BUSINESS ORGANISATION
The term business organisation describes how businesses are structured and how their structure
helps them meet their goals. In general, businesses are designed to focus on either generating
profit or improving society. When a business focuses on generating profits, it is known as a for-
profit organisation. When an organisation focuses on improving the social good through the arts,
education, health care, or some other area, it is known as a nonprofit (or not-for-profit) organisation
and is not typically referred to as a business.
There are different categories of business organisations that relate to how the business is
established, owned, and operated. The basic categories of business organisation are sole
proprietorship, partnership, and corporation. Each type of business organisation has benefits
as well as disadvantages. For example, a sole proprietor of a small business is able to operate
independently of much of the government regulation that affects larger businesses, but he or she is
liable (responsible) for all financial risks of the business. Therefore, the owner of a small grocery
store is able to keep all the profits for herself, but she is also liable for all of her business debts,
even if she must repay a debt with her personal finances.
No matter how a business is organised, it takes on certain risks as it operates. One way to
minimise risk is for a business to use its assets and investments wisely, whether these are
equipment, knowledge, property, or relationships. The more efficiently a business uses its assets,
the greater the chance that it will make a monetary profit.
Business organisation affects how a business is treated under the law. State and federal
governments provide incentives and rules for every type of business organisation. Profitability in
industry helps a country’s economy grow, so governments generally support corporations by
passing laws that protect investors from liability for the debts of the business
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The three main categories of business organisation are sole proprietorship, partnership, and
corporation. Ownership is one of the most important features of business organisation. A sole
proprietorship is a business with a single proprietor, or owner. It is the most basic type of for-profit
organisation and the least regulated by government. The owner of a sole proprietorship makes all
the decisions about the business and is free to keep all the profits he or she makes from the
business. However, the owner is also solely liable (responsible) for the debts of the business,
meaning that his or her personal assets are at risk if the business cannot repay its debts.
When two or more people choose to own and operate a business together, the business is known
as a partnership. In a general partnership, all the owners share in the financial profits and losses,
and they share the liability for all of the debts. In a limited partnership, one or more of the owners
(called the general partners) run the business and have unlimited liability, or are held entirely
responsible for the business’s debts. But there may also be limited partners in the business who
invest in the business and have only limited personal liability for the business’s debts.
Sole proprietorships and partnerships are popular types of businesses. In fact, there are more sole
proprietorships than any other type of business. However, most large businesses in the United
States are corporations. Corporations are organised very differently from proprietorships and
partnerships. The ownership of a corporation is not connected to one individual or a small group of
individuals; ownership of a corporation is represented by shares of stock that can be transferred
between owners, or stockholders. A corporation is a legal entity in the same sense that an
individual person is, meaning that the corporation has designated rights, responsibilities, and
privileges. When a corporation borrows money, it does so in its own name (instead of in the name
of its original founders or any other persons). As a result, the liability for the company’s debts is
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