Chapter 2 - Business Structure
Learning Objective: Forms of Business Organization (Ch. 2.2)
Before diving in to the different forms of businesses organization we have out there we need to have it clear that there are many legal formalities required by governments to protect investors and lenders:
Memorandum of Association: this is where the amount of share capital a company has will be describe and so investors will know the relative importance of a single share. This document also describes the industries the company operates;
Articles of Association: this document specifies the regulations for a company's operations and defines the company's purpose. The document lays out how tasks are to be accomplished within the organization, including the process for appointing directors and the handling of financial records.
Going back to the different forms of business organization - let's discuss Cooperatives:
You might not know or even have heard of it but Cooperatives are a common business structure within some industries, specially farming:
- Cooperatives are people-centered enterprises owned, controlled and run by and for their members. Cooperatives bring people together in a democratic (votes) and equal way.
- Cooperatives' members share responsibilities and decision-making (votes) as well as profits. Larger Cooperatives even hire skilled managers to professionalize their operations.
Advantages | Disadvantages |
Bulk buying | Poor management skills if professional managers are not hired |
Motivation since profits are shared (share objectives) | Limited financing options (selling shares is not allowed) |
Problems and decisions are taken in group | Slow decision-making if all members need to be consulted |
A franchise is not strictly a form of legal structure for a business, but it is a legal contract between a franchiser and a franchisee. (e.g. Tavan Bogd and KFC). This contract establishes that the franchisee has the rights to using the name, logo, and trading systems of an existing successful franchiser brand:
It is important to notice that although most large franchisers are included in the Public Limited Company structure, franchisees can choose whichever structure fits them best.
Joint-Ventures are yet another form of business structure. They come to happen when two or more businesses work together on a particular venture (project) by creating a third-party division for doing so. Here are some examples:
The alliance between Starbucks and TATA creating TATA Starbucks with the focus on manufacturing and distributing bottled coffee beverages.
The Joint-Venture between Sony and Ericsson was very successful for some time and the brand Sony Ericsson was well-known for its electronics, specifically audio/music gadgets.
Google, Intel, and Tag Heuer formed a Joint-Venture to create a luxury smart-watch.
Here are the reasons for and against the formation of a Joint-Venture:
Finally, Social Enterprises: businesses that aim to make profit in socially responsible ways. These are not charities and still aim to make a profit and compete with other forms of businesses.
Is it possible to change the form of a business ownership?
Although not common, many businesses do so to benefit from the characteristics of other forms:
- Access to finance;
- Gain legal identity;
- Have legal liability.
There are, however, costs and formalities on this process. Plus, there can be loss of ownership and profits may need to be shared.
To-Do List:
Chapter 2 - Business Structure
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