Types Of Organizations And Their Advantages And Disadvantages

a. Becky and Becker intend to start a business with joint contribution of capital and their managerial ability. Suggest the most suitable type of organisation for them and discuss the advantages and disadvantages of the chosen organisation.
b. Differentiate between a public organisation and the business organisation chosen for Becky and Becker.

a. Analytically discuss the terms marginal utility and the law of Diminishing Marginal utility. Provide examples for showing diminishing marginal utility and draw a marginal utility curve.

b. Discuss the term Price Elasticity of Demand with suitable examples.

¢ Types of organisations.
¢ Partnership organisations,
¢ Types of partnership organisations.
¢ Private limited company
¢ Public limited company.
¢ Advantages of each organisation.

Partnership Organization and Its Types

Becky and Becker intend to start a business with their joint contribution of capital and marginal ability. As they are planning to make joint contribution in starting a business, a limited liability partnership (LPP) organization is most suitable for them. The limited liability partnership is the one where liability of partners are limited by the capital limit. This issue is briefly discussed considering the types of business organization especially considering partnership organization and their advantages and disadvantages.

The business organizations are mainly of three types- Sole Proprietorship, Partnership and Corporation. Sole Proprietorship is a business where a single person owns the business. Here the single owner takes all business decision. There is no obligation on the owner to consult with anyone regarding location selection, hiring decision and selling decision. Another advantage is that the owner enjoys the entire profit. However, the owner has to bear all the business risk. In the partnership business, there are more than one owner (Foss and Loasby 2013). The partners make their contribution in business and enjoy profit shares as per their share of capital investment. In partnership business, the partners based on the terms of contract share both profits and losses. Corporation is a legal organization owned by different shareholders. This type of organization may have only one shareholder or even thousands of shareholders.

Partnership business is defined as a business where there are two or more owners. The set up for the partnership business depends on the deed of partnership. The Deed of partnership contains the capital amount that each partners should contribute called the starting cash, terms of contract for sharing profit or loss (Wheelen and Hunger 2017).  Regulation for incorporating new partners, ending partnership and regulating the business when one partner leaves.

The partnership business runs with several advantages. The main advantage of partnership is that in bad times of the business, all of its partners share risks. The debt burden for individual is less when burdens are shared among the partners than in times of sole proprietorship (Cohen 2017). The additional effort and investment of the partners help in business expansion. Partnership business opens room for new skills and ideas brought by the partners. The string association among the partners help to gain credibility and confidence of buyers and suppliers.

In addition to several advantages, there are some disadvantages of partnership organization. The profit is shared among the partners and hence, each receives a small share of profit. Larger the number of partners smaller is the profit share (Brooks 2015). In the presence of partners, each individual has less control over the business decision. Disputes are often found to exist among the partners regarding the workload, profit distribution and this hampers the performance of the business.

Advantages of Partnership

The three most common types of general partnership (GP), limited partnership (LP) and limited liability partnership (LLP).Each has its own specifications (Brewster et al. 2014) The easiest form of partnership is General partnership. In General Partnership, state filling is not mandatory. As the partners, do not require to pay fees for formation filling, fees for ongoing state and franchise taxes they face a low operation cost. The General Partnership is free from regulation complexities. In General partnership, there is no need for organizing annual meeting, keep their personal assets separated from the business assets.

In Limited partnership there are at least one partner who has unlimited liability. The other partners holds limited liability. The partners with limited liability do not use their personal assets to fulfill business liabilities and debt (Hynes 2014). The limited liability limits their investment. In the management board, the limited liability partners are not generally involved. They are considered as silent investors in the partnership plan.

Only specific types of business can form limited liability partnership. These include accountants, architects, doctors, attorneys, dentists, and such other professional fields (Dutta 2016). In the limited liability partnership, as well personal assets are not used for funding business liability and debt.

In business world, private limited companies are identified as a small business entity having one or more private owners. The owners here limits their liability with by distributing shares. The number of shareholder is limited to 50 and restricts the shareholders involvement in trading of public shares (Carlton and Perloff  2015).

Limited Liability

One big advantage with private limited company that their financial liability is limited to their shares. This has the advantage that even when business running loss the shareholders need not risk their personal asset.  

The restricted trading of shares makes the possibility of hostile takeover low.

The private limited company continues to exist even when its earlier owner die. The companies are integrated. This makes the private limited company an independent legal entity.

Additionally, the private limited company enjoy tax advantages. Often the corporate taxes are lower as compared to other types of business (Burke 2017).

Public limited companies are considered as a legal destination for Limited Liability Company. Here shares are offered to public with limited liability (Ridley-Duff and Bull 2015).

Followings are the main advantages of public limited company.

The public limited companies have better access and control over capital.

If the shares are quoted in the stock exchange then shareholders can make transaction of their shares.

Disadvantages of Partnership

The public companies enjoy opportunities for making easy acquisition

Moreover, often the public limited companies hold a prestigious status.

The public organizations are mainly more oriented towards providing services to the common public. The profit earned in the public organizations in an accounting year is fully re-invested for improving service. Funds used in these organizations are collected mostly from common people. Sources of funds include direct taxes that household and companies pay to public organization and government. Revenue of indirect taxes, different non-tax revenues and external sources are some other means of finance in public sector (Denhardt and Catlaw 2014). Government offers special grant for funding projects and ideas to provide public services and stimulate the economy. Grants provide financial support for innovative research and for other critical recovery in business. Common people in the nation are the targeted group of for public organization.

Private organizations are run by profit motive. The profit earned by the private organizations are not completed reinvested. The entire share of profits are enjoyed by the sole proprietor or among partners in case of partnership business. The associated business risk is taken the owner of the business or partners. The burden of risk is greater as government provides no assistances. The private owners invest their own capital or use borrowed capital (Obeng 2017). The company shares are issued and sold in the share market. The shareholder gain profit or suffer loss depending on the status of company. The board of company takes the management decisions and only those decisions are implemented favored by the majority of board members.

The terms utility refers to the level of satisfaction realized from consumption of every unit of a commodity. The level of satisfaction enjoyed by all the units consumed is called total utility (Kauder 2015). The marginal utility is the change in total utility due to change in unit consumption.

As proposed by Marshall, the additional benefits derived by a person from additional stock of goods decreases with every unit increases in total stock. This is called the law of diminishing marginal utility. With increase in consumption, the total utility increases. However, the rate at which total utility increases diminishes (Song, Zhong and Liu 2013). As a result marginal utility decreases. To total utility first increase with increases in consumption, then total utility reaches to the maximum level making the marginal utility zero. After reaching the maximum point, total utility start falling making marginal utility negative. Therefore, after certain threshold limit, marginal utility becomes zero and beyond the threshold limit, marginal utility is negative.

Different Types of Partnership

The law is applicable only for goods that is consumed in standard units. For example, cup of tea, bottle of cold drink and such other.

The units are compared should be homogenous in nature that is identical in terms of taste, color, quality and size

It consumption is made at certain interval then the law does not hold. The law needs continuous consumption to hold good (Rios, McConnell and Brue 2013).

The taste and preferences of the good should be remained same during the consumption process.

The income and prices should be also remained constant.

There must be a measurable unit for utility (Paleti and Pinjari 2015)

The law holds for rational economic agent

Consider for example, a man is hungry and finds orange to eat. In this situation, consumption of first unit of orange gives the man highest level of utility. In the empty stomach, the first unit of orange gives him great pleasure. When he consumed the second unit of orange, the extent of hunger reduces. Therefore, a lesser utility is derived from the second unit. If the person continues to take oranges then the additional utility from third unit is even less than the second unit. In this way the marginal utility goes on diminishing. If the consumptions are increasing then marginal utility first decreases, falls to zero and then negative.

The total utility and marginal utility schedule is given in the following table

Units of Orange	Total Utility	Marginal Utility
1	20	20
2	35	15
3	45	10
4	50	5
5	50	0
6	45	-5
7	35	-10

The first unit of orange gives total utility of 20. With the second unit of orange total utility increases to 35 giving a marginal utility of 15. For third unit total utility is 45 and marginal utility is 10. The total utility is maximized with 5 units of oranges. After that, total utility diminishes making the marginal utility negative. Negative marginal utility is obtained for 6^th and 7^th unit of oranges.

The law of diminishing marginal utility provide basis for fundamental economic theories. For example – diminishing marginal utility explains the reasons or law of demand. With more unis consumed the marginal utility goes down and hence the willingness to pay reduces and so is the price (Tan and Zhang 2015). The law is applicable for money as well and used by the finance ministry to implement progressive tax rate.

The price elasticity of demand measures the extent of change in quantity demanded because of a change in price. Both the change in price and quantity demanded is expressed as a percentage of the previous units (Frank 2014). The demand for all goods do not respond similarly for all goods.  This depends on the types and specific nature of goods.

Private Limited Company

If the demand for goods change more than the price than the demand is relatively elastic in nature. The measure of elasticity is greater than one. The luxury goods have relatively elastic demand (Chenayah 2017). For example – gold or other precious metal, cars have elastic demand. A small increase in price makes a drastic reduction in demand. An extreme case is when demand changes infinitely making demand infinitely elastic.

If the change in demand is less than the corresponding change in price then demand is relatively inelastic. The elasticity measure here is less than one. Demand for necessary goods have this kind of demand. When price changes then people cannot change their demand much (Baumol and Blinder 2015). For example, demand for staple food items. There are goods for which demand do not change at all. The change in price do not have any impact on demand for these goods. This is known as perfectly inelastic demand curve.

There is one hypothetical situation where the proportionate change in demand equals the respective change in price. This is called unitary elastic demand having an elasticity measure of one.

References

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