Forms of business organization

There are 3 forms of business organization:

• a sole trader or sole proprietorship

• a partnership

• a company or corporation

A sole trader is a firm with a single owner - a proprietor – who has unlimited liability. Unlimited liability is a legal responsibility for all the debts of a firm. Sole proprietorships are the most numerous kind of business organization, but most are very small. They are popular because are the easiest and the least costly to organize.

Partnerships are the second most common type of business organization. It is a firm with two or more owners who have unlimited liability.

Corporations are the best known types of business organization, but they are not the most common. A corporation is a business organization created under a government charter. Ownership of a corporation is represented by shares of stock, so corporate owners are known as stockholders. Corporate stockholders have limited liability – they have legal liability only for the value of their initial investment.

A scope of business activity is the major criterion for distinguishing small, medium-sized and big business.

A small business is a business that independently owned and operated with the small number of employees and has low volume of sales. They are normally privately owned corporations, partnerships or sole proprietorships.

A business with 100 or fewer employees is generally considered small, while one with 100-999 employees is considered to be medium-sized.

Big business is a large corporation, in either an individual or collective sense.

Accounting and auditing

Accounting is often called the language of business. It is used in the business world to describe the transactions entered into by all kinds of organizations. Accounting is the recording, classifying, summarizing and interpreting of financial events and transactions to provide management and others interested parties with the information they need to make better decisions.

There are 5 accounts in accounting: assets, liabilities, owner’s equity (capital), revenues and expenses. The double-entry system divides each page into two halves. The left-hand side, value received, is called debit side, the right-hand side, value parted with, the credit side.

Auditing is an accounting function that involves the review and evaluation of the financial records and financial positions of a company.

There are two types of auditing: internal and independent.

Internal auditing is a system of internal control which provides accounting controls, against errors and misappropriations.

Independent auditing is done by certified accountants who are not employees of the organization whose books they examine. They examine financial statements, the accounting records and other business papers to determine the accuracy and completeness of the records.

Auditing can help the business set up a reliable accounting system.

Product, market and market relations

Product is everything that one receives in an exchange. Some products are tangible and satisfy individual desires, while others are intangible but also important in satisfy in individual interests. Products are divided into 2 classes: goods and services. A good is a real, physical, tangible thing that is produced and consumed. A service is an intangible attribute that involves selling help and advice, or delivering goods for customers.

The definition of the term product is based on the concept of a market. The term market is an extension of the ancient idea of a market as a place where people gather to buy and sell goods. In forma days part of town was kept as the market or marketplace, and people would travel many kilometres on special market-days in order to buy and sell various commodities. Today, however, market such as gold market or the cotton market do not need to have any fixed geographical location. Such a market is a set of transactions in which a particular kind of commodity is exchanged and in which the transactions for this commodity among different individuals and firms are related.

Some people come to a market because they want to buy ( demanders), other because they want to sell (suppliers). A market is created when those who willingly supply a good or service exchange with those who desire to use, control, or consume a good or service.

Supply and demand are twin factors which determine the price in any market. Supply is the quantity of good and service sellers will offer sale at different prices at a particular time and place. Demand is the total amount of a type of goods or services that people or companies buy at a particular time and place.