Business organization and organizational structure

There are three common structures we can found within organization such as entrepreneurial structures, functional structure, and matrix structure.. Moreover, like the forms of business [r]

Business Organization and Organizational Structure

There are millions of successful businesses around the world They range from local fruit stands

to huge multi-national businesses worth billions of dollars One common trait all these

businesses share is that they have some sort of organization Without organization, a business is doomed to fail because it will be inefficient and that inefficiency will eventually cause its

downfall

I- Business organization

An organization is defined as a social arrangement which puresues collective goals which

controls ít own performance and which has boundary separating it from its invironment

From a legal point of view, there are three main types of business organization which are sole proprietorship, partnership and corporation Each form of business organization has its

advantages and disadvantages

1 Sole proprietorship

1.1 Definition

A sole proprietorship consists of one individual doing business Sole Proprietorships are the most numerous form of business organization in the United States, however they account for little in the way of aggregate business receipts

1.2 Advantages

 Ease of formation and dissolution Establishing a sole proprietorship can be as simple as printing up business cards or hanging a sign announcing the business Taking work as a contract carpenter or freelance photographer, for example, can establish a sole

proprietorship Likewise, a sole proprietorship is equally easy to dissolve

 Typically, there are low start-up costs and low operational overhead

 Ownership of all profits

 Sole Proprietorships are typically subject to fewer regulations

 No corporate income taxes Any income realized by a sole proprietorship is declared on the owner's individual income tax return

1.3 Disadvantages

 Unlimited liability Owners who organize their business as a sole proprietorship are personally responsible for the obligations of the business, including actions of any

employee representing the business

 Limited life In most cases, if a business owner dies, the business dies as well

 It may be difficult for an individual to raise capital It's common for funding to be in the form of personal savings or personal loans

 The most daunting disadvantage of organizing as a sole proprietorship is the aspect of unlimited liability An advantage of a sole proprietorship is filing taxes as an individual rather than paying corporate tax rates Some hybrid forms of business organization may

be employed to take advantage of limited liability and lower tax rates for those businesses that meet the requirements These include S Corporations, and Limited Liability

Companies (LLC's) Where S-Corps are a Federal Entity, LLC's are regulated by the various states LLC's give the option for profits from the business to pass through to the owner's individual income tax return

2 Partnership

2.1 Definition

A partnership consists of two or more individuals in business together Partnerships may be as small as mom and pop type operations, or as large as some of the big legal or accounting firms that may have dozens of partners There are different types of partnerships like general

partnership, limited partnership, and limited liability partnership

2.2 Advantages

 Synergy There is clear potential for the enhancement of value resulting from two or more individuals combining strengths

 Partnerships are relatively easy to form, however, considerable thought should be put into developing a partnership agreement at the point of formation

 Partnerships may be subject to fewer regulations than corporations

 There is stronger potential of access to greater amounts of capital

 No corporate income taxes Partnerships declare income by filing a partnership income tax return Yet the partnership pays no taxes when this partnership tax return is filed Rather, the individual partners declare their pro-rata share of the net income of the

partnership on their individual income tax returns and pay taxes at the individual income tax rate

2.3 Disadvantages

 Unlimited liability General partners are individually responsible for the obligations of the business, creating personal risk

 Limited life A partnership may end upon the withdrawal or death of a partner

 There is a real possibility of disputes or conflicts between partners which could lead to dissolving the partnership This scenario enforces the need of a partnership agreement

3 Corporation

3.1 Definition

Corporation is probably the dominant form of business organization in the United States

Although fewer in number, corporations account for the lion's share of aggregate business receipts in the U.S economy A corporation is a legal entity doing business, and is distinct from the individuals within the entity Public corporations are owned by shareholders who elect a board of directors to oversee primary responsibilities Along with standard, for-profit

corporations, there are charitable, not-for-profit corporations

3.2 Advantages

 Unlimited commercial life The corporation is an entity of its own and does not dissolve when ownership changes

 Greater flexibility in raising capital through the sale of stock

 Ease of transferring ownership by selling stock

 Limited liability This limited liability is probably the biggest advantage to organizing as

a corporation Individual owners in corporations have limits on their personal liability Even if a corporation is sued for billions of dollars, individual shareholder's liability is generally limited to the value of their own stock in the corporation

3.3 Disadvantages

 Regulatory restrictions Corporations are typically more closely monitored by

governmental agencies, including federal, state, and local Complying with regulations can be costly

 Higher organizational and operational costs Corporations have to file articles of

incorporation with the appropriate state authorities These legal and clerical expenses, along with other recurring operational expenses, can contribute to budgetary challenges

 Double taxation The possibility of double taxation arises when companies declare and pay taxes on the net income of the corporation, which they pay through their corporate income tax returns If the corporation also pays out dividends to individual shareholders, those shareholders must declare that dividend income as personal income and pay taxes

at the individual income tax rates Thus, the possibility of double taxation

II- Organizational Structure

Organizational structure refers to the general level, an organization in which its power and communication lines, and the allocation of rights and obligations Organizational structure determines the manner and extent of the role, powers and devolution of responsibilities, control and coordination of information, and how to manage flows between levels A structure depends entirely on the organization's goals and choices to achieve these strategies In a centralized structure, decision-making power concentrated in the upper management and strict control of the department and in the exercise In the decentralized structure, the allocation of decision-making and the various departments and sectors have different degrees of autonomy

The importance of including an organizational structure to help business owners, CEOs and entrepreneurs to the conceptualization, visualization, hierarchical system is to build their

organization and implementation For example, a part of the organizational structure, including: command, control, departmentalization, span the distribution of power, height, and

organizations

The first is the command system is a chain of command involved in the organizational structure, identify and define: jobs, who make decisions and who is responsible for various duties

The second is to control the amplitude is the control of the staff to identify and quantify the actual amount of supervision of the manager

The third is in the department of a department's organizational structure is divided into functional departments (such as sales) by the specific task of structural parts Determine which activities, tasks and talents will be grouped in order to achieve the best goal of the origin of the so-called process of the department

The forth is that the power distribution authority is deciding whether to allocate decision-making power concentrated in a few high-level bureaucrats often to see the number of shares and the closet or the tasks of various departments and their corresponding decentralized authority

The fifth is a high degree of organization is the organization defined the high many departments, departments, and the highest level between the layers and the tissue level is the lowest

There are three common structures we can found within organization such as entrepreneurial structures, functional structure, and matrix structure Moreover, like the forms of business organization, each structure has its advantages and disadvantages also

1 Entrepreneurial structure

1.1 Definition

Entrepreneurial structure is to maintain and manage the large enterprise and an important joint venture In this structure every play an important roles in relationship to the chief In addition, this structure has an important pipeline to convey the authority for all levels of management, has

a very centralized bureaucratic procedure and everything will be decide by top management

1.2 Advantages

 The ability to make decisions quickly Without lengthy meetings and discussions, or proposals sat waiting for approval, decisions can be made pretty much instantly and changes put into place This allows businesses to quickly adapt to any change in market conditions It is also a leadership style which is used by governments in emergencies, with virtually all countries having laws in place which allow legislation to bypass

parliament or equivalent bodies and be enacted when speed and response time is top priority

 It is one of the least expensive business structures available, and in most cases will be the cheapest option This is because there are no layers of middle managers to pay or

maintain (e.g company cars)

 Everybody knows who is in charge and who they are accountable to, removing the chances of confusion being created if different department heads asked for different things from workers (e.g the head of the production department asks workers to improve the quality of the product by spending more time on each, at the same time as the head of the finance department asks for increased output to generate more revenue)

1.3 Disadvantages

 Because of its autocratic nature, with workers being told what to do with no input on the decision, there is always a real danger of them losing morale and motivation if they strongly disagree with the decision The extent of their discouragement will depend upon

a number of factors such as how strongly they disagree, as well as the amount of

explanation (if any) they get as to why that particular decision was made

 Those making the decisions may not know as much about the problem, market conditions etc as they think they do Whilst they make quick decisions, they are not necessarily the best decisions, and it may be better for the business to have a specialist manager in place who is an expert in a particular area

 It may also not be a suitable organisational structure if the business grows, as the decision makers have simply too many decisions to make As stated earlier, decisions can be made quickly in an entrepreneurial business structure But if there are so many decisions to be made causing delays as different employees wait for answers, it may actually be quicker

to appoint a manager and delegate responsibility to them for making certain decisions

2 Functional structure

2.1 Definition

Functional structure is a general structure in any organization This functional structure has divided the activities of the organization into different units or special departmental groups While each functional structure is controlled by the top level of management Therefore, this structure is hierarchical structure and centralized structure

2.2 Advantages

 Staff is managed by a person with experience in their same specialty who can adequately understand and review their work

 Staffers have the opportunity to move up within their functional areas, which gives a reason for them to stay long term The company gets the advantage of their expertise and company knowledge over time

 Staffers work with others in their field, which allows for knowledge sharing and lateral job moves to learn new skills

2.3 Disadvantages

 Functional areas may have difficulties working with other functional areas There is often

a perception that they are competing with other functional areas for resources and a lack

of understanding of what other areas do for the company So, the accounting department may be upset that its request for an additional headcount is denied, but the company financial results point to a need for additional sales people rather than accountants

 As the company grows larger, the functional areas can become difficult to manage due to their size They can become almost like small companies on their own, with their own cultures, facilities, and management methods

 Functional areas may become distracted by their own goals and focus on them, rather than on overall company objectives For instance, there may be a desire by the I.T department to implement a new, state of the art computer system, but the overall

company objectives support investment in new products instead Since the unit doesn't have an overview of the entire company, it may focus attention on goals that it believes are important but which are not priorities for top management

3 Matrix structure

3.1 Definition

Matrix structure is a system of management and also is a complex structure which includes multiple lines of authority In the working environment of matrix structure has different

professionals together and worker report is more than one person In addition, in this structure has combined with the basic of functional structure and a basic of project structure

3.2 Advantages

 Resources can be used efficiently, since experts and equipment can be shared across projects

 Products and projects are formally coordinated across functional departments

 Information flows both across and up through the organization

 Employees are in contact with many people, which helps with sharing of information and can speed the decision process

 Staffers have to work autonomously and do some self-management between their

competing bosses; this can enhance motivation and decision making in employees who enjoy it

3.3 Disadvantages

 Violation of unity of command

 Costly structure

 Problem of overspecialization

 Difficult to balance

 Feeling of insecurity

 Lack of white coordination

Now let’s see what types of business should employ what types of organizational structure.There are many types of business operate in the market so that means the company will employ

different types of organizational There are three common organizational structures such as entrepreneurial structure, functional structure, and matrix structure

Entrepreneurial structure is suitable for small business and in the structure just have entrepreneur and employees In addition, in this structure only have 1 or 2 people at the top making decision Moreover, the entrepreneur has authority to control all over aspect of the business and employees

by using this structure Examples of business using this structure are café and tutorial

Functional structure is very general in the organization In addition, this structure can divides in many different departments Besides that, this structure is suitable for produce single product and service Examples of business using this structure are construction and manufacturing

Matrix structure is most complex structure in this four common structure This structure to have good coordination and information when there is a wide variety of community organizations Examples of business using this structure are Sunway Group, IOI Group and Berjaya Group

Inconclusion, now we all know about the main forms of business organization as well as

organizational structures clearly both advantages and disadvantages of each type It is so much important to find an organizational structure that works best for the organization as a wrong setup can hamper functioning and be detrimental to organizational success