the same price as the competition does, they do not
increase or decrease price
They seek to achieve competitive advantage
Firms respond quickly to the changes in consumer demands

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Pricing and output policies in monopoly

One seller supplying the product
Monopoly can charge the price which is acceptable to the consumers
It may restrict the supply to increase the demand and earn abnormal
profits
Monopoly does not respond to the consumers’ demands because it knows
it will sell the product anyway

Advantages of monopoly
Lower costs
Save money, by not producing wasteful duplication
Spend money on research
Offer lower price to the consumer

Disadvantages of monopoly
Inefficiency in production
Does not cater to the demands of consumers
May exploit the consumers as it is the only business providing the product
May charge higher price by decreasing the supply

Main reasons for different sizes of firms

Size of market
Capital
Organization
Barriers to enter

Integration
Integration is when two businesses join each other
Types of integration
Horizontal integration
Vertical integration
– Backward vertical integration
– Forward vertical integration

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Horizontal integration
Horizontal integration happens when a business acquires or joins a business
which is providing the same product at the same stage of production
– Example: A Coffee shop acquires another coffee shop

Vertical integration
Backward vertical integration happens when a business acquires or joins
one of its suppliers
– Example: Coffee shop acquires a dairy farm
Forward vertical integration happens when a business acquires or joins one
of its retailer or distributor
– Example: a dairy farm acquires a coffee shop

Economies of scale
Economies of scale is when there is a reduction in long term cost when the
business grows
Types of economies of scale
– Internal economies of scale
– External economies of scale

Diseconomies of scale

Diseconomies of scale is when there is an increase in long term cost when

the business grows
Types of diseconomies of scale
– Internal diseconomies of scale
– External diseconomies of scale

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