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Topic: Business Organisation I – Introduction
Lesson Objectives: At the end of the lesson, learners should be able to;
i. Define a business organisation
ii. List and explain two major groups of business organisation
iii. List and explain the characteristics of private enterprises
iv. List and explain the characteristics of public enterprises
v. State the differences between private and public enterprises
vi. List reasons why private enterprises are established in West Africa
vii. State the factors that determines the size of Indigenous firms in West Africa
viii. List and explain the factors that determine the size of a firm
Business organisation can be defined as an enterprise set up by an individual or group of individuals, government or its agencies for the main purpose of making profit and providing goods and services for the satisfaction of human wants.
All business organisations, be it small or large, irrespective of the ownership and structure, have one thing in common – the provision of goods and services to meet the numerous needs of the people.
Types of Business Organisations
There are two major groups of business organisations. These are private and public enterprises.
(a) Private enterprises:
Private enterprises are the enterprises owned and managed by private individuals. This type of business organisation is usually classified as a private sector enterprises and examples of such private enterprises include: sole proprietorship, partnership, private and public limited liability companies and co-operative societies. The major aim or objective of the private enterprises is to maximise profits.
Characteristics or features of private enterprises
i. Private individuals provide the capital: Private individuals that owned the enterprises are the people to raise capital for the establishment of the enterprise.
ii. Ownership belongs to private individuals: Private individuals, e.g sole proprietorship or partnership are the ones that own the business enterprises.
iii. Objectives of business is to make profits: The purpose of setting up the business enterprise is to make profits for the owners of the enterprise.
iv. Accountability is to the owners: The transactions of the business enterprises are usually accounted for and submitted to the owners of the enterprise.
v. Owners borne the risk of the business: In the event of business failure or liquidation, the owners will have to bear the entire risks associated with such failures.
vi. Owners manage the business themselves: The daily operations of a business enterprise is controlled and managed by the owners of the enterprise.
(b) Public enterprises:
Public enterprises are the types of business organisations which are owned, controlled and managed by the government. These business organisations are owned by either the federal, state or local government and their major objective is to provide social services to the people. They are associated with such names as authority, corporation, boards and commissions. Examples of public enterprises include public corporations and companies owned by government such as the National Electric Power Authority (N.E.P.A), Nigerian Ports Authority (N.P.A), Nigerian Television Authority (N.T.A), Nigerian Railway Corporation (N.R.C), Nigerian Telecommunications plc (N.I.T.E.L).
Characteristics or features of public enterprises
i. Government provides the capital: Government provides the necessary capital required to set up public enterprises.
ii. Ownership belongs to the government: Public enterprises are usually set up by Acts of legislation and the enterprise belongs to the government.
iii. Objective is to provide social services: The major reason of setting up public enterprises is to provide social amenities and services to the people at reduced cost.
iv. Management is accountable to the government: The management of public enterprises is directly accountable to the government that set up the enterprise.
v. Government and tax payer borne the risks: The risks associated with public enterprises are usually borne by the government and tax payers who provided the capital for setting up the enterprises.
vi. Board of directors manage the business: The public enterprise is managed by board of directors appointed by the government.
vii. Public enterprise is a legal entity: Public enterprise is a corporate body or a legal entity, meaning that it can sue and be sued in its own right.
Differences between Private and Public Enterprises
i. Private enterprises are owned by individuals while public enterprises are owned by government.
ii. The capital to start up a private enterprise is provided by individuals while capital is provided by government to start a public enterprise.
iii. The major aim of private enterprise is to make profit while the major aim for public enterprise is to provide social services to the people.
iv. Private enterprises are controlled by owners or directors appointed by owners while public enterprises are controlled by the Board of Directors appointed by the government.
v. Private enterprises are established by ordinary registration or by incorporation while public enterprises are established by Acts of Parliament.
vi. Owners bear losses suffered by private enterprises while tax payers bear losses suffered by public enterprises.
Reasons for the Establishment of Many Private Enterprises in West Africa
i. Type of economic system: The type of economic system adopted by the government determines the nature of economic activities that will take place in that country. For example, Nigeria has a free economy in which private individuals are allowed to participate in economic activities.
ii. Low capital requirement: The capital required to set up private enterprises is usually very small, hence many private enterprises are in existence.
iii. Favourable market: The availability of favourable market for finished goods makes the proliferation of small scale enterprises to flourish in many West Africa countries.
iv. High level of efficiency: The private enterprises are known to be more efficient in management than the public enterprises and these account for their large number in the economy.
v. Availability of credit facilities: The availability of credit facilities to private individuals enable them to set up private enterprises.
vi. Establishment of individual estates: The establishment of individual estates by government also encourages the proliferation of private enterprises in many West African countries.
Problems of Private Enterprises in West Africa
i. Inadequate capital: The private enterprises do not have adequate capital required to set up and run a large business outfit.
ii. Insufficient raw materials: Many private enterprises suffer from inadequate supply of raw materials necessary for maximum production.
iii. Inefficient management: Private enterprises generally do suffer from poor management because their owners who run the business may and may not have a good knowledge of the kind of production they are engaged in.
iv. Poor power supply: Many private enterprises do not have regular power supply to their companies hence they have to generate their own power through generating sets, which increase cost of production.
v. Lack of specialisation: Lack of specialisation by owners of private enterprises leads to business failure as most of them are illiterates, who may not have idea of what they are doing.
vi. Poor patronage: Private enterprises suffer from poor patronage partly because of low quality products and the high taste which consumers have for imported foreign goods.
Factors which Limit the Size of Indigenous Firms in West Africa
i. Inadequate capital: There is inadequate capital for planned expansion due to low savings.
ii. Technical know-how: There is inadequate technical know-how and this militates against attempts to expand.
iii. Limited managerial ability: There is limited entrepreneurial or managerial ability and this does not encourage the growth of firms.
iv. Market limitation: There is the problem of market limitation due to low income, which leads to low demand, and external competition as a result of the people preferring foreign goods to locally manufactured ones.
v. Inadequate government support: There is usually inadequate government support, e.g extension services, technology consultancy, etc.
vi. Poor infrastructural facilities: The firms also face the problem of poor infrastructural facilities like electricity, good roads, communications etc.
vii. Unfavourable government policies: Certain government policies on taxation, subsidies, etc are unfavourable and these also affect the size of the firms.
viii. High level of Illiteracy: The existence of high level of illiteracy among investors in many West African countries militates against the establishment of large business units.
Factors that Determine the Type of Business Units
i. Availability of capital
ii. The ownership of the business outfit whether private or public ownership.
iii. The nature of the business the proposed business unit is to carry out.
iv. The objective of the proposed business whether to maximise profit or to render social services.
v. The pay back period.
vi. The return on investment.
Factors that Determine the Size of a Firm
i. The Market: The size of the market for a firm’s product influences its sizes. If the market is small in terms of effective demand, the operation of the firm is bound to be small.
ii. Capital: When it is difficult to obtain the necessary capital for the formation of a large firm or expansion of existing one, the firm is bound to remain small.
iii. Entrepreneurial ability: Ability to undertake risk and to manage large scale business is an important factor that determines the size of a firm. The size of such firm depends on the knowledge and experience needed for planning the operation.
iv. Technical nature of product or service: Firms producing perishable agricultural goods tend to produce to satisfy only local markets. They therefore tend to be small scale producers.
v. Government policy: When government is ready to assist firms, it helps to determine the size of operation.
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Take a quick test for this lesson
i. What is a business organisation?
ii. List and explain two groups of business organisations
iii. List and explain five features of each group of business organisations.
iv. Give five differences between private and public enterprises
v. List and explain five reasons why private enterprises are established in West Africa.
vi. Give five problems affecting private enterprises in West Africa.
vii. List and explain five factors that determine the size of a firm
Questions answered correctly? Kudos!!
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