1.

2: Types of Business Organization:

Main Types of Organizations:

Two main types of businesses:

Public enterprises: institutions or companies that are owned and managed by the government (public
sector). Their main goal is to achieve public welfare (don’t care about profit, care about citizens).
Public enterprises ensure to provide public goods (essential goods that are needed be people) (ex:
electricity, telecommunications, transportation).

Private enterprises: owned and managed by the private sector. There are different categories:

Profit-seeking enterprises: are businesses who seek to maximize their profits as their main goal.

-Sole traders: business that is owned and managed by one person. Main features: no legal distinction
between owner and business, meaning in case business goes bankrupt owner is liable and has to pay
from his own money, limited access to finance since most of the financial resources are gathered from
their personal savings, sole traders allow customization since they have few customers (knows his/her
customers, sole traders enjoy privacy, meaning they don’t have to share their financial information
and they don’t have enough accountability (can’t trust their word). It is quick and easy to start a sole
trader business.

Advantages of being a sole trader:

- complete control over major decisions

-enjoy flexibility as they can set their own business rules

-sole traders enjoy privacy

- minimal legal requirements

- good relationship with customers (allow customization, customers can customize their order to suit
their needs)

Disadvantages:

- sole traders can poorly compete with existing competitors

- managing the business alone might be very stressful

- sole traders suffer from lack of continuity, as the business may vanish after the owner dies

- sole traders have little chances to expand, since they have low retained profits (accumulated profits
from year to year)

- sole traders are personally liable and have unlimited liability for the business obligations
(accountable for everything in the business)

-Partnerships: a form of business that is owned and managed jointly by partners (between two and
twenty partners). Main features: partners manage the business and make major decisions jointly, no
legal distinction between the partners and the business (partners are 100% liable for the business
obligations), partnerships have more access to finance, partnerships enjoy creative ideas, as many
partners are recognizing their expertise in the business, partners’ shares and duties are specified in
the partnership deed.

Advantages of a partnership:

- partnerships enjoy greater stability as compared to sole traders (more access to finance)

- partnerships bring creative ideas developed by different skills and qualities of partners

- partners are making decisions jointly and share the responsibility (less stressful than a sole trader)

- partnerships have a higher chance of continuity as compared to sole traders

Disadvantages:

- partners have unlimited liability (partners are liable for all business obligations)

- partnerships have less access to finance than corporations

- partners might disagree, which might lead to problems and inefficiency

- partners should share their profits

-Corporation: a form of a business that is owned by shareholders and managed by the chief executive
officer, who is elected by the board of directors. The main characteristics: two main types of
corporations: public limited company offers the right of ownership for everyone, private limited
company: offers the ownership right to a specific or private people. Owners are not liable for the
business obligations (limited liability company), corporations have more access to finance than
partnerships and sole traders, corporations have large accumulated profits, which help them expand
and grow, corporations have higher likelihood to grow and expand.

Benefits that shareholders receive from investing in a corporation:

- Shareholders can benefit from the increase in the price of their shares

- Shareholders receive a share of profits (dividends)

- Shareholders have limited liability (not responsible for the business obligations)

Advantages of corporations:

- Corporations have more access to finance than sole traders and partnerships.
- Shareholders have limited liability (not responsible for the business obligations
- Corporations have more likelihood of continuity since owners are separated from the
managers.
- Corporations can expand and grow since they have large accumulated profits (retained
profits).

Disadvantages of corporations:

- The legal requirements to setup a corporation is complicated and takes time.

- Initial owners of a corporation (entrepreneurs) lose control over the business’ main decisions.
 - Corporations don’t have financial privacy (detailed financial information is published online to
the public).
- Corporations don’t have control over the shares’ ownership.

Social profit enterprises: are businesses who seek to achieve social benefits and to gain some profits.

(ex: Touch).

-Cooperatives: are forms of partnerships but are dominated by their social purpose. Types: financial
cooperative: provide financing or loans at lower interest to the public to achieve social benefits,
housing cooperative: provides its members with housing units at a monthly installment, workers’
cooperative: aims to ensure that workers’ are receiving their social rights, producers’ cooperative:
helps the producers to solve their problems and operate efficiently, consumer cooperative: ensures
that the consumers are paying the right price for the required quality products.

-Micro-financers: are financial institutions that provide loans for small and medium enterprises. They
provide long term loans at a low interest rate, they might extend the repayment schedule to help
SMEs (small and medium enterprises), they target new entrepreneurs that might develop new ideas
to enhance the society.

-Public-private partnerships (PPPs): are private institutions that manages public goods, that are
needed by the society (MTC and Alpha manage telecommunication services in Lebanon). Main
features: they aim to achieve social benefits and gains some profits, the public sector should provide
the physical and financial resources and the private sector should provide the enterprise.

Advantage of PPPs:

- Anyone in the private sector can participate in this business, if the requirements are met.
- Employees in a PPP are motivated, since they are helping in achieving social benefits.
- PPPs are helping governments to develop the society.

Disadvantages of PPPs:

- The decision making process in a PPP is complex and time consuming.

- The business profits may not be sufficient to grow.
- PPPs don’t have enough capital to expand.

Non-profit enterprises: are businesses that seek to achieve social benefits only and don’t achieve any
profits, through providing social services. Their main goal is to serve social causes.

Two types:

Non-Governmental Organizations (NGOs): businesses who provide products that aim to develop the
community (ex: school, university, hospital). NGOs might have economic, social or even political
purposes. They don’t aim to achieve profits, but they might have surpluses.

Charities: private institutions that raise finance from their members and special events (ex: Red
Cross). Their main aim is to help those who cannot help themselves.