Types of Business Organisations

 Sole proprietorship

A sole proprietorship is a business organization owned and controlled by one person. It includes everything from a barber shop to a grocery store.

Partnership

A partnership is a business co-owned by two or more partners who agree on how that business’s responsibilities, profits, and losses are divided.

Three types of partnership:

Corporations

A corporation is a business owned by stockholders, who own the rights to the company’s profits but face limited liability for the company’s debts and losses.

For instance, suppose a large company sells 1 million shares to the public. If you acquired 10,000 shares, you would own 1% of the company. Your risk is limited to the stock value you hold with the company. In a scenario, where the company does well and earns profit, you might receive a so-called dividend, which is part of the profit that the company pays out to the stockholders.

Business consolidation

Business consolidation involves a merger or combination of several large companies into one mega company. The reasons for business consolidation can vary from increasing efficiency. Gaining a new identity as a business or losing an old one, keeping rivals out of the marketplace and diversifying the product line.

An example of a merger was between Addidas and Reebok in 2005, the second and the third biggest makers of sports shoes. Addidas acquired Reebok to trim the costs of both, increasing the market share and hoping to compete with the world’s largest sports shoemaker, Nike.

There are two kinds of mergers:

• A horizontal merger: the combining of two or more companies that produce the same product or similar products.

• Vertical merger: the combining of companies involved in different steps of producing or marketing a product.

Conglomerates

Another kind of business consolidation is conglomerates when two or more companies in different industries come together. With diverse businesses, the company is protected against economic pressure due to changing demand for specific products. However, in reality, it is not easy to manage companies in unrelated industries.

Key characteristics of conglomerates include:

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Multinational Corporations

A multinational corporation (MNC), also known as a multinational enterprise (MNE) or a transnational corporation (TNC), is a large corporation that operates in multiple countries, typically with production or service facilities outside its country of origin.

Key characteristics of multinational corporations include:

Multinational corporations have many beneficial effects. They provide new jobs, goods, and services worldwide and spread technological advances. Coca-Cola, McDonald’s, Nike, and Google are some examples of multinational corporations.

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Franchises

A franchise is a business arrangement in which one party (the franchisor) grants another party (the franchisee) the right to use its trademark or trade name as well as certain business systems and processes, typically in exchange for a fee or royalty.

During the franchise process, both parties can gain certain benefits including:

• The franchisor expands its brand presence and generates revenue through franchise fees and;

• The franchisee gains access to a proven business concept and support network to help increase their chances of success.

Fast-food restaurants, hospitalities, car services and real estate are among the most common franchised businesses. While franchises offer many benefits, there are also several disadvantages associated with this business model such as:

• High initial costs including franchise fees, initial investment in equipment, inventory, and real estate.

• Ongoing fees including royalties and other fees to the franchisor.

• Franchisees may lack control due to adherence to the policies, procedures, and standards set by the franchisor.

• Franchisees have to heavily depend on the franchisor.

• Some franchise territories may become saturated with competing outlets.

• Franchisees often enter long-term contracts with various obligations and possible disputes.

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Cooperatives

A cooperative, often referred to as a co-op, is a type of organization or business owned and operated by a group of individuals or entities for their mutual benefit. Unlike traditional corporations, each member has an equal say in the decision-making process, regardless of their level of investment or financial contribution.

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Types of cooperatives vary including Consumer cooperatives (e.g. organic food cooperatives), service coops (e.g. credit unions) and so on.

Non-profit

A nonprofit organization is a type of organization that is formed for purposes other than making a profit. Nonprofits typically pursue missions related to social, cultural, educational, religious, charitable, or other similar endeavours aimed at benefiting society or specific communities.

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References

Australian Government Business n.d., Business structures, Australian Government Business, available at <https://business.gov.au/planning/business-structures-and-types/business-structures>.

Adam, H 2024, What Is a Business? Understanding Different Types and Company Sizes, Investopedia, available at <https://www.investopedia.com/terms/b/business.asp>.

American Psychological Association n.d., Choosing the Best Legal Structure for Your Practice, American Psychological Association, available at <https://www.apaservices.org/practice/business/legal/professional/structure#:~:text=There%20are%20a%20variety%20of,has%20its%20advantages%20and%20disadvantages.>.

HKTDC Research 2018, Types of Business Organisations, HKTDC Research, available at <https://research.hktdc.com/en/article/MzgyODY0Njgz>.

Shopify n.d., Business Structures: 10 Types and How To Choose, Shopify, available at <https://www.shopify.com/au/blog/types-businesses>.