TEXT 2. Forms, types and styles of business organizations

In fact, an organization is the unity, which operates successfully, if it is managed efficiently.

The components of the success of any organizations are: efficiency, economy and productivity.

To succeed, any organization must change for the better all the time, and it is the task of its management to lead their organizations to the win. Actually, to succeed, a firm must be managed successfully. The essential elements of any organization are as follows: a) organizational structure; b) people; c) objectives; d) technology.

Organization is known to be the framework of responsibilities, authority and duties through which all the resources of an enterprise are brought together and coordinated for the achievement of management objectives.

The well-known model of an organization is like a tree, where the crown of the tree is the embodiment of business units, the trunk represents core products and the roots constitute core competence.

The typical organization can be described in terms of;

Hierarchy (an organization is headed by; he/she reports to/ is under / is accountable to/ is assisted by/ is supported by);

Functions/responsibilities ( he/she is responsible for/ is in charge of/ takes care of);

Titles: Executive Board (Am) – Board of Directors (Br);

President (Am) - Chairman (Br);

Chief Executive Officer (Am) – Senior Vice-President (Am) – Managing Director (Br);

Vice-President of Finance (Am) – Finance Director (Br)

Sales Director (Am) – Sales Manager (Br).

Affiliates (it is a parent company; it is a subsidiary);

Structure (functional; line and staff; project and matrix structures, etc)

To operate effectively, people must know their duties, responsibilities and their authority, and that is the main reason why a company needs its structure. There are companies with a simple organization structure – with a single manager, ad there are companies with a team of managers with a wide manager’s span of control, which becomes richer with company’s growth.

The span of control (span of responsibility) refers to the number of subordinates who can be effectively supervised directly by one manager, supervisor or other person in authority. The wider is the span of control the better is the managerial activity, and the more superior’s time is saved. It is the fact that the span of management is the narrowest at the top and the widest at the bottom. For example, Managing Director may have accountable to him just three of four departmental executives whereas a foreman may be responsible for the supervision of fifteen or more workers).

Every organization has its own life cycle, which includes the following stages: Formation, Growth, Maturity and Decline. Like a human, a business organization goes in its activity through its birth, growth, maturity and dying down. 

TEXT 2. Forms, types and styles of business organizations.

It is the well-known fact that business can be privately owned in three forms, the widely practiced are as follows: sole proprietorship, partnership and corporation. Additionally, there are different ‘hybrids’ like franchise, limited partnership, joint venture and cooperative.

Basic kinds, forms, styles and structures of business organizations:

- Organization by forms of business: sole proprietorship; partnership; corporation

- Kinds of business organization: joint stock companies; holdings; limited partnership; franchises; joint ventures; cooperatives.

- Basic structures of business organization: line structure; functional structure; line and staff organization structure; departmentalization by product, territory or customer; matrix organization structure.

- Styles of business organization: bureaucratic; contingency; just-in-time (JIT)

Any business organization exists only as long as it satisfies customers’ needs, either present or able to be created, and at a price attractive to the market. The actual practice does not lead to the most efficient form of a business organization, so proprietorships, partnerships and corporations have their advantages and disadvantages. They have structure, through which the activities of personnel at all levels can be utilized in an orderly and controlled manner to the benefit of the enterprise as a whole.

  Sole proprietorships are the most numerous form of business organization. No charter and permit are needed and there are no particular legal requirements for organizing or conducting a sole proprietorship. When started, many sole proprietorships are conducted out of the owner’s home, garage, or van and inventory may be limited and may often be purchased on credit.

Advantages:  1) easy to start; 2)flexible; 3) is owned by one person, which has a total control; 4) profits belong to the owner.

Disadvantages :  1) limited resources;2) difficulties in raising capital, hiring professionals and in management; personal responsibility and financial liability are unlimited; 4) instability, great risk of loosing capital.

Partnership: In a partnership, two or more people share ownership of a single business. Like in proprietorships, the law does not distinguish between the business and its owners. The partners should have a legal agreement that sets forth how decisions will be made, profits will be shared, disputes will be resolved, how future partners can be bought out, pr what steps will be taken to dissolve the partnership when needed.

Advantages:  1) capabilities are expanded because of more than one owner; 2) ability to share capital, experience, pressure and work; 3) financial liability is limited; 4) the ability to raise funds may be increased; 5) prospective employees may be attracted to the business if given the incentive to become a partner.

Disadvantages: 1) difficulties in supporting of uniformity in management; 2) distinction in duties and profits are not easy to define (conflicts); 3) difficulties in getting loans from the banks; 4) partners are jointly and individually liable for the actions of the other partners; 5) profits must be shared with others; 6) partnerships may have a limited life; it may end upon the withdrawal or death of a partner.

Types of Partnership:

1. General partnership. Partners divide responsibility for management and liability, as well as the shares of profit or loss according to their internal agreement. Equal shares are assumed unless there is a written agreement that states differently.

2. Limited Partnership. ‘Limited’ means that most of the partners have limited liability (to the extent of their investment) as well as limited management decisions, which generally encourages investors for short term projects, or for investing in capital assets. This form of ownership is not often used for operating retail or service businesses. Forming a limited partnership is more complex and formal than that of a general partnership.

3. Joint venture. Joint Venture acts like a general partnership, but it is formed for a limited period of time or a single project. If the partners in a joint venture repeat the activity, they will be recognized as a continuing partnership and distribute accumulated partnership assets upon dissolution of the entity.

4. Corporation. A corporation is chartered by state in which it has headquarters. It is considered by law to be a unique entity, separate and apart from those who own it. A corporation can be taxed; it can be sued; it can enter into contractual agreements. The owners of a corporation are its shareholders. The shareholders elect a board of directors to oversee the major policies and decisions. The corporation has a life of its own and does not dissolve when ownership changes.

Advantages:1) limited financial liability; 2) ability to sell shares; 3) easy to borrow from bank; 4) delegation of authority; 5) succession; 6) synergy and high salaries. 7) corporations can raise additional funds through the sale of stock

Disadvantages: 1) not easy to organize and ‘untwist’; 2) “double taxation” (corporate tax); 3) strict legal regulation; 4) corporations are monitored by federal, state and some local agencies, and may have more paperwork to comply with regulations

It is obvious that corporation is the dominant form of a large-scaled business organization it terms of a present market. The number of organizations has been growing constantly, and there is no reason why growth should not continue indefinitely. In the context of an organization the responsibility, authority and duty can be considered as the basic obligations.

Responsibility must be defined as an obligation to make sure that authority is used in the proper way and that duties are properly carried out as well. In this sense, a chief executive takes full and ultimate responsibility for the effective operating of the organization.

Authority must be stated as a power to assign duties to subordinates and to ensure their carrying out. And definitely, the delegation of authority is an important part of any job.

Duty. This is the obligation to obey the orders and instructions. In most organizations the number of orders and instructions grows with great rapidity to meet changing requirements and circumstances.

When organization is small it will be centralized: that is it will consist of one unit, and responsibility and authority for all activities will remain with a chief executive. With growth and development the unit should be split into parts with a level of authority (decentralization), or the larger the unit may be planned (centralization). Some business organizations are highly centralized with power concentrated in their head offices.

Text 3. Organization structure

It is necessary to mention that the business of any organization is to establish an organization structure.