BUSINESS AND BUSINESS

ENVIRONMENT
Different Types of Organizations

Thuthini Nanayakkara
Lecturer – Business
At the end of the session, you will be able to
understand…..

• What is an organization
• Differences between for profit and not for profit and non-
government organizations (NGOs).
• Micro-, small-, medium-sized enterprises (SMEs). Different
business purposes, objectives and supply of goods and
services.
• The range of legal structures associated with different forms of
business: sole traders, partnerships and limited liability
companies.
What is an Organization ?

• Organization is the process of

identifying and grouping work to be
performed, defining and delegating
responsibility and authority and
establishing relationships for the
purpose of enabling people to work
most effectively together in
accomplishing objectives(Allen ,1958)
What is an Organization ?

• A social unit of people that is structured and managed to meet a need or to

pursue collective goals.

• All organizations have a management structure that determines

relationships between the different activities and the members, and
subdivides and assigns roles, responsibilities, and authority to carry out
different tasks.

• Organizations are open systems-they affect and are affected by their

environment.
Different Types of Organizations

Organizations can be classified in a variety of ways, including…

1. For profit and non- profit organizations

2. Size (small, medium, large)
3. Sector (private sector and public sector)
4. Legal status (sole trader, partnership, limited liability)
5. Type of industry (primary, secondary, tertiary)
Profit Organizations

• Any business entity, whose primary aim is to generate profit

from the regular operations, with a view to maximising the
wealth of owners, is called as a profit organisation.

• The profit earned by such entities is either retained in

business, for future contingencies, in the form of reserves or
distributed to the owners as the dividend.
Not for Profit Organizations

A non-profit organisation, as the name suggest is a legal organisation

whose primary purpose is to promote public good rather than making profit.

These are founded by a group of people who come together for a common
purpose, i.e. to provide service to members and people.

The managing committee looks after its management which consists of a

group of individuals, chosen by the members from among themselves. They
are aimed at endorsing a social cause or supporting a particular outlook.
 BASIS FOR
PROFIT ORGANIZATION NON-PROFIT ORGANIZATION
COMPARISON
Meaning A legal entity, which operates for earning profit for A non-profit organization is a legal entity, which
the owner, is known as For-profit or Profit operates for serving the society as a whole.
organization.

Motive Profit motive Service Motive

Form of organization Sole proprietorship, Partnership firm or company Club, Trust, Public hospitals, society, etc.

Management Sole proprietor, partners or directors, as the case Trustees, committees or governing bodies.
may be.
Source of revenue Sale of goods and services. Donation, subscription, membership fee etc.
Commenced through Capital contributed by the owners. Funds from donation, subscription, government
grant and so on.
Financial Statement Income statement, Balance Sheet and Cash flow Receipt & Payment A/c, Income & Expenditure
statement A/c and Balance Sheet.
Money earned over and Profit, is transferred to capital account. Surplus is transferred to capital fund.
above
Non-government Organizations

• A non-governmental organization (NGO) is a non-profit,

citizen-based group that functions independently of
government. NGOs, sometimes called civil societies, are
organized on community, national and international levels to
serve specific social or political purposes, and are cooperative,
rather than commercial, in nature.
Micro Enterprises

Micro enterprises are everywhere around us like an ice-cream

parlor or your favorite cafe in your neighborhood.

These are small businesses with minimal employees and

minimal capital.

A microenterprise usually operates with less than 10 people

and is started with a small amount of capital.
Micro Enterprises

In a developing country, necessity compels micro entrepreneurs to represent the

vast majority of small business sector.

They add value to the economy by creating micro business, enhancing the income
& lowering the overall cost of business.

The number of micro entrepreneurs is high due to the reason that no proper
training and formal jobs are available to them.

Micro-enterprises in developing countries produce both products and services for

their local areas. These small businesses come in the form of local farms, selling
cooked food from the sidewalk or food staples from a small store.
Small and Medium-sized Enterprises
(SMEs)

• Small and medium-sized

enterprises (SMEs) are the
bedrock of Sri Lanka’s economy.
Comprising 75% of all active
enterprises, Sri Lanka’s SMEs
provide 45% of employment and
contribute 52% to its gross
domestic product. Creating an
environment conducive to SME
growth is integral to achieving
equitable economic growth in Sri
Lanka (Asian Development Bank,
2018)
Small and Medium-sized Enterprises
(SMEs)

• SMEs make up the majority of the Company Staff

Turnover or
Balance
businesses operating around the category headcount sheet total
world. Medium-
< 250 ≤ € 50 m ≤ € 43 m
• Generally, with around 50-250 sized
employees. Small < 50 ≤ € 10 m ≤ € 10 m
Micro < 10 ≤€2m ≤€2m
Sector

Private sector
• Sole trader
• Partnership
• Limited liability
• Cooperatives
Sole Trader

• Sole trader is a business owned by one individual who is self employed and who
may, in some cases employ other people on either a full time or pat time basis
• This is the oldest and simplest form of business organization. The businessman
invests capital, employs labor & machines.
• Therefore, he is the supreme authority to decide into different matters
concerning it his business and has unlimited freedom of action within legal
jurisdiction.
• Such organization owner himself is responsible for the liabilities. Hence the
creditor can collect the money even from the personal property (Unlimited
personal liability)
Sole Trader

• Use of the business name- if the name of the proprietor is not used – few
other legal formalities are required to setup the enterprise.
• Other than need to register for value added tax (VAT) if turnover exceeds a
certain sum (e.g £ 85,000 in 2017)
• To fulfil any special requirements laid down by the local authority prior to
trading

Sole trader may be temped to look to others to share the burdens and the risks
by establishing a partnership, limited liability or cooperative or by seeking
different approaches such as joint venture, franchising etc
Partnerships

• A partnership is an arrangement which two or more individuals share the

profits and liability of business venture.
• It is one stage beyond the sole trader and often arises from the need to
introduce more capital or to combine skills. Each partner contributes an agreed
amount of capital and there is an agreed method of sharing profits, salaries and
interest.
• The Partnership Act 1890 defines a partnership as ‘the relation which subsists
between persons carrying on a business in common with a view to profit’.
Partnerships

• There should be minimum two partners and maximum 50.

• The duration of a partnership ends with the death or insolvency or insanity of
any one partner.
• A partnership has no legal existence distinct from its members and the partners
are liable for the acts of the firm. The liability of partners is unlimited, they are
jointly and severally liable for all the debts of the partnership firm.
• The firm is not needed to prepare and file documents such as the company is
required to. Secrets are not leaked out and outsiders cannot know the in and
outs of the firm and accounts are not needed to be audited.
Partnerships

• As the partnership is formed by an agreement it can be dissolved at any time by

another agreement.
• Moreover, apart from the English law of partnership, Sri Lanka has own statute on partnership
called as Partnership Ordinance No 21 of 1866. However, compare with English Partnership
Act of 1890 it is not deemed as a comprehensive legislation because it only contains seven
sections[4] and even it does not define the term of ‘’partnership’’.
Activity 1

• What are the advantages and disadvantages of a sole

proprietorship business ?

• What are the advantages and disadvantages of

partnerships ?
Limited Liability

• Limited companies In law a company is a corporate association having a legal identity

in its own right (i.e. it is distinct from the people who own it, unlike in the case of a
sole trader or partnership).

• The personal assets of its members (the shareholders) do not normally belong to the
business.

• In the event of insolvency, therefore, an individual’s liability is limited to the value of

shares invested in the business but which remain
Limited Liability

• Companies are essentially business organizations consisting of two or more individuals who
have agreed to embark on a business venture and who have decided to seek corporate status
rather than to form a partnership.
• Such status could derive from an Act of Parliament or a Royal Charter, but is almost always
nowadays achieved through ‘registration’, the terms of which are laid down in the various
Companies Acts.
• Under legislation, enacted in 1985, 1989 and 2006, individuals seeking to form a company are
required to file numerous documents, including a memorandum of Association and Articles of
Association, with the Registrar of Companies. If satisfied, the Registrar will issue a Certificate
of Incorporation, bringing the company into existence as a legal entity
Limited Liability

• The companies have to file their documents, returns, reports, balance sheet, profit and
loss account etc. with the Department of Inland Revenue. Some of them are open to
the public. Therefore, the level of secrecy is almost at the level of transparency and
Accounts are needed to be audited by a qualified auditor.
• The management of a company is in the hands of a group of elected representatives of
the shareholders. Even this group finds it difficult to administer the day-to-day affairs
of the company. It is carried on mostly by salaried people. Such people cannot be
expected to take active part in the management as the owners.
Limited Liability

• The chairperson, who is elected by the other members of the board, is usually chosen
because of their knowledge and experience of the business and their skill both
internally in chairing board meetings and externally in representing the best interests
of the organization.
• The managing director, or chief executive, fulfils a key role in the organization, by
forming the link between the board and the management team of senior executives.
• Like the managing director, most, if not all, executive directors will be full ‐time
executives of the company, responsible for running a division or functional area within
the framework laid down at board level.
Limited Liability

• A private company should have a minimum of 2 members and can have a

maximum of 50 members. A public company should have a minimum of 7
members and there is no maximum limit.
• Private Limited Company refers to the company which is not listed on a stock
exchange and the shares are held privately by the members concerned.
• Public Limited Company implies a company that is listed on a recognized
stock exchange and whose shares are traded openly by the public.
 Co-operatives

• Firm owned, controlled, and operated by a group of users for

their own benefit. Each member contributes equity capital, and
shares in the control of the firm on the basis of one-member,
one-vote principle (and not in proportion to his or her equity
contribution).
Sector

Public Sector
• Public enterprises have three defining characteristics.
1. They are public owned and controlled.
2. They are engaged in commercial (business) activities
3. They have socio-political goals alongside their primary
economic goals.
• Some provide services paid for by taxation.
• Others levy charges on users directly, although such
charges may be reduced by subsidy.
• Public sector refers to all publicly funded or publicly owned
bodies, even though they may not form part of the obvious
apparatus of government.
Public Sector

• Airport and Aviation Services (Sri Lanka) Limited

• Ceylon Shipping Corporation Ltd
• Ceylon Fertilizer Company Ltd
• Lanka Fabrics Ltd
• Milk Industries of Lanka (Pvt) Ltd (MILCO)
Type of Industries

• Primary - this involves acquiring raw materials. For example, metals and coal have to
be mined, oil drilled from the ground, rubber tapped from trees, foodstuffs farmed and
fish trawled. This is sometimes known as extractive production.
• Secondary - this is the manufacturing and assembly process. It involves converting
raw materials into components, for example, making plastics from oil. It also involves
assembling the product, eg building houses, bridges and roads.
• Tertiary - this refers to the commercial services that support the production and
distribution process, eg insurance, transport, advertising, warehousing and other
services such as teaching and health care.