Types Of Business Organization: Advantages And Disadvantages

Types of Business Organization

The term business organization suggests the entire operation of the business that includes the structure of the business, and the significant result of how the structure of the businesses actually helps all kinds of businesses to grow in their respective industries for the achievement of the success or the desired mission and vision of the organization. In other words, it can be said that companies are most likely to build up these structures to gain profit from the operation or to indulge themselves in the social works. The following essay is going to refer to the types of business organization along with the outline of the advantages and disadvantages of each type. The essay is also going to include comparative study between the organizational structures present in business organizations. The discussion of the different business functions will also be included in the following part. Lastly, the essay will comprise the definition of the organizational culture and its impact on the organization.     

In the entire business domain, there are four types present which are: Sole proprietorship, partnership, corporation and lastly, limited liability companies or LLC.

1. Sole proprietorship: The Sole proprietorship is one of the simplest ways to make a head start for any kind of business.

Advantages:

• The owner of the sole proprietorship is one drawing all the profits from the business.
• The owner is always free to make decisions for the business operation.

Disadvantages:

• Creditors can use the assets of the owner to get the payback of the debts.
• The rise of the capital for the business is very much limited from the owner’s side thus there is a chance of growing the business to a certain limit (Encyclopedia Britannica. 2022).

2. Partnership: In any kind of business when two or more individuals make a mutual agreement to operate the business for the greater benefits and common goals that can be considered as partnership business type.

Advantages:

• A huge scope to increase the funds of the business with more than one owner.
• Huge scope for the improvement of the management with one owner that also creates a pool of knowledge and skills.

Disadvantages:

• Unanimous decision is necessary for any kind of monetary or operational actions.  
• Withdrawal of any kind of partnership causes harm to the business operation.  

3. Corporation: A corporation is referred to the separate kind of legal entity that has been created by individual shareholders offering or investing money for capital stock money.

Advantages:

• Huge monetary support helps businesses to have a smooth run.
• Here, the shareholders are not responsible for any kind of debts from the business operation.

Disadvantages:

• The concept of the corporation initiates the double taxation from the earned revenue.
• It is necessary to file articles of incorporation for the filling of the corporation.

4. Limited liability companies or LLC: This kind of business structure helps the owners to protect them from any kind of liabilities (Encyclopedia Britannica. 2022).

Advantages:

• It does not require any Board of directors.
• There are an unlimited number of shareholders present in this business type.

Disadvantages:

• Legal as well as accounting costs are pretty much higher than other types.
• It is must to file articles as a state of domicile.  

The next discussion is about the organizational structure in any kind of business that helps to give a shape to the entire operation. It mainly defines the hierarchy of the system. There are a few types of organizational structure that can be followed by any kind of business. These structures depend on the size and aim of the organization. Thus proper choice of organizational structure can be helpful for the establishment of the communication in the organization.

• Functional structure: Under this structure, the employees are allotted with the tasks based on their expertise. For an example, it can be said that financial department experts are only allotted with every type of financial operations (Fairfield, 2016). The duplication of the work can be reduced to a certain level but organization might suffer in coordination as each of the facilities focus on their field only.  
• Matrix structure: In this structure, the individuals tend to have two or more supervisors to report to at the same time. For an example it can be observed that in most of the factories, the employees are supposed to report to different managers at the same time about the allotted tasks (Ahmady, Mehrpour and Nikooravesh, 2016). However, this structure can be insufficient and works can be duplicated. Lack of coordination among the employees can be observed in any level of the organization structure.
• Divisional structure: In this type of structure, the employees are grouped in a certain manner based on their expertise. This structure includes separate functional structures as per the services or the products. For example, in a multinational company, there are multiple divisions such as, financial, operational, electrical or transportation and many more which helps the company to be engaged in all kinds of functions in the organization (Winnubst, 2018). This specific structure is as efficient as a simple company structure. However, coordination can be a little for the employees as each of the divisions work independently.

In a business organization, there are various kinds of functional areas that can be followed for the achievement of the objectives and the aims of the organization. These functions can be classified into sections like human resources, production, marketing, sales and many others which helps the companies to excel their operation for the betterment in the operation.

• Human resource: Every organization looks after their employees, trains them and helps them to develop the commitment in them for the betterment of the organization’s success. The human resources function is responsible for the recruitment, training and development, as well as introducing them to the company’s rules and regulation of the candidates (Chernenko, 2020). However, the HR function is also responsible for keeping the existing employees up to date and business growth is growing well.
• Production: The entire production function comprises steps like ordering raw materials, storing and checking all the materials, producing and assembling of the goods as well as checking the quality, packaging the final product, scheduling the routine check up for the machinery and repair of the same (Gorbunov and Lvov, 2018). This is the way the business can run their operation and produce a large entity which can bring profit.         
• Marketing:Every organization believes that marketing is one of the most important functions which is helpful in identifying and meeting customers’ needs. It follows the rules of the marketing mix based on components: Product, price, promotion and lastly place (Zimmerman and Blythe, 2017). Based on the research and received feedback for new or existing products, the function initiates the promotion of the products, producing and distribution of the materials. Many of the organizations have been successful with their production by properly analyzing the customer needs.
• Sales: In this specific function, the organizations tend to respond to their customers through solving production enquiries, organizing various kinds of methods for the sales promotion among the public based on the target market. The main action is to sell the products to the customers either in a telephonic way or face to face interaction (Mohanty, 2017). Every organization has a marketing and sales department altogether to make it more powerful and draw more profit from the marketplace.  

The last section in this essay is about another most important component of the business organization is the organizational culture (Lubis and Hanum, 2020). The entire concept of the organizational culture comprises different collection of values, expectations as well as practices within the organization. This organizational culture helps to influence the organization and its entities to a certain direction by improving the performances. Culture is the main key to attract the applicants and increase the human resources in any company. It also helps in creating an environment in any organization that influences an employee to have long term plans and devote themselves and their skills towards the vision of the company (Weaver and Nelson, 2016). Thus, it can be mentioned that the organizational culture improves the workforce management which leads to high productivity. This can only occur because the positive influence of the organizational culture helps in motivating and engaging the employees more towards the duties and responsibilities for the organizations. On the other hand, the policies and organizational processes can be built by the help of the organizational culture which creates a potentiality for the individuals to reach the mission of the organization being a part of a team.

Conclusion 

After the entire discussion on different aspects of the business organization, it can be concluded that it is every necessary to initiate and establish each and every aspect in the best way for the betterment of the operation and the profitability by running the business. From the first section discussion, general ideas about the types of the business have been observed along with the advantages and disadvantages of the same. The second section comprises the comparison about the organizational structure in order to understand how each of the types such as matrix or divisional might differ from another. The next section was about the functions which are considered as the foundation of the business operations that helps to reach out to the customers and establish a proper organization by gaining huge profit, lastly the organizational culture has been discussed which is the key to the success of the organization by fostering individuals for the mission and vision of the organization.

References 

Ahmady, G.A., Mehrpour, M. and Nikooravesh, A., 2016. Organizational structure. Procedia-Social and Behavioral Sciences, 230, pp.455-462.

Chernenko, A., 2020. Human Resources And Functions Of The Management Of The Educational Organization. Economics, Finance And Management Review, (3), Pp.114-121.

Encyclopedia Britannica. 2022. business organization | Definition, Types, History, Roles and Responsibilities, & Facts. [online] Available at: <https://www.britannica.com/topic/business-organization> [Accessed 5 January 2022].

Fairfield, K.D., 2016. Understanding functional and divisional organizational structure: A classroom exercise. Management Teaching Review, 1(4), pp.242-251.

Gorbunov, V.K. and Lvov, A.G., 2018. Effective production funds and production functions of regional small business. Ekonomika Regiona, (2), p.502.

Lubis, F.R. and Hanum, F., 2020, December. Organizational culture. In 2nd Yogyakarta international conference on educational management/administration and pedagogy (YICEMAP 2019). Atlantis Press (pp. 88-91).

Mohanty, K., 2017. Understanding the role of service and value co-creation in sales functions. Parikalpana: KIIT Journal of Management, 13(2), pp.47-57.

Weaver, C. and Nelson, S.C., 2016. Organizational culture. In The Oxford handbook of international organizations.

Winnubst, J., 2018. Organizational structure, social support, and burnout. In Professional burnout: Recent developments in theory and research (pp. 151-162). CRC Press.

Zimmerman, A. and Blythe, J., 2017. Business to business marketing management: A global perspective. Routledge.