Forms of Business Organisations

A business organization is an entity established by a person or a group of people in

accordance with the law to produce and/or distribute goods and services.

Business organisations can be divided into public business organisations and

private business organisations
Types of Business Organisations

Public business entity/Organisations

These are business organisations owned and operated by the government for the
benefit of the community or society as a whole rather than individual interests. They
typically form the public sector of the economy.
They are either owned by the central government or local authorities like district
councils, city councils and municipals.
Examples in Tanzania include public corporations such as Tanzania Ports Authority
(TPA), Tanzania Electric Supply Company Limited (TANESCO), National Housing
Corporation (NHC), Tanzania Telecommunications Corporation (TTCL), etc.
Types of Business Organisations cont.….

Private business organizations

Private business organizations are those owned privately by individuals

or groups.
These include sole proprietorships, partnerships, joint-stock
companies, and cooperatives.
Sole Proprietorship

A sole proprietorship is a business organisation owned, controlled and operated by a

single individual/person in which there is no legal distinction between the owner and
the business.

Features of Proprietorship
1. Ownership: The business is owned by one person.
2. Control: The sole proprietor makes all major decisions.
3. Finance: It is financed by the owner who is personally responsible for any debts.
4. Size: The business is typically small in size.
5. Risks: The sole proprietor assumes all the business risks.
Advantages of Sole Proprietorship

1. It is easy to establish
2. The owner can make close supervision of business operations
3. It requires small amount of capital
4. It requires fewer regulatory requirements
5. The owner is free to plan and implement decisions quickly
6. All profits are retained by the owner hence keep the owner highly motivated
7. The owner of the business can give more attention to customers since due to the
possibility of making direct contact
Disadvantages of Sole Proprietorship

1. There is a risk of unlimited liability to the owner if the business cannot pay its
debts
2. It is difficult for the business to secure enough capital to expand and operate
3. The managerial ability is limited to the proprietor
4. The business may lack continuity, in the absence of the proprietor
5. The owner bears the full burden of all business losses
Partnership

A partnership is a business owned and managed by two or more people who

share its profits or losses on agreed proportions.
Partnerships can be general (all partners share equally in liabilities) or limited
(some partners have limited liability).
The name of the partnership must be registered under the registration of
business names act
No formality is required to form a partnership, however there should be an
agreement between the parties on how to carry out business and to divide the
profit. Agreement can be either or oral written.
The document containing the written agreement between the partners is
called ‘Partnership Deed’ or 'Articles of Partnership‘.
Features of Partnerships
1. The business capital is contributed by the partners
2. Partnerships have a formal agreement that outlines the terms of the partnership
3. Partners share the profits and losses of the business according to the terms
outlined in their partnership agreement.
4. All partners have the right to participate in the management of the business,
unless the partnership agreement specifies otherwise.
5. They can be dissolved upon the death or withdrawal of a partner unless otherwise
specified.

Contents of partnership deed includes;

1. Names of partners
2. Nature of the business to be conducted
3. Capital and property of the firm
4. Capital contribution for each partner
5. Share of each partner in profit and loss
6. Provision of settling differences etc.
Types of Partnership
There two basic types of partnership; General and Limited partnership.

1. General partnership:
A general partnership is a type of partnership where partners share equal rights and
responsibilities in managing the business.
Each partner assumes full responsibility for the business's debts and obligations

2. Limited partnership:
A limited partnership is a type of partnership where at least one partner is a limited
partner.
A limited partner is not legally liable for the business's financial obligations beyond
their investment in the firm
Advantages of Partnership
1. Partnership can easily be organised and formed
2. More capital can be mobilized by the joint efforts of partners
3. They enjoy greater management skills, knowledge and experience among partners.
4. There is room for entry and exit leaving with minimum disruption to business operation
5. Decision making can be quicker since partners can easily meet or contact with each
other

Disadvantages of Partnership
1. There is are risks of unlimited liability for general partners
2. They can not raise capital beyond the arrangements that include partners
3. Conflicts among partners can disrupt the business operation
4. Profits are usually shared
5. A business may be dissolved in case a partner withdraws
6. Individual owners have less freedom for action
Dissolution of Partnership

Dissolution of a partnership refers to the change in the partnership relationship that

ultimately leads to its termination.
Note: A partnership can be dissolved under the following circumstances:
1. Expiry of the period or completion of the task for which the partnership was
formed.
2. Notice from one of the partners of their intention to dissolve the partnership.
3. If a partner becomes insane, bankrupt, or dies.
4. If the partnership business becomes unlawful due to changes in the law.
5. By court order, resulting from an application by partners or other interested
parties, such as when the partnership is no longer making profits or fails to meet
other essential conditions
Corporation

A corporation is a legal entity separate from its owners which can own property,
enter into contracts, and be held legally liable.
It can be owned by shareholders (joint stock company) or state owned (Public
Corporations)

Features of a Corporation
1. It is an independent legal entity, separate from its owners.
2. It is capable of owning assets, entering contracts, and conducting business.
3. It can be owned by individuals, government and/or other entities
4. It can continues to exist even if its management or ownership changes (perpetual
existence).
5. It has a legal capacity to initiate legal claims and be sued
6. It has a legal requirements to adhere
7. It is managed by a board of directors and executive officers
Advantages of Corporations

1. They protect owners from personal liabilities in case of legal action

2. They have the ability to expand operations, increase production, and reach more
customers.
3. They can access significant resources, whether financial, human, or intellectual,
due to their structure and legal recognition.
4. They have continuous existence irrespective of changes in ownership or
management.
5. They have a structured management system
6. They have an advantage of being operated by skilled and experienced staff
Disadvantages of Corporations

1. Their formation is complex, expensive and time consuming due to many legal
requirements
2. Individual owners may have limited influence over the day to day operations of
the organisation
3. They must maintain comprehensive records and reports
4. They face significant government oversight
5. Dissolving a corporation can be more complicated than other business
organisations
6. Corporations often have higher operational costs for administration, legal
compliance, and governance compared to smaller business entities.
Types of Corporations

Corporations can be divided into two main categories: (a) Public Corporations
(State-owned Corporations) and (b) Joint Stock Companies.

(a) Public Corporations (State-owned Corporations)

These are corporate organisations owned and operated by the government to
provide essential services or fulfill public needs for the benefit of the society.
They are typically created by special acts of parliament or legislation, often for
public service or governmental purposes.
Examples in Tanzania include Tanzania Electric Supply Company Limited
(TANESCO), Tanzania Railways Corporation (TRC), Tanzania Ports Authority (TPA),
etc.
Types of Corporations cont.….

(b) Joint stock companies

Joint stock companies are corporate organisations owned by shareholders to carry

out commercial activities for the benefit of their owners (shareholders).
Joint stock companies are often limited in the sense that liability of shareholders are
limited to the amount they invested.
Joint stock companies are further divided into two subcategories: (i) Public Joint
Stock Companies and (ii) Private Joint Stock Companies.
Joint stock companies cont.….

(i) Public joint stock companies

Public joint stock companies are corporate organisations owned by shareholders to
carry commercial activities for which shares are publicly traded on a stock
exchange.
Examples in Tanzania include CRDB Bank Plc, National Microfinance Bank (NMB)
Plc, etc.

(ii) Private Joint stock companies

Private Joint stock companies are corporate organisations owned by shareholders
to carry commercial activities for which shares are not publicly traded.
Examples in Tanzania include Mohammed Enterprises Tanzania Limited (MeTL),
Bakhresa Group, etc.
Characteristics of a Joint Stock Company

1. It is a separate Legal Entity. It can own property, make contracts, and sue or be
sued.
2. Limited Liability: Owners (called shareholders) are only responsible for the
company's debts up to the amount they invested.
3. Perpetual Existence: The company continues to exist even if the owners or
directors change.
4. Transferable Shares: Shareholders can sell their shares to others (though there
may be restrictions in private companies).
5. Owned by Shareholders: People who buy the company’s shares are its owners.
6. Managed by Directors: The company is run by a group of people chosen by the
shareholders, called the Board of Directors.
7. Regulated by Law: It must follow the laws and rules of the country where it is
registered.
8. Raises Capital from Shares: The company raises money by selling shares to
people.
Advantages of Joint Stock Company

1. Can raise Large Capital for the business by issuing shares to a large number of investors.
2. Limited Liability: The members are liable only to the extent of their invested shares.
3. Professional Management: They often employ skilled professionals to manage operations
due to their large scale.
4. Continuity and Stability: Its existence is not affected by death, insolvency or insanity of its
members.
5. Transferability of Shares: Shares can be transferred from one person to another.
6. Promote investor Confidence: They are subject to strict regulations and audits which
enhance investor confidence.
7. Wide Ownership Base: They have a wide ownership base which can include individuals,
institutions, and foreign investors.
8. Ability to Spread Risk: The risk of investment is distributed among many shareholders,
reducing the burden on any single investor.
9. Access to Growth Opportunities: They have greater access to funding, enabling them to
invest in research and expansion.
Disadvantages of Joint Stock Company

1. Complex Formation and Regulation: Establishing a joint stock company involves

extensive legal procedures.
2. Lacks Flexibility: For every small thing they either have to follow a detailed
procedure or obtain sanctions from various authorities.
3. No Business secrecy: This is because it is compulsory for the company to publish
accounts and other records.
4. Double Taxation: In many countries joint stock companies are taxed on their
profits and when dividends are distributed to shareholders
5. Bureaucratic Decision-Making: The involvement of multiple stakeholders can lead
to slow decision-making processes.
6. Potential for Conflicting Interests: With many shareholders, especially in public
companies, there may be conflicting interests.
Types of Companies

(a) Statutory or parliamentary companies.

These are companies created by an Act of the parliament.
The power and functions of these companies are defined by the Act
created them. E.g. TANESCO, etc.
In east Africa most statutory companies are owned by the government.

(b) Registered /Incorporated companies.

These are companies formed and registered under the company Act,
2002.
They are divided into registered/incorporated public companies and or
registered/incorporated private companies
Types of Registered /Incorporated companies

Registered /Incorporated private companies:

These are formed when there is no immediate intention of going to the public
for funds, it must have at least two members and the maximum number is
fifty.

Conditions of being private company as per S.27 are;

1. Share transfer is restricted
2. Number of members (Shareholders) is limited to fifty.
3. Any invitation to the public to subscribe for shares is prohibited.
4. It is not compulsory for the company to present prospectus or audited
accounts.
Types of Registered /Incorporated companies

Registered /Incorporated public companies:

These are formed when it is desired to go to the public to raise funds to expand
an existing business.
They are formed as registered public co. or converted private co. into public co.

Characteristics of registered public company are;

1. They have the minimum number of membership of seven persons while the
maximum number is infinity.
2. There is no restriction of transfer of shares, and they are traded in a stock
exchange market.
3. The shares are offered openly for public subscriptions.
4. Is a must for a public company to submit audited financial statements
Types of Registered/Incorporated companies

Note: Registered/Incorporated companies, whether public or private, can

be limited or unlimited liabilities companies.

A limited liability company is one in which the liabilities of the owner are
limited to capital contributed in the business, while

A unlimited liability company is one in which the liabilities of the owner

are not limited to capital contributed in the business.
Cooperatives

According to the co-operative policy of Tanzania (2002):

- A co-operative is a group of people who work together voluntarily to meet

their common economic, social, and cultural needs through a jointly owned
and democratically controlled enterprise. or
- A cooperative is a group of people who come together willingly to solve
shared problems or achieve common goals.
- They are based on the values of self-help, self-responsibility, democracy,
equality and solidarity.
Principles of Co-operatives
1. Co-operative membership is voluntary and open to all: Co-operatives are open to
all persons willing to accept the responsibilities of membership without any type of
discrimination.
2. Co-operatives are democratic organizations: All members have equal voting rights
(one member, one vote.)
3. Surplus or savings, if any, arising out of their operations of the organization belong
to all members and should distributed equally.
4. Co-operation with other co-operatives at local, national, international levels. One
co-operative must co-operate with other co-operatives as they have a lot in
common and thus can learn from others’ experience
5. Cooperatives provide education, training and information: Cooperatives must
provide education and training for their members and employees, officers, and the
general public in the principles and techniques of co-operatives, so they can help
the development of their co-operatives.
Functions of Cooperatives

1. Pooling of Resources: Cooperatives combine resources from members to achieve

goals that individuals cannot achieve alone.
2. Risk distribution: Cooperatives distribute risks among members, reducing the
burden on any single individual.
3. Training and Capacity Building: Cooperatives provide educational programs to
develop skills and improve members' productivity.
4. Employment Creation: Cooperatives generate employment opportunities for their
members and the community.
5. Representation of their members: Cooperatives represent the interests of their
members in dealing with governments, markets, or other organizations.
6. Promotion of fairness to members: Cooperatives protect interests of their
members to ensure fairness.
Types of co-operatives

(a) Producer co-operatives:

These are cooperatives formed to protect the interest of producers who are basically
small in size, by making available items of their needs for production like raw
materials, tools and equipment and machinery.
These are owned by people who produce the same type of goods.
Such Co-operatives are formed either to negotiate better prices with buyers also or
offer better storage facilities, transportation etc. to members.
E.g. Kilimanjaro Native Planters Union (1925) was formed by small-scale coffee
producers. (Now Kilimanjaro Native Cooperative Union, KNCU), Turiani Cane Out
growers, etc.
Types of co-operatives cont.…..

(b) Consumer co-operatives.

These are copperatives formed to protect the interest of general consumers by
making consumer goods available at a reasonable price.
They buy goods directly from the producers or manufacturers and thereby eliminate
the middlemen in the process of distribution.

(c) Housing Co-operative Society:

These are cooperatives formed to provide residential houses to members.
They purchase land, develop it and construct houses to members.
Some societies also provide loans at low rate of interest to members to construct
their own houses.
KIJICO (Kijitonyama Development Community) and Mwenge Housing Cooperative
Society are good examples.
Types of co-operatives cont.…..

(d) Saving and Credit Society/ Co-operatives (SACCOs).

These are cooperatives formed to provide financial support to members.
They accepts deposits from members and grants them loans at reasonable rates of
interest in times of need.
Kilimanjaro community bank, Dar es Salaam community bank are good examples.

(e) Co-operative Marketing Society:

These are cooperatives formed by small producers and manufacturers who find it
difficult to sell their products individually.
The society collects the products from the individual members and takes the
responsibility of selling those products in the market.
Tanga Diaries Cooperative Union (TDCU) is an example.
Advantages of Cooperatives
1. Their decisions are democratic and hence reflect the interests of the majority
2. They prioritize serving the needs and welfare of their members
3. They promote fair and equitable sharing of benefits
4. They provide education and training for their members leading to improved skills
and knowledge.
5. They operate with lower costs because they are not focused on maximizing profits
6. Members share the risks associated with the cooperative, which can reduce the
burden on any single member
7. They receive some tax advantages since many cooperatives are exempted from
certain taxes.
Disadvantages of Cooperatives
1. They rely primarily on member contributions, which may limit their ability to raise
capital
2. Their democratic nature can lead to slower decision-making processes
3. Members face limited Incentives for high Investment
4. They have limited growth potential since profits are often shared among members
rather than reinvested
5. They face difficulties in attracting skilled managers and leaders due to limited
benefits compared to profit companies.
Challenges facing cooperatives in Tanzania

1. Limited Access to Finance

Cooperatives in Tanzania face difficulties to access sufficient funding for growth
and operations because financial institutions view them as high-risk institutions.
2. Weak Governance and Management
Many cooperatives in Tanzania lack well-trained leaders and managers, resulting
in poor decision-making and sometimes even mismanagement of funds.
3. Low Member Commitment and Participation
Many members join cooperatives to access certain benefits, such as loans or
inputs, and may not be committed enough for the organisations.
4. Low-Level Technology Adoption:
Many cooperatives use outdated methods for production, management, and
record-keeping which limit their productivity and efficiency.
Challenges facing cooperatives in Tanzania

5. Limited Awareness of the members

Many cooperative members have limited understanding of how cooperatives work
and their potential benefits. This hinder effective management, transparency, and
cooperative growth.

6. Over dependence on Government Support

Tanzanian cooperatives often rely heavily on government support which can
weaken the cooperatives’ independence and decision-making power.

7. Poor Infrastructure
Many cooperatives, especially in rural areas, poor infrastructure such
as inadequate roads, limited access to electricity, and market facilities
leading to difficulties to perform their daily operational activities.