The document discusses different forms of business organizations including sole proprietorships, partnerships, and companies. It provides details on the key characteristics of each form. Sole proprietorships have one owner who bears all risks and profits. Partnerships involve two or more owners who share risks and profits. Companies are owned by shareholders and have a legal structure separate from its owners with limited liability. The document also covers types of businesses like services, merchandise, and manufacturing businesses and provides examples of each.

1. Hargeisa Technical Institute
Department of business and office administration
Course : Entrepreneurship
Lecturer : Hamse Khliif

2. Chapter 2
FORMS OF BUSINESS ORGANISATIONS
 A business organization exists to provide
goods and services at a profit. Profit is certainly
what distinguishes business organisation from
a non-business organization.
The business organization we are talking about
here range from one-man business to a large
Company with hundreds of staff in a variety of
locations.

3. There are basically three forms of business:
Sole trade
 Partnership
 Company

4. Sole Trade
• The sole trade is a form of business that is
owned, managed and controlled by one person.
He has to bring capital for the business and he
is responsible for its management. He takes all
the profits and loss of the business. He can
take the help of his family members. He can
also use the services of others such as
employee.
• This type of business organisation is also called
single ownership. The owner is called sole
trader or sole proprietor.

5. • Sole trade is the simplest and most easily
formed business organization. This is
because not much legal requirement is
required to establish it.

6. Features of Sole Proprietorship
The important features of a sole trade include the
following:
Individual Initiative: One person is the owner in
a sole- trade business.
Risk Bearing: The proprietor takes the profits of
this form of organisation. If there is a loss, he
alone has to accept it. Thus the risks of business
are taken by the owner himself.
Management and control: Management and
control of this type of organisation is the
responsibility of the sole proprietor. He may,
however, employ a manager or other people.

7. Minimum government regulations: The
government does not interfere with the working
of the sole trade organisation. However, they
have to comply with the general laws and rules
laid down by government.
Unlimited liability: The sole trader has to allow
the losses and is responsible for the liabilities of
the business. If the business assets are not
sufficient to meet the liabilities, he may also
have to sell his personal property for that
purpose.
Secrecy: All important decisions are taken by the
owner himself. He keeps all the business secrets
only to himself.

8. Advantages of Sole Trade:
A sole trade organisation has the following
advantages:
Easy formation: A sole trade business is easy
to form where no legal requirement are
involved in setting up this type of
organization. It is simply required that the
business activity should be lawful and should
comply with the rules and regulations laid
down by the government.

9. Better Control: In sole trade organisation, all
the decisions relating to business operations
are taken by one person, which makes
functioning of business simple. The sole
trader (sole proprietor) can also bring about
changes in the size and nature of activity. This
gives better control to business.
Sole receiver of profits: The sole proprietor is
the only person to whom the profits belong
to. There is a direct relation between the
effort and profit. This motivates him to work
hard and bear the risks of business.

10. Benefits of small- scale operations: The sole
proprietorship is generally organized for small-
scale business. This helps the proprietor’s
family members to be employed in business.
Inexpensive Management: The sole
proprietor does not appoint any specialists for
various functions. He personally supervises
various activities and can avoid wastage in the
business.

11. Advantages of Sole Proprietorships
Ease of Start-Up
Full Control
Freedom
person makes the decisions
Owner keeps profits
Better Control
 Single ownership of all profits

12. Disadvantages of Sole Proprietorships
Un limited liability
All responsibility by one person
No regular salary
Limited managerial skills
Long working hours
Limited amount of capital
Lack of continuity

13. Limitations of Sole Proprietorship
• A sole proprietor generally suffers from the
following limitations:
Limitation of management skills: A sole
proprietor may not be able to manage the
business economically as he has not necessary
skills about all aspects of the business. This
causes difficulties in the growth of business also.
Limitation of Resources: The sole trader is
generally at a disadvantage in raising sufficient
capital. His own capital may be limited and his
personal assets may also be insufficient for
raising loans. This reduces the capacity of
business growth.

14. Unlimited liability: The sole proprietor is
personally liable for all business responsibly. For
payment of business debts, his personal
property can also be used if the business assets
are insufficient.
Lack of continuity: A sole trade organisation
suffers lack of continuity. If the proprietor is ill
this may cause temporary closure of business.
And if he dies the business may be permanently
closed.
In Somaliland, this form of organisation is quite
popular and accounts for the largest number of
business units.

15. Examples of Sole proprietorship
petrol station

16. Hairdressing service

17. Restaurants

18. Partnership
Partnership: is an association of two or more
persons to carry on, as co-owners, a business
and to share its profits and losses.

19. Characteristics of partnership
Association of persons: there must be at least
two persons to form a partnership. The
maximum number is fixed at ten for a
partnership carrying on banking business;
and the maximum number is fixed at twenty
for partnership carrying on any other
business.

20. Agreement: there should be agreement to
form a partnership. Persons who are not
competent to contract cannot be partners.

21. There must be a business: the agreement
executed by persons should relate to a
business, and such business should be lawful.
Sharing the profits and losses: the profits or
losses of business are shared by partners as
per the agreement.
Participation in business: business should be
carried by all or any one of the partners.
Unlimited liability: the liability of the
partners of the firm is unlimited.

22. Advantages of Partnership
Easy to form:
A simple agreement among the partners is
sufficient to start a partnership firm.
Huge capital:
The capital contributed by each partner put
together becomes large. This leads to expansion
of business and large business activities.
Efficient management:
Different functions of business are managed by
different partners. The talent, expertise and
knowledge of the partners can be used for the
welfare of the business.

23.  Close control:
The partners themselves look after the business. They
have direct contact to the employees; hence wastages
can be avoided or eliminated.
 Wise decisions:
The decisions will be taken by the partners after
discussing the various factors. This results into good
decisions.
 Sharing of risk:
Any risk of the business or loss is shared by all the
partners; hence the burden of every partner is less
when compared to the sole trader.

24. Disadvantages of Partnership
 Unlimited liability:
The liability of the partners is unlimited.
 Limited capital:
The capital of the firm is limited and restricted by the
number of the partners.
 Late decisions:
Since all important decisions are taken by the partners, the
decision making process becomes time consuming. The
late decision making may result into losses also.
 Lack of secrecy: it is difficult to maintain the secret of the
business by the partners. Lack of confidence in each other
can cause quarrels.
 Instability: the constitution of the firm is affected by the
death or retirement of partners.

25. 3.Company
Company: is an association of persons who
contributes money which is legally existed
and has a permanent continuation.

26. The capital of the company is divided into
small units called shares. The persons who
contribute to the capital of the company are
called “share-holders”.

27. Separation of ownership and management:
The ownership and management are in two
separate hands. The companies are owned by
shareholders and managed by a separate
people known as board of directors.
Limited liability.

28. Characteristics of a company
Association of persons: A company is an
association of persons. At least two persons
are required to form a private company. To
form a public company seven persons are
required. The maximum number of persons is
50 for private company and no maximum
limit for public company

29. • Legal entity:
The company is created under law. The life of
the company is independent from the lives of
its members. The company can sue and be
sued in its own name

30. Advantages of a company
Large capital.
Limited liability.
Efficient management.
Greater risk bearing capacity.
Disadvantages of a company
Difficulty in formation.
Lack of personal interest – management.
Delayed decisions.
Lack of secrecy.

31. What are the sizes of business
organization?
Big or large
organization
Medium-size
organization
Small organization

32. Types of Business
Services Business
merchandise Business
Manufacturing Business

33. Services Business : these Business provide
services rather than products to customers

34. Services Business types of Services
Daryeel Building construction
Daallo Air line transportation
Bank Somaliland financial services
Somtel telecommunication

35. merchandise Business
merchandise Business is: sell products
they purchase from other business to
customer

36. • Merchandise Business Types of products
OMICCO General Merchandise
Kayse Busharo beauty care products
 Arwo Almuinam building material

37. manufacturing Business
manufacturing Business change basic inputs
into products that are sold to individual
customers

38. Manufacturing
Business
product
SBI Beverages
GS Cars
Dell Computers

39. What are the different kinds of business
enterprise?
Production
Financing
Insurance
Medical
Education

40. Legal
Advertising
Real state
Publishing
Construction
Banking

41. END