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Module 2
The Organization of Production
Establish the relationship between business and production
2.1.1.
Why are businesses setup?
Businesses are set up by entrepreneurs to make a profit, and often there are risks involved.
How does an entrepreneur set up a businesses?
2.1.2.
How do businesses operate?
Businesses are divided into various departments that are responsible for certain aspects of the business.
What are the responsibilities of the various departments in a business?
1. There are five departments
a) Administration, which is responsible for:
I) coordinating the different debts.
II) planning the whole business
III) determining the company policies
b) Marketing and sales, which is responsible for:
I) selling the product
II) promoting the product through advertising
III) conducting market research
c) Finance, which is responsible for:
I) Assuring that capital is available
IV) taxes
V) long-term financial planning
VI) paying bills
d) Production, which is responsible for:
I) producing the goods
II) quality control
III) maintaining the equipment
IV) meeting production targets
e) Personnel, which is responsible for hiring:
I) hiring
II) firing
III) organizing the retraining of the employees
IV) negotiating collective agreements with employees.
| Sole Proprietorship | |
| Advantages: | Disadvantages: |
| 1. Easy to set up: The legal formalities are few, inexpensive, and there are no complicated procedures to follow. | 1. Limited capital: Personal savings are often the only way of financing the business; to borrow or get a line of credit, the owner is usually required to provide collateral such as personal property. |
| 2. Flexibility: Since the firm is administered by a single person, decisions can be made quickly. | 2. Unlimited personal liability: All business debts are considered personal debts. |
| 3. Profit Sharing: There is no profit sharing. The owner keeps all the profits. | 3. Lack of specialization: Since the owner is responsible for all aspects of the business, his or her knowledge and expertise may prove limited. |
| 4. Taxation: The owner pays only personal taxes. | 4. Lack of continuity: The business ceases to exist upon the death of the proprietor |
| Partnerships | |
| Advantages: | Disadvantages: |
| 1. Easy to set up: The legal requirements are few and relatively inexpensive: start up costs involve only a registration fee and a partnership agreement. | 1. Unlimited personal liability: Company debts are considered to be the personal debts of the partners, and this liability is unlimited. Creditors can claim the assets of the business as well as the personal assets of the owners in the event of the non-payment debts. |
| 2. Combining talents and skills: Work and responsibility are shared by their partners according to their abilities. | 2. Possibility of personal conflict: A misunderstanding among associates can mean the end of the partnership. |
| 3. Pooling of capital: Two or more people can raise more money, and their borrowing capacity is also greater. | 3. Credit possibilities: The line of credit available and the capacity to borrow depends on the personal equity, or worth, of the partners. |
| 4. Lack of continuity: The withdrawal or death of a partner can dissolve the partnership. | |
| Corporation | |
| Advantages: | Disadvantages: |
| 1. Limited Liability: The responsibility of the shareholders is limited to the amount of money they invested. they are liable for the debts of the corporation only to the extent of their financial involvement. | 1. Costly to set up: The start-up and administration fees are high because of the need to obtain charters and print shares and to appoint a board of directors and corporate officials. |
| 2. Continuity: Shares can change hands, ensuring continuity for the company. | 2. Impersonal character of management: In large corporations, employees may not have a high level of commitment to the company and work may be depersonalized. |
| 3. Increases financial capacity: Several modes of financing
are open to the company in case it needs additional funding.
a) Loans: The company may take out loans with financial establishments by offering its assets as guarantee (furniture, machinery, equipment). b) Shares: The more shares a company issues, the more funds it can obtain to finance itself; the risks are thus assumed by many individuals. c) Bonds: Like government and municipalities, large companies can issue bonds; in this way they borrow from the general public. A bond is a debt which must be paid back with interest at a certain date. |
3. Double taxation: Corporations pay corporate taxes on their profits and the shareholders pay taxes on their dividends. |
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