Types of Business Organisation

🏢 Types of Business Organisation

1. 🔍 What is a Business Organisation?

A business organisation is a group of people or one person working together to produce goods or offer services in order to make a profit or meet other goals (like serving the public).

Different businesses can be organised in different ways depending on their size, ownership, goals, and risk involved.

2. 🏪 Forms of Business Organisation

2.1 👤 Sole Trader

✅ Definition:

A business that is owned and operated by one person.

✅ Features:

• Easy to set up with few legal requirements

• Owner has full control and makes all decisions

• Keeps all the profit

• Has unlimited liability (responsible for all business debts)

• Business and owner are not separate

✅ Examples:

• Small shops, hairdressers, freelance designers, mechanics

✅ Advantages:

✔ Easy and cheap to start
✔ Owner keeps all profit
✔ Quick decision-making
✔ Flexible working hours

❌ Disadvantages:

✘ Unlimited liability (risk to personal assets)
✘ Long hours, hard to take time off
✘ Limited capital
✘ Business ends if the owner dies

🧠 Suitable for:

People starting small businesses with little capital and who want full control.

2.2 👥 Partnership

✅ Definition:

A business owned by 2 to 20 people who agree to share responsibilities, profits, and risks.

✅ Features:

• Partners contribute capital and skills

• Deed of Partnership: legal agreement on profit sharing, roles, etc.

• Unlimited liability (unless it is a Limited Liability Partnership – LLP)

• Decisions are made jointly

✅ Examples:

• Law firms, dental practices, accounting firms

✅ Advantages:

✔ More capital than sole traders
✔ Shared responsibilities and ideas
✔ Easy to set up
✔ Shared losses

❌ Disadvantages:

✘ Unlimited liability
✘ Disagreements may occur
✘ Shared profits
✘ If a partner leaves, it may affect the business

🧠 Suitable for:

Friends or professionals starting a business together and willing to share profits and responsibilities.

2.3 🏢 Private Limited Company (Ltd)

✅ Definition:

A business that is owned by shareholders but does not sell shares to the public.

✅ Features:

• Separate legal identity from owners

• Owners have limited liability

• Run by directors on behalf of shareholders

• Shares are sold privately (e.g. to family or friends)

• Must be registered with legal documents like Memorandum and Articles of Association

✅ Examples:

• Family businesses, medium-sized companies

✅ Advantages:

✔ Limited liability
✔ Can raise more capital than partnerships
✔ Separate legal identity (can sue or be sued)
✔ Owners keep control (shares not sold to public)

❌ Disadvantages:

✘ More legal formalities than sole traders
✘ Financial accounts may need to be shared
✘ Shares cannot be sold freely
✘ Slower decision-making than sole trader

🧠 Suitable for:

Medium-sized businesses looking for more capital but still wanting to keep control within a small group.

2.4 🏦 Public Limited Company (Plc)

✅ Definition:

A large business that sells shares to the public on the stock exchange.

✅ Features:

• Limited liability

• Can raise large amounts of capital

• Owned by thousands of shareholders

• Run by a board of directors

• Must publish financial reports

✅ Examples:

• Safaricom Plc, Apple, Coca-Cola

✅ Advantages:

✔ Can raise huge capital from public
✔ Limited liability
✔ Separate legal identity
✔ Easy to grow and expand

❌ Disadvantages:

✘ Expensive and complex to set up
✘ Must publish accounts (less privacy)
✘ Risk of takeover if many shares are bought
✘ Original owners may lose control

🧠 Suitable for:

Very large businesses looking for expansion and huge amounts of capital.

2.5 🍔 Franchise

✅ Definition:

A business where a person (franchisee) buys the right to use a well-known brand name, logo, products, and systems from a company (franchisor).

✅ Features:

• The franchisee runs their own outlet under the franchisor’s name

• The franchisee pays a franchise fee and a share of profits

• Franchisee must follow rules and standards

✅ Examples:

• KFC, McDonald's, Java House (some locations)

✅ Advantages:

✔ Brand is already well-known
✔ Training and support from franchisor
✔ Less risk of failure
✔ Advertising is done by franchisor

❌ Disadvantages:

✘ Limited control for franchisee
✘ Must share profits with franchisor
✘ Bad performance by other franchisees can hurt the brand
✘ High start-up costs

🧠 Suitable for:

Entrepreneurs who want to start a business with lower risk and a known brand.

2.6 🤝 Joint Venture

✅ Definition:

When two or more businesses agree to work together on a specific project or goal.

✅ Features:

• Share costs, risks, and profits

• Each business brings different strengths

• Joint control and management

✅ Examples:

• Toyota and Subaru creating a new car

• Local company teaming with a foreign company to enter a new market

✅ Advantages:

✔ Share risks and costs
✔ Combine resources and skills
✔ Entry into new markets becomes easier
✔ Learn from each other

❌ Disadvantages:

✘ Conflicts between partners
✘ May have different goals
✘ Profits are shared
✘ Trust issues may arise

🧠 Suitable for:

Businesses wanting to expand, share resources, or enter new markets.

3. 🆚 Unincorporated vs Limited Companies

Feature	Unincorporated Business (Sole Trader, Partnership)	Limited Company (Ltd, Plc)
Legal identity	Not separate from owner	Separate legal identity
Liability	Unlimited	Limited liability
Ownership	Individuals	Shareholders
Continuity	Ends with owner's death	Continues even if owners change
Capital	Limited	Can raise more through share sales
Example	Grocery shop, Dentist	Supermarket chain, Tech company

4. ⚠️ Key Concepts: Risk, Ownership, and Limited Liability

⚠️ Risk

The possibility that a business may fail, lose money, or not meet its goals.

👑 Ownership

• Sole trader & partnership: owned directly by individuals

• Ltd & Plc: owned by shareholders

🛡️ Limited Liability

• Owners are only responsible for the amount they invested

• Personal belongings are not at risk

Business Type	Liability Type
Sole trader	Unlimited
Partnership	Unlimited
Private Ltd (Ltd)	Limited
Public Ltd (Plc)	Limited
Franchise	Usually Limited
Joint Venture	Depends on setup

5. 🧠 Choosing the Right Form of Business Organisation

When recommending a business type, consider:

Factor	Impact
Amount of capital	Bigger businesses need companies or franchises
Risk willingness	Limited companies reduce personal risk
Level of control desired	Sole traders have full control
Type of product/service	Franchises suit well-known services
Speed of decision-making	Slower in companies, faster in sole traders
Growth plans	Companies allow for easier expansion

6. 🏛️ Business Organisations in the Public Sector

✅ What is the Public Sector?

These are businesses owned and controlled by the government, often to provide essential services or for public welfare.

✅ Public Corporations:

• Run by the government

• Not focused on profit

• Funded by taxes or revenue

• Aim to provide goods/services affordably

✅ Examples:

• Kenya Power

• Posta Kenya

• National Water Services

• BBC (UK)

✅ Advantages:

✔ Provide essential services
✔ Don’t aim for profit, so can be more affordable
✔ Protect jobs
✔ Prevent exploitation

❌ Disadvantages:

✘ Can be inefficient (less motivation to save money)
✘ Political interference
✘ May have poor customer service