Different Types of Business Organizations

A business organization refers to any entity that engages in commercial activities by offering goods or services to customers. There are various ways to structure a business, ranging from sole proprietorships to partnerships to limited liability companies.

Sole Proprietorship

• A sole proprietorship is when an individual has complete ownership and responsibility for managing their own business.
• In essence, a sole proprietorship is a business that is solely owned and controlled by one person.
• As the owner, there is no requirement to share profits with others, but all business debts are the sole responsibility of the owner. This means that personal assets may be at risk in order to settle business debts.

The management of a sole proprietorship is carried out by the owner.

• Formation

  • Setting up a sole proprietorship does not involve any legal formalities.
  • However, the trade name of the business must be registered.
  • Additionally, certain sole proprietors may need specific licenses, such as a food badge for selling food.

• Examples

  • Street food vendors
  • Local retail shops
  • Independent contractors
  • Hair salons
  • Small-scale farmers
  • Professionals like doctors or lawyers

• Characteristics

  1. Easy establishment with no legal requirements.
  2. Quick decision-making process.
  3. Flexible working hours.
  4. Privacy is maintained as sole proprietors are only required to disclose business affairs to tax authorities and banks for loan purposes.
  5. Sole proprietors often provide a personalized service.

Collaboration for Profit: The Partnership Venture

A partnership entails a collaborative arrangement where a group of two to twenty individuals join forces with the shared objective of achieving financial gains.

Key Characteristics

1. A partnership requires a minimum of two and a maximum of twenty individuals who act as partners.
2. Profits are distributed either equally among partners or as specified in the Partnership Deed.
3. Partners contribute capital and financial resources based on mutually agreed-upon terms.
4. In the event of a partner's retirement or demise, the partnership may undergo restructuring or dissolution.

Examples

• Accounting firms
• Medical practices
• Law firms

Partnership Establishment

The procedure of initiating a partnership does not require stringent formalities, although it is highly advisable to create a Partnership Contract.

Partnership Contract

A Partnership Contract is a documented agreement that delineates the terms and conditions governing the partnership.

It should encompass the following components:

1. Identification of the participating partners
2. Description of the business nature and date of commencement
3. Capital contributions provided by each partner
4. Guidelines for the distribution of profits and allocation of losses
5. Assignment of roles and responsibilities among partners
6. Provision for potential remuneration or compensation
7. Duration of the partnership and procedures for termination or dissolution
8. Mechanisms for the resolution of disputes and conflicts

The primary objective of a Partnership Contract is to ensure transparent communication and facilitate efficient conflict resolution.

In the absence of a Partnership Contract, the partnership will be subject to the legal provisions outlined in the Partnership Act.

Companies

A company is a business entity that has been incorporated, that is, it has a separate legal identity from that of its owner(s).

• Formation of Companies

  Certain legal requirements must be met before a company can commence trading. Certain documents must be submitted to the Registrar of Companies . This is outlined below.

  A private limited company must submit the following to the Registrar of Companies:

  • (i) The Memorandum of Association

  • (ii) The Articles of Association

  • (iii) Statement of Authorised, Registered or Nominal Capital

    A public limited company must submit the following to the Registrar of Companies:

  • (i) The Memorandum of Association

  • (ii) The Articles of Association

  • (iii) The Statement of Authorized, Registered or Nominal Capital

  • (iv) The Prospectus

Memorandum of Association

The Memorandum of Association governs the external relationships of the company and contains the following:

• (i) Company’s name, which must contain the word LIMITED
• (ii) Address of the company’s registered office
• (iii) Objectives of the company
• (iv) Statement that the liability of the shareholders is limited
• (v) Authorized share capital and types of capital

Article of Association

The Articles of Association governs the internal relationships of the company and contains the following:

• (i) Procedures for calling the Annual General Meeting

• (ii) Rights and obligations of the Directors

• (iii) Procedures for governing the election of Directors

• (iv) statement concerning the borrowing power of the company

• (v) procedures dealing with payment of dividends.

• Prospectus

  The prospectus is an invitation to the public to buy shares in a public company.

Statement of Authorized Registered or Nominal Capital

This is the amount of capital stated in the Memorandum of Association, which is the maximum amount the company is authorized to raise.

Private and Public Limited Companies

• Private Limited Companies

  A private limited company is an incorporated business organization consisting of 2 to 50 members whose aim is to make a profit. The membership is restricted to family and friends.

  • Examples

    Southern Medical Clinic Limited

    Flame Industries Limited

    Innovative Business Solutions Limited

    Caribbean Glass Company Limited

  • Characteristics

    • Membership is between 2 to 50 persons.
    • The word “ limited” must be included in the name.
    • The company must be registered with the Registrar of Companies.
    • Capital is obtained from private individuals, financial institutions, Government agencies or retained profits

  • Formation

    • This company must be incorporated and therefore, must give to the Registrar of Companies the following documents:
    • (i) Memorandum of Association
    • (ii) Articles of Association
    • (iii) Statements of Authorized , Registered or Nominal Capital

  • Management

    The private limited company is managed by its owners.

Public Limited Companies

A public limited company is an incorporated business organization with at least 7 shareholders that offers shares to the public.

• Examples

  Berger Paints Limited

  Angostura Holdings Limited

• Characteristics

  • There must be at least 7 shareholders with no limit to the maximum number of shareholders.
  • The word “ limited” must be included in the name.
  • The company must be registered with the Registrar of Companies.
  • Shares are traded openly on the stock market
  • The company is continuous, it does not close down on the death of a shareholder.

• Formation

  • This company must be incorporated and therefore, must give to the Registrar of Companies the following documents:
  • (i) Memorandum of Association
  • (ii) Articles of Association
  • (iii) Statements of Authorized , Registered or Nominal Capital
  • (iv) The Prospectus

• Management

  The public limited company is managed by its Board of Directors which is elected by the shareholders at the Annual General Meeting