The document discusses different types of business organizations including sole proprietorships, partnerships, limited liability companies, and co-operatives. It provides advantages and disadvantages of each type. Sole proprietorships are owned by one individual and have advantages of simplicity and full control but the disadvantages of unlimited liability and reliance on one owner. Partnerships allow for more capital and skills but partners have unlimited liability. Limited liability companies provide protection of personal assets but involve more legal formalities. Co-operatives allow for shared ownership but with less personal control.

1. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Introduction to Basic Economic Theory and Concepts
The Banking Economic Systems
Pricing and Price Mechanism
Inflation
The Government and Economy
Types of Business Organizations
MODULE COVERAGE
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International Trade and Regional Groupings

2. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
The major forms of business organizations
• Sole proprietorship
Sole proprietors are unincorporated businesses. Independent/ individual contractors,
consultants, freelancers and most small retailers are sole proprietors. A sole
proprietorship is a type of business entity which legally has no separate existence
from its owner.
Advantages:
1. Simplicity: It is easy to establish and dissolve the business; no documents are
needed and no legal formalities are required.
2. Quick decision making: Does not need to consult anybody in deciding the business
affairs.
3. A sole proprietor is his/her own boss: Are not controlled by anyone as it’s their
business.
4. Books of Accounts: Doesn’t have an obligation to publish their books of accounts.
5. Profits: In case the business succeeds, the business owner enjoys all the profits.
6. Easy operation: Sole proprietors have full control over their businesses as there is
no outside interference. In this case, business operations may be carried out easily.
7. No direct government control: In the absence of direct government control, there is
some freedom for action; flexibility.
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3. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Disadvantages
1. Loss incidence: In the event that the business makes a loss, a sole proprietor
bears all the risks and losses alone.
2. Limited financial resources: A sole proprietor can raise limited financial
resources; hence the size of the business may remain small.
3. Unlimited liability. The liability of a sole proprietor is unlimited, i.e., in case of a
loss, his private assets can be sold to pay off the business creditors.
4. Uncertain business life. The life of the business depends upon the life of the
owner since he/she works alone.
• Partnership
A partnership is a type of business entity in which would-be sole proprietors come
together to do business, and to share with each other the profits or losses of the
business.
Advantages:
a. Ease of formation. It is easy to form as there are no cumbersome legal
formalities required.
b. Larger financial resources, as a number of partners contribute to the capital of
the enterprise.
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4. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
c. Specialization; it enables the pooling of abilities and the judgment of different
partners with varying skills.
d. Flexibility of operations; it enjoys sufficient flexibility in its day-to-day operations.
The nature of the business can be changes whenever the partners desire.
e. Protection of minority interests; no basic changes in the rights and obligations of
partners can be made without the unanimous consent of all the partners.
f. The capacity of the firm to survive is higher than that of a sole proprietorship,
i.e., the business can continue even after the death of one partner.
Disadvantages:
a. Unlimited liability, i.e., every partner is liable for the entire debts of the firm.
b. Limited resources; the amount of financial resources is limited to the
contributions made by the partners due to inadequate access to loans.
c. Lack of harmony. The success of the partnership depends upon mutual
understanding among the partners. Any disagreement may paralyze the
business.
d. Lack of continuity. A partnership may come to an end with the retirement,
incapacity, insolvency or death of an active member.
e. Non-transferability of shares or interest. No partner can transfer his/her shares
in the firm to an outsider without the consent of all the partners.
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5. THE UGANDA INSTITUTE
OF BANKING &
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UIBFS
ISO 9001:2008 CERTIFIED
Disadvantages of Partnerships..
f. Partners will have to share
profits of the business yet
some may not equally
contribute to its operations.
g. Joint responsibility may lead
to delays in making
decisions.
h. Decisions made by one
partner are binding to all
other partners though they
may not be agreeable to
them.
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OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
• Limited liability company
A limited liability company is a type of business ownership under which the owners
hold shares proportionate to their investment. Share certificates are issued by the
company in return for capital contribution, and the shareholders are free to
transfer their ownership interest at any time by selling their shares to others.
Unlike the case is with sole proprietorships and partnerships, companies legally
have a corporate personality separate from its owners. A company can be public or
private.
A public company usually refers to a company that is permitted to offer its securities
(stocks, bonds, etc.) for sale to the general public, typically through a stock
exchange. Usually, the securities of a public company are owned by many investors
while the shares of a private company are owned by relatively few shareholders.
Advantages of limited companies
a. Limited liabilities, i.e., shareholders of a company are liable only to the extent of
the face value of shares held by them.
b. Large financial resources; it facilitates the collection of huge financial resources
due to a big number of shareholders. Continuity; a company enjoys
uninterrupted business and life.
c. As a corporate body, it continues to exist even if all its members die.
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7. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
d. Transferability of shares; a member of a public limited company can freely
transfer his/her shares without the consent of other members.
e. Professional management; due to its large financial resources, it can employ
expert managers with the required skills which leads to profitability.
f. Public confidence. A company can acquire public confidence since its operations
are regulated by the government under the Company’s Act.
g. It is a separate legal entity, i.e., it is separate from the owners, and hence can sue
and can be sued on its own.
Disadvantages limited companies
a. It is difficult to form as a number of documents have to be presented to the
Registrar of Companies.
b. Excessive government control in the form of rules and regulations, submission of
periodic reports, all which reduces the efficiency and flexibility of the business.
c. Delay in decision making; there are many levels of management, which result in
unnecessary bureaucracy.
d. Conflicting of interests; since there are many people involved, there is a
possibility of having conflicting of interests, for example between management
and shareholders.
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8. THE UGANDA INSTITUTE
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UIBFS
ISO 9001:2008 CERTIFIED
• Co-operative Society
A co-operative is defined as an autonomous association of persons united voluntarily
to meet their common economic, social, and cultural needs and aspirations
through a jointly owned and democratically controlled enterprise. A co-operative
may also be defined as a business owned and controlled equally by the people
who use its services or who work at it.
Advantages
a. Easy to raise a relatively large sum of money to start a big business.
b. Enjoys limited liability facility.
c. The business will benefit more people who will be sharing profits realised by the
co-operative.
d. The business is free to employ managers with relevant experience and
qualifications.
e. Shares control of the business.
Disadvantages
a. Loss of personal interests in the business.
b. Ownership of decisions made: Everyone will have to accept ideas and decisions
of the Board of Directors.
c. Diminished personal direct responsibility on part of the members.
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