Organizational forms entrepreneurship notes

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Summary

In this lecture we shall discuss the various forms of business organizations including sole proprietorship, partnership, companies, public corporations, parastatal bodies and co-operative societies.
General Objectives
By the of the course the learner should be able to identify and explain various legal forms of businesses available in Kenya At the end of this lecture you should be able to:
i) Explain the various forms of business organizations
ii) Discuss the advantages and disadvantages of sole proprietorship
iii) Explain the procedure of formation of partnership
iv) Explain the various forms of partnership
v) Discuss the merits and demerits of partnership
vi) Explain the formation of companies
vii) Discuss the advantages and disadvantages of companies.
viii) Identify types of co-operatives
ix) Discuss the advantages and disadvantages of co-operatives

4.1 Unincorporated Business
? These are business which do not have separate entity ( existence from that of their owners)
? According to law such organizations are one and same in the existence of the owner.
? They do not have separate rights and obligations from those of their owners
? They include
i) sole proprietors
ii) partnership

4.1.1 Sole Proprietorship
? Sole means single while proprietorship refers to the owner of a business owned by one person who takes responsibility on risks of the business.
? He either enjoys the profits or servers the losses of the business alone.

Formation of Sole Proprietorship
? It is simple and easy to form since legally only licensed from the government is required
? If the name of the business is different from that of the owner the business name should be registered with the registrar.

Management of Sole Proprietor
The owner of the business is the manager of the business
? He makes decisions operating the day to day activities the business.
? He may employ people to work in the business or be assisted by family members.

Sources of Capital
? The term capital is used her to refer to the resource required to start and operate the business
? He may obtain capital from;
i) his own savings
ii) borrowing from friends and relatives
iii) banks and other financial institutions
iv) credit suppliers
v) borrowing from government institutions i.e. KIE, ICDC
vi) funding from non-government organizations
vii) hire purchase funds
viii) The business itself from retained profits.

Liability
Liability refers to the extent which the owner of the business can be called upon to meet the debts of the business.
? A sole proprietorship is viewed as being one and the same with the owner hence does not have separate rights and obligation.
? Where a sole proprietorship business can not pay its liabilities all its assets and the business properties are sold in order to clear the business debts.
? The responsibility of the owner of the sole proprietorship business is thus unlimited.
? The sole proprietor is therefore said to have unlimited liability.
? This means that the liability of the owner is no just restricted to capital contributed but extends to include its personal property.

Features of a Sole Proprietorship
1. Is a business owned by one person
2. It had no separate legal existence from its owner
3. It has a limited legal life since its existence depends on the life of the owner.
4. The owner has unlimited liability in the business.

Advantages of a Sole Proprietorship
1. It is easy to start since only a license is required
2. Quick decision making
3. Freedom of action at any time
4. Flexibility in adopting quickly to changes in customers needs
5. Profits are entirely on the owner’s hands

6. There is control over business secrets
7. Easy to use family labor cheaply.

Disadvantages of Sole Proprietorship
1. Limited life in case of death of the owner
2. Unlimited liability may cause the owner to loosing personal property.
3. The sole proprietor serves loses entirely by himself
4. Limited capital may delay expansion.
5. working for longer hours may result to fatigue
6. Lack of essential skills may cause mis-management.

Circumstances under which the Sole Proprietorship ideal
1 When customers show preference to specialized services
2 Where small capital is required to start up a business
3 Where returns are low and may not warrantee existence of a large business.
4 Where the market experiences frequent demand changes
5 Where locations are remote and the population may be small.

Dissolution of a Sole Proprietorship
? Dissolution refers to the termination of the legal existence of the business.
This may be caused by;
i) The death of the owner
ii) The transfer of the business to another person.

Problems the Sole Proprietorship may face.
1. Lack of continuity in case of death.
2. Lack of skills may lead to mis-management
3. Working for longer hours may lead to fatigue
4. Loses are served by the owner
5. Limited capital to facilitate expansion functions.
6. Lack of consultancy may lead to poor decision making
7. Unlimited liability may cause lose of property.

4.1.2 Partnership
? According to the partnership Act. A partnership is referred to as a relationship which subsists between persons carrying on a business in common with view of making profits.
? A partnership is thus an extension of sole proprietorship and is in fact necessitated by the fact that a sole trader may for several reasons fail to carry out his business efficiently and profitability.
? Partners pull the financial and managerial skills together in order to make profit.

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