Types of Business Organizations
There are numerous types of business organizations in the world, and we we are going to take a look at each one of them in this article. But before we delve into that, let us first find a good definition of what a business organization actually is.
What is a business organization?
By definition, a business organization is any entity or unit that engages in the activity of making money through the buying or selling of goods or services.
Any entity that produces or sells goods or provides a service for profit is called a business organization.
Business organizations can be divided into two – the private sector business units and the public sector business units.
Private enterprises or private sector business units are those business units that are owned and controlled by private individuals. On the other hand, the business units that are owned and controlled by the state are called public enterprises or state-owned enterprises.
Readers should know that all business organizations have one of their major goals or objectives being the making of profit from their business activities. This is the major reason why people go into business in the first place. In the absence of profit making, I really doubt a lot of people would enter into business.
Anyway, now that we have had a comprehensive understanding of what a business organization is all about, let us now take a look at the various types of business organization that we have:
Types of business organizations
What is a sole proprietorship? The word sole means “the only one”. Sole proprietorship is therefore defined as a business unit that is owned and controlled by one person. The owner and controller of this type of business unit is called the sole proprietor or the sole trader. For example, if you own a shop, you can be called a sole proprietor or a sole trader because it is your own business and you are the only one in charge of it and who controls it. You determine when to open for business and when to close for business.
Examples of sole proprietors include the following: petty traders, barbering salon owners, tailors, etc.
What is a partnership business? A partnership is a type of business organization that is owned by two or more people. Whenever two or more people come together to form a business with the view of making profit, then we call that business a partnership. A partnership business has a minimum number of 2 people and a maximum number of 20 people. In a partnership business, the various individuals forming it pool their resources together to start the business and run it with the sole aim of making profit.
For example, two or three lawyers can come together to start a law firm, and that law firm will be called a partnership simply because it is an association of two or more individuals coming together to form a business unit that they hope will make them profit.
NOTE: The minimum number of 2 people and maximum number of 20 people excludes employees of the partnership business.
Limited Liability Company
This is another type of business organization. Limited Liability companies are also referred to as Joint Stock Companies. So when you come across the term “Joint Stock Company” do not get confused because it means the same as a limited liability company.
There are two types of joint stock companies, namely Private Companies and Public Companies.
Let us look at what each of them is.
What is a private company?
Another name for the private company is the Private Joint Stock. This type of company is one that is formed by friends and relatives. Here, friends and relatives can come together, pool their resources together and set up the company. It is the reason why it is referred to as a private company. A private Joint Stock company is made up of between 2 and 50 people. This means that it should have a minimum of 2 people and a maximum of 50 people. These people are referred to as the shareholders of the company. A shareholder is basically anyone who owns part of a company through the shares he or she has bought in the company. For example, you own part of Facebook if you buy some shares in Facebook.
NOTE: Facebook is not a private company! I was just using it as an example to let you know what shares are and who a shareholder is. Please take note of this.
What is a public company?
Another name for a public company is the Public Joint Stock Company. This type of company has a minimum of 7 owners (shareholders) and no maximum number. This means that the number of people that can own the company is unlimited. There is no limit to the number of shareholders of a public company.
Public companies float shares to the public but private companies do not. This is one of the major differences between a public company and a private company.
What is a state company or a state-owned company? A state company is a limited liability company in which the government of the country owns over 50% of the company’s shares. For example, let us assume that Johnson Ltd is a very popular limited liability company in England that has 55% percent of its shares owned by the government, then Johnson Ltd qualifies as a state-owned company or a state company. This example lets us know that a public company can easily become a state company if the government purchases over 50% of the company’s shares. This is also lets us know that a state company can seize being a state company if the government were to lose its shares in the company to the point that it no longer owns 50% or more than 50% of the company's shares.
What is a statutory company? This is a corporation created by statute. Statutory companies are formed by the government in order to provide very vital and essential public services such as electricity, water, etc.
What is a co-operative society? A co-operative society is a business unit which is owned by the customers themselves. Here, what happens is that people who have a common interest pool resources together to form a commercial enterprise in order to promote their own welfare. Members purchase shares in the commercial enterprise and at the end of the day, dividends are shared to members based on the volume of shares that each member has.
What is a multinational company? It can be written as multinational or multi-national. This is any large limited liability company that has branches all over the world. Any company that has branches in more than one country is considered to be a multinational company. A multinational company can have a factory, office, or any business activity in many different countries, which is why it is referred to as multinational.
Another name for a multinational company is a Trans-national company. All multinational companies are very large and powerful business organizations.
One of the biggest multinational companies in the world is the United Kingdom–based company called HSBC Holdings, which is purely into the banking industry.
We also have other big multinational companies such as the following: JP Morgan Chase, Royal Dutch Shell, BP, Wal-Mart Stores, Citigroup, Nestle, Nokia, Unilever, Boeing, Intel, etc.
So here we are with the various types of business organizations that we have. One of the major objectives of business organizations is to make profit from their business activities. Every entrepreneur has his or her ultimate aim being to make profit. When a business organization makes profit then we say that the business got more revenue than expenditure. Profit is when revenue exceeds expenditure.