6.Forms of Business Organization

A business may be privately owned in three different forms. These forms are: the sole proprietorship, the partnership and the corporation.

The sole proprietorship is the simplest organizational form. There is one owner who makes decisions without consulting anyone. Most private businesses are sole proprietorships. First of all, they are service industries, such as beauty shops, different repair shops, restaurants.

A partnership is an association of two or more partners to carry on business for profit. When the owners of the partnership have unlimited liability they are called general partners. If partners have limited liability they are limited partners. There may be a silent partner – a person who is known to the public as a member of the firm but without authority in the management, and a secret partner – a person who takes part in management but who is not known to the public.

A business corporation is an institution established for the purpose of making profit. It is operated by individuals. Their shares of ownership are represented by stock certificates. A person who owns a stock certificate is called a stock-holder.

Except privately owned business corporations there are some other types too. Educational, religious, charitable institutions are also incorporated. There may be governmental corporations.

7. Business organization structure

In business organization structure means the relationship between positions and people who hold the positions. It provides an efficient work system as well as a system of communication. The three forms of the organization structure are 1) line organization structure, 2) line-and-staff organization structure, 3) matrix organization structure.

A line organization structure is the one in which there is a direct two-way line of responsibility, authority and communication running from the top to the bottom of the organization. The main idea of such organization structure is to provide direct vertical relationship between the position and tasks of each level, and the positions and tasks above and below each level.

To minimize the disadvantages of simple line organization structure most businesses today have both line and staff personnel and apply a line-and-staff organization structure. Line personnel perform functions that directly fulfill the main goals of the organization, which are making the product, distributing it, and selling it. Staff personnel perform functions that advise and assist line personnel in performing their tasks.

Today’s economy is dominated by new kinds of organizations in high-tech industries such as biotechnology, robotics and aerospace. A matrix structure is the one in which specialists from different parts of the organization are brought together to work on specific projects but still remain part of the line-and-staff structure.

8.Business financing

An important function of business is financing, that is the way business raises and monitors funds. Most organizations have finance departments or a manager in charge of financial operations.

Most of the money used by business comes from the sale of its products and services.

As a firm sells its products or services it receives money, which it uses to meet its expenses. One of these expenses is depreciation, which represents the cost of replacing assets (like tools, machinery, and buildings) that wear out.

Business can raise external funds in two ways: it can issue shares (stock) in exchange for money or property (equity funding), or by borrowing in exchange for bonds (notes), that is debt funding.

Banks make loans to corporations, organizations, to small companies and individuals. For this service banks always charge interest. To decide whether a business should receive a loan the bank examines its financial statement. If the company is eligible for a loan, it may choose a long-term loan or a short-term loan.

Two of the most important pieces of financial information on business are the balance sheet and the income statement. The balance sheet summarizes the firm’s assets (what it owns), the firm’s liabilities (what it owes) and its net worth (the difference between the two sums) at a given time. The income statement summarizes the firm’s revenues, costs and the difference between the two (the profit or loss) over a period of time.