Types of Business Organizations.

Western world designed the system of market economy, and nowadays we are not only its masters, but also its products. Modern outlooks are strongly affected by Smith’s ideas of ‘economic man’, but the behaviour of consumers not always plays the conclusive role. Our demands are satisfied through a system of governmental and commercial institutions, which have different objectives, different form and content.

A business organization is frequently referred to as a business entity. A business entity is any business organi­zation that exists as an economic unit. In fact, it unites 2 narrower concepts: an enterprise and a firm. When we say enterprise we usually mean the production facility which fulfils one or more specific functions concerning manufacturing and distribution of goods. A firm is an organization which owns an enterprise or a network of enterprises. Business entities can be groupped according to the assortment of goods/services, to the area of capital application etc. Still all the firms may be separated with the help of three criteria: type of business activity they perform, pattern of ownership and concentration of capital.

Modern capitalist enterprises are highly specialized and always aim to diversify their product. However, they may be subdivided into three categories:

-Service companies perform services for a fee. This group includes companies such as accounting firms, law firms, repair shops, and many others. This sector employs most people in highly developed countries but is poorly developed in the third world.

-Merchandising companies purchase goods that are ready for sale and sell them to customers. They include such companies as auto dealerships, clothing stores, supermarkets and retail outlets, E-commerce firms. Most newcomers, especially with the limited start-up capital, begin their career in the sphere of trade.

-Manufacturing companies buy materials, convert them into products, and then sell the products to the com­panies or to the final customer. Examples are steelworks, auto manufacturers or milk plants. Actually, it has a very important role, as its products satisfy people’s primary needs and provides them with comfortable surroundings. Nowadays the number of people employed by such businesses is constantly shrinking as they prefer to reduce salary costs and automatize their conveyer lines.

The business entity concept applies to all forms of busi­nesses. About 150 years ago almost every firm belonged to single individuals, but in the end of the 19^th century an industrial boom happened, and the need for financial infusion caused people to join their capital and form larger firms. This processes created the structure we observe today, where different types of businesses co-exist in a competitive struggle.

A single (sole) proprietorship is still widely spread. It is a business owned by an individual and often managed by that same individual. Single proprietors include traders, physicians, lawyers, electricians, plumbers, drivers and other people who are 'in business for themselves'. In a single proprietorship, the owner is responsible for all debts of the business. Operating as a proprietorship is the easiest way to get started in a business activity. The process of organization and liquidation is quite simple, and the owner is ready to react to this or that market situation very fast. All they need to launch a business is a local license, and the system of taxation is more than favorable. Despite this perks, sole proprietors often experience difficulties in getting a bank loan or expanding their business, that’s why they form another firm called a partnership.

A partnership is a business owned by two or more persons associated as partners. Partnerships are created by an agreement. Included in the agreement are such terms as the initial investment of each partner, the duties of each partner, and the means of dividing profits or losses between the partners each year, and the settlement to be made upon the death or withdrawal of a partner. Sometimes entrepreneurs unite and form a legal entity, but in most cases their partnership is just an expansion of the sole proprietorship. It inherits both positive and negative aspects. Still, partnerships produce at lower costs due to the larger output and may share managerial functions among the members. The most vivid negative side is a potential probability of conflicts, which often results in bankruptcy. Accountants, attor­neys, and other professionals frequently operate their firms as partnerships.

Sometimes partnerships evolve into limited liability companies, which provide much more opportunities and reduce threats. In case this entity goes bankrupt, its founders only lose the capital they invested in the firm, without risking their personal assets. Such businesses are widespread in most countries, including Belarus.

A corporation is a business owned by a few persons or by thousands of persons. The owners of the corporation are called shareholders or stockholders. They buy shares of stock, and the company’s profit (or losses) is shared among these people. If the corporation fails, the owners lose only the amount they paid for their stock. The personal assets of the owner are protected from the creditors of the corporation. The stockholders usually do not directly manage the corporation (although in some cases they do); they elect a board of directors to represent their in­terests. The board of directors select the president and vice-president, who manage the corporation for the stockholders and are accountable to them.

Sometimes economists speak of state enterprises, defining its 2 specific features:

• they are owned and controlled by governmental structures

• they not only maximize profit, but also aim to satisfy public needs, which may even lead to constant losses

Sometimes these entities are fully unprofitable and are financed from the state budget. Schools, hospitals, jails and orphanages belong to this category.

As we see, all companies operate in the system, where the possibility of a failure is undoubtedly high. That is why larger businesses prefer to act as limited liability companies. That means that their owners are only responsible for the investment they have done, and in case of going bankrupt they won’t lose their personal assets. Sometimes businessmen still risk their savings, but only to a certain degree, which makes a form of a limited liability company very popular and widespread. In Great Britain another form of limited companies are companies limited by guarantee. They are usually non-profit organizations like sport unions, students’ clubs and charities, which actually do not have shareholders, but have members, who guarantee the company’s financial stability. It is not spread in other countries.

We already mentioned such type of business as a corporation. However, it includes many sub-categories, and the most vivid distinguishing criterion is the way it gains its share capital. Most firms are public limited companies, whose shares can be bought or sold publicly. When forming a plc, you should have at least 50000 pounds of share capital, 2 shareholders, 2 directors and the trading certificate, allowing you to do business and borrow capital. Nowadays the process of registration is very simple and most companies are formed through the electronic systems. Public limited companies are often large corporation, which enter stock markets in order to gain additional financial resources. Another widespread type of business is a private limited company, whose shares cannot be freely distributed. Transfers of shares are usually regulated by individual agreements, and the initial share capital may be very low – 1 pound in Britain, i.e. Private companies have limited possibilities for further development, that’s why they are often reorganized into public companies. Fortunately, the legislation of the Western world doesn’t complicate this process.