CHAPTER 1

THE BUSINESS ORGANISATION

An organisation is a social arrangement which pursues collective goals, which controls its
own performance and which has a boundary separating it from its environment’.

➢ Social arrangement - someone working alone cannot be classed as an organisation.

Organisations are structured to allow people to work together towards a common goal.
Usually, the larger the organisation, the more formal its structures

➢ collective goal – Organisations are defined by there collective goals. EG : The main goal
of a school is to educate pupils

➢ Controlled Performance - an organisation will have systems and procedures in place to

ensure that group goals are achieved. EG : For a company setting sales targets, or
periodically assessing the performance of staff members

Why do we need Organisation?

❖ Overcome people’s individual limitation (whether physical and intellectual).

❖ Enable people to specialize.

❖ Save time – combine work (multi tasking work by different people at the same time,
effective and efficient application of resources).

❖ Accumulate and sharing knowledge – quality, speed.

❖ To create synergy advantages.

Synergy : cooperation of two or more organizations, substances, or other agents to produce a

combined effect greater than the sum of their separate effects.

Business organisations are organisations that focus either on making profits (like a
conventional commercial company) or on improving society (like a charity).

Different types of Business Organisations

I. COMMERCIAL Vs NOT FOR PROFIT
 a. Commercial Organisation

Commercial (or profit-seeking) organisations see their main objective as maximising

the wealth of their owners. Someone setting up a business can choose to go into
business alone, take on one or more partners who also share the profits of the business,
or set up a limited company.

There are three common forms that a commercial company can take:

➢ Sole Traders : the organisation is owned and run by one person. The owner
is not legally separated from the business itself. EG: Suing the company is same
as suing the owner themselves. (HIGH RISK)

➢ Partnerships : This organisation is owned and run by two or more

individuals. Traditionally, partnerships (like sole traders) do not have a separate
legal identity from their owners. The partners liability of a partnership firm has
unlimited liability. However in recent years many countries have created
alternative partnership structures (such as Limited Liability Partnerships (LLPs)
in the UK)

➢ Limited Liability companies : A limited company has a separate legal

personality from its owners (shareholders). The shareholders cannot
normally be sued for the debts of the business unless they have given some
personal guarantee. Their risk is generally restricted to the amount that they
have invested in the company when buying the shares. Because of limited
liability, the financial statements of most limited companies have to be audited,
and then published for shareholders. This is called limited liability.

There are two types of limited companies

▪ Private limited companies - (with ‘Ltd’ after their name) – these tend to be
smaller businesses, often owned by a few shareholders. Shares cannot be
offered to the general public

▪ Public limited companies - (with ‘plc’ after their name) – these can be much
larger businesses. Shares can be offered to the general public, meaning that
there can be millions of different shareholders. This makes it easier for the
company to raise finance, enabling further growth.

Key Difference between Private Limited and Public Limited Companies

Private Limited Public Limited

Most private companies are Public companies generally

owned by only a small are owned by a wider
Number of shareholders number of shareholders proportion of the
investing public.
 The directors of a private Directors hold
limited company are more comparatively less
Directors as likely to hold a percentage of shares
shareholders substantial portion of the
company's shares

Shares in private companies Shares in public companies

Transferability of are rarely transferable can be offered to the
shares without the consent of the general public. In practice
shareholders. this means that they can be
traded on a stock exchange

Founder or promoter, public directly, or through

Source of Capital Business associates, institutional investors,
Venture capitalist using recognised markets.

b. Not for profit Organisation

They do not see profitability as their main objective . and from which its shareholders
or trustees do not benefit financially. Exist to satisfy the particular needs of their
members of the sectors of society that they have been set up to benefit. Any money
earned by a non-profit organization must be retained by the organization, and used
for its own expenses, operations, and programs. Many non-profit organizations also
seek tax exempt status, and may also be exempt from local taxes including sales taxes or
property taxes.

Non-profit organizations include churches, public schools, public charities, public clinics and
hospitals, political organizations, legal aid societies, volunteer services organizations, labor
unions, professional associations, research institutes, museums, and some governmental
agencies.

Many schools run fund-raising events, where the intention is to make a profit. This
makes them ‘profit-seeking’.Is this statement:

A True
B False

Answer : Schools run fund-raising activities to help pay for extra books, e.g. to improve the
quality of education given to pupils. The primary objective is educational, not profit. The
money made at the fête is thus a means not an end.
 II. PUBLIC Vs PRIVATE SECTOR ORGANISATION

a. Public Sector Organisation

The public sector is the part of the economy that is concerned with providing basic
government services and is controlled by government organisations and they usually
receive central government funding. EX : Police, Military, Public transport.

b. Private Sector Organisation

The private sector consists of organisations that are run by private individuals and groups
rather than the government

The private sector will therefore normally include:

▪ businesses
▪ charities and
▪ clubs.

Within these will be both profit-seeking and not-for-profit organisations.

III. NON-GOVERNMENTAL ORGANISATION

A non-governmental organisation is one which does not have profit as its primary goal
and is not directly linked to the national government. They are usually funded by
donations but some avoid formal funding altogether and are run primarily by
volunteers. EG : Red cross, Greenpeace

IV. COOPERATIVES

Legal entity owned and controlled by its members. Members often have a close
association with the enterprise as producers or consumers of its products or services, or
as its employees. They are organised solely to meet the needs of the member-
owners, who usually share any profits. They may be profit or not-for-profit
organizations.

Which of the following organisations is most likely to be classified as

part of the public sector?

A. A charity
B. A social club
C. A school
D. A public limited company

Answer : Public sector organisations will be controlled by the central government. This is
unlikely to be a charity, a company or a social club which are typical examples of the private
sector. Note that a privately owned and operated school could be part of the private sector,
but schools are still the most likely from the list to be public.
 COMMON CHARACTERISTICS OF ORGANISATION

➢ Formal, documented systems and procedures which enable them to control

what they do

➢ Different people do different things, or specialise in one activity

➢ variety of objectives and goals

➢ Most organisations obtain inputs (eg materials), and process them into
outputs (eg for others to buy).

DISTINGUISHED CHARACTERISTICS OF ORGANISATION

➢ Ownership ➢ Size

➢ Objectives and Activities ➢ Liability

➢ Sources of Funding

Organisations can further be classified into different sectors based on the work they do

Industry Activity

Agriculture Producing and processing food

Acquiring raw materials and, by the application

Manufacturing of labour and technology, turning them into a
product (eg a car)

Extracting and refining raw materials (eg

Extractive / Raw material
mining)
Converting one resource (eg coal) into another
Energy
(eg electricity)

Retailing / Distribution Delivering goods to the end consumer

Producing intellectual property (eg software,

Intellectual production
publishing, films, music)

Including retailing, distribution, transport,

banking, various business services (eg
Service Industries
accountancy, advertising) and public services
such as education, medicine