Download Forms of Business Organization and more Lecture notes Economics in PDF only on Docsity!
CHAPTER 4
FORMS OF BUSINESS ORGANIZATION
INTRODUCTION
Development economy has push formation various organization business in different shapes. Every business growing business _ own different characteristics Good from in terms of capital, scale business , ownership , etc operational his activities. For That need specific management And different between One business with others. So that you can develop And capable compete in environment business , in choose form business need customized with need And that ability owned.
Form of business organization refers to the legal and organizational structure used by a business entity to carry out its operations. The choice of business organization form can influence aspects such as legal responsibilities, taxes, ownership, and available resources. The following are several commonly used forms of business organization along with explanations and examples:
There are many reasons why an individual or group of individuals chooses a particular form of business organization. This choice can be influenced by various factors according to business needs, goals and circumstances. Here are some common reasons for choosing a particular form of business organization:
- Legal Liability: The desire to limit personal liability for business debts. Some forms of organization, such as an LLC or limited liability company, provide legal protection against personal liability.
- Tax: Efforts to optimize tax benefits. Some forms of organization have different tax treatments, and choosing the right one can reduce a business's tax liabilities.
- Ownership and Control: How ownership and control of the business will be managed. For example, if you want to run your own business, a sole proprietorship may be more suitable than a limited liability company.
- Capital Raising: The desire to raise capital from various sources, such as investment from partners, outside financing, or stock sales. Different organizational forms may impact your ability to access capital.
- Business Nature: The unique characteristics of your business, such as whether it is a family business, a high-tech business, an e-commerce business, or a social/non-profit business.
- Future Ownership: Plans for future growth and ownership of the business. Some forms of organization are more flexible in terms of ownership structure and transfer of shares.
- Market and Business Environment: The regulations and rules that apply in the market and business environment in which your business operates. Some organizational forms are better suited to certain industries or business environments.
- Administrative Capabilities: Administrative capabilities available to manage and comply with applicable legal and licensing requirements.
- Sustainability: Planning for the long term and growth of your business. Some organizational forms may be better suited to expansion or diversification.
- Legal Consultation: Advice from experienced legal counsel or business professionals in selecting an organizational form that suits your needs.
FORMS OF BUSINESS ORGANIZATION
It is important to consider various factors carefully before making a decision about the form of business organization. Understanding the implications of choices is an important step to achieving long-term success in business. The following forms of business organization are:
1. INDIVIDUAL COMPANY (SOLE PROPRIETORSHIP) Sole Proprietorship is one of the simplest forms of business organization where the business is owned and run by one individual without any legal separation between the business owner and the business itself. In a sole proprietorship, the business owner is the sole entity responsible for operations, finances, and business decisions. The following is a more complete explanation and example of a private company:
Characteristics of a Proprietorship Company:
- Sole Proprietorship: A sole proprietorship is wholly owned by one individual, called the sole proprietor.
- No Legal Separation: There is no legal separation between the owner and the business. This means that the owner is personally liable for all business obligations, including debts and lawsuits.
- Simple and Easy to Set Up: Setting up a sole proprietorship is one of the simplest and easiest forms of business to do. Typically, it doesn't require complicated formal paperwork to get started.
- Full Ownership: The owner has complete control over business operations and can make decisions without having to negotiate with shareholders or other partners.
- Individual Tax: Income earned from a sole proprietorship is taxed as the owner's personal income, making it simple from a taxation perspective.
- Limited Resources: Sole proprietorships often have limitations in terms of resources and capital because all financial responsibility falls on the owner.
Example of a Sole Proprietorship Company:
- Sole Owned Food Stall: A food stall owned and operated by a single individual who is responsible for all aspects of the business, including cooking, customer service, and financial management.
- Small Store: An example is a small grocery store or clothing store that is wholly owned by a single individual who is responsible for purchasing, sales, and inventory management.
- Sole Proprietorship: A professional such as a financial consultant, dentist, or freelance writer who works independently without partners or employees is an example of a sole proprietorship.
Advantages of a Sole Proprietorship:
- Simple and Easy to Set Up: There is no complicated bureaucracy or formal requirements needed to start a sole proprietorship.
- Full Control: The owner has complete control over the business and the decisions taken.
- Simplified Taxation: A sole proprietorship's income is taxed as personal income, which can have a lower tax rate.
Disadvantages of Sole Proprietorship:
- Unlimited Personal Liability: Owners are personally liable for all business debts and lawsuits. This means the risk of losing personal assets if the business experiences problems.
- Capital Limitations: Resources and capital are often limited in sole proprietorships because all financial responsibility falls on the owner.
- Limited Growth Ability: Sole proprietorships often have limitations in terms of growth and expansion due to limited resources.
There are various forms of partnership business, namely:
1. General Partnership (General Partnership): In a general partnership, all partners have equal responsibility for the management of the business and share the responsibilities, profits, and losses equally. They also have full responsibility for the business's debts. Example: Two friends open a clothing store together, contributing equal capital, and sharing responsibility for managing the business as well as profits and losses. 2. Limited Partnership (Limited Partnership): Limited partnerships involve two types of partners: general partners and limited liability partners. General partners participate in the management of the business and have full responsibility for the debts of the business, while partners with limited liability act only as financiers and have limited liability in proportion to their capital contribution. Example: An investor provides capital to a law firm with a general partner who manages the day-to-day business. General partners are fully responsible, while investors are only responsible according to the amount of capital invested. 3. Limited Liability Partnership (LLP): In an LLP, all partners have limited liability for business obligations, meaning their personal assets are not involved in paying business debts. Partners have flexibility in managing their management and responsibilities. Example: A law firm consisting of several attorneys who wishes to avoid personal responsibility for the legal actions of other partners. 4. Term Partnership (Limited Duration Partnership): This type has a certain time limit for operation or until the achievement of certain goals. After a certain time limit, the partnership will end or can be extended. Example: A partnership is formed by several architects to design and build a large project. This fellowship has a time limit until the project is completed, and then it will end.
The appropriate form of partnership to use will depend on the business goals, ownership structure, and level of responsibility desired by the partners. It is important to have a clear partnership agreement and follow the applicable laws and regulations of the country or jurisdiction where the business operates.
3. LIMITED COMPANY (PT) A Limited Liability Company (PT) is a legal entity that has its own legal identity and is separate from its owner. A PT can be established by one or more people (shareholders) to run a joint business with limited responsibility according to the capital paid in. This means that the owner of the PT is not responsible for the company's debts exceeding the amount of capital paid in.
Characteristics of a Limited Liability Company (PT):
- Divided Ownership: PT has shareholders who have ownership and voting rights according to the number of shares owned.
- Limited Liability: PT owners (shareholders) are only responsible for the company's debts up to the amount of capital contributed, so their personal assets are not involved in the company's obligations.
- Separate Legal Entity: PT is considered a separate legal entity from its owners. This means that PT can have its own rights and obligations, and can sue and be sued in court.
- Share Capital: PT is financed through shares, and this capital is used to operate the business, invest, or expand.
- Supervision and Governance: PT has a supervisory structure that involves shareholders and a board of directors to run the business and make strategic decisions. A Limited Liability Company (LLC) is a form of business organization that combines the characteristics of a limited company (corporation) and a limited partnership (limited partnership). ). An LLC provides legal protection to its owners, called “members,” similar to a limited liability company, but with greater operational flexibility. The following is a more detailed
explanation of LLC along with examples:
Example of a Public Company:
- PT Toko Buku Bahagia: This company is engaged in trading books and stationery, selling various types of books, stationery and school supplies.
- PT Warung Makan Selamat: Small restaurant that serves local cuisine or typical regional food.
- PT Creative Graphic Design Services: This company offers graphic design services, such as creating logos, brochures and other graphic designs for local clients.
- PT Small Handicraft Factory: Manufacturing business that produces handicraft goods such as ceramics, glassware or woven products.
- Financial Consulting Service Provider PT: Company that provides financial consulting services to small and medium businesses, including financial planning, taxation and financial management.
- Information Technology Service Provider: Small IT company that provides software development services, technical support and IT solutions to local businesses.
- PT Pusat Pendidikan Bahasa: Company that organizes language courses, such as English courses or other foreign language courses.
- PT Studio Fotografi: Small photography studio that provides photography services for various events, such as weddings, families and personal portraits.
- PT Gedung Construction Company: Small construction company that focuses on commercial or residential building construction projects.
- Tourism Service Provider PT : Small travel company that offers local travel packages, such as tours, accommodation and transportation. 4. PUBLIC COMPANY (PT) GO PUBLIC A Public Company (Public Corporation) is a form of business organization whose shares can be traded publicly on the stock exchange. This means shares of a publicly traded company can be bought and sold by shareholders on the open market. This form of organization has specific characteristics that influence how the company is run and how it is governed. The following is a more complete explanation of public companies along with examples:
Characteristics of a Public Company:
- Public Share Offering: A public company has its shares which can be traded publicly on the stock exchange. They list these shares on authorized stock exchanges to facilitate trading.
- Dispersed Share Ownership: Ownership of a publicly traded company is typically spread among many shareholders, including individuals, financial institutions, and institutional investors.
- Board of Directors: Public companies are led by a board of directors consisting of individuals elected by shareholders to oversee management and strategic decision making.
- Strict Financial Disclosure: Publicly listed companies have an obligation to report their finances regularly and transparently to stock market authorities and the public. This financial report includes a balance sheet, profit and loss statement, and cash flow, as well as notes on accounting policies.
- Limited Liability of Shareholders: Shareholders in a publicly traded company are liable for their losses only to the extent of their investment in the company's shares. They are not personally liable for the company's debts.
- Stock Trading Activities: Public company shares are traded on secondary markets such as the Stock Exchange (BEI), or other stock exchanges. Investors can buy and sell these shares according to the determined market price.
- Openness and Transparency: Cooperatives are expected to operate with a high level of openness and transparency. Financial and operational information must be available to members and openly accessible.
Example of Cooperative:
- Farmer Cooperatives: A number of farmers join cooperatives to buy seeds, fertilizers, and agricultural equipment at lower prices. Profits from sales of agricultural products can also be shared with members. 2. Consumer Cooperatives: Consumer cooperatives can be founded by individuals who wish to purchase products or services at better prices. Examples include housing cooperatives where members can purchase homes at reduced prices or food cooperatives where members purchase food at wholesale prices.
- Credit Cooperatives: Credit cooperatives are financial institutions owned and operated by their members. They provide banking services such as savings, loans, and credit cards at favorable interest rates for their members. 4. Health Cooperatives: Health cooperatives may provide medical services or health insurance to their members at lower costs than the public market. Examples include health cooperatives that provide medical services and medicines at more affordable costs.
- Educational Cooperatives: Educational cooperatives can be founded by teachers or parents who wish to improve their children's education. They can provide services such as tutoring or access to learning resources at a lower cost.
The advantages of cooperatives include purchasing goods or services at lower prices, profits being shared among members, and democratic control over business decisions. However, cooperatives also have challenges in terms of management and growth, as well as ensuring members' active involvement in decision making and operations.
6. NON-PROFIT CORPORATION / FOUNDATION Non-Profit Corporations / Foundations are a form of business organization established for charitable, educational, religious or humanitarian purposes, and do not have the aim of generating profits that will be distributed to external owners or shareholders. The main goal of a Non-Profit Corporation/Foundation is to provide community benefits or a specific cause that is consistent with their mission. The following is a more detailed explanation of Non-Profit Corporations/Foundations along with examples:
Characteristics of Non-Profit Corporations/Foundations:
- Charitable or Humanitarian Goals: Non-profit corporations/Foundations have goals that focus on the good of society or a specific cause, such as providing health care, education, social services, or advocacy on social issues.
- Not for personal gain : One of the main characteristics is that non-profit corporations do not aim to generate profits that will be distributed to owners or shareholders. Instead, they use surplus revenue to support or expand their mission.
- Different Tax Statuses : Many non-profit corporations/Foundations qualify for tax statuses that eliminate or reduce their obligation to pay federal taxes and often state taxes as well.
- Organizational Structure: Non-profit corporations/Foundations have an organizational structure similar to a limited company, including having a board of directors who oversee strategic decision making and executive management who manage daily operations.
- Funding from Donations and Grants: The main sources of funding for non-profit corporations are donations from individuals, foundations, governments or other organizations, as well as grants that can be provided by external parties.
- Reporting Obligations: Non-profit corporations/Foundations have reporting obligations that vary according to their jurisdiction and status. They often have to report their finances and activities openly.
Examples of Non-Profit Corporations/Foundations:
- Red Cross: A humanitarian organization that operates worldwide to provide emergency aid, health services, and education to people in need.
- World Wildlife Fund (WWF) : An organization dedicated to protecting biodiversity and environmental conservation, working to protect species and natural habitats.
- Habitat for Humanity: Organization that helps build homes for those in need around the world.
- Profit Universities: Many colleges and universities have non-profit corporation/Foundation status, focusing on education and research rather than making a profit.
The advantages of non-profit corporations/Foundations include the ability to carry out charitable missions, obtain support from donors, and favorable tax status. However, they often face challenges when it comes to obtaining consistent funding and meeting stringent requirements and regulations.
7. GOVERNMENT OWNED BUSINESS ORGANIZATIONS Government-owned business organizations are entities owned and operated by the government, whether at the local, regional or national level. They have a variety of goals that include public service, economic development, and the provision of certain services to the community. The following are several types of government-owned business organizations along with explanations and examples: 1. State-Owned Enterprises (BUMN): BUMN is a company owned by the central or regional government. They operate in various economic sectors and have various objectives, such as natural resource management, infrastructure, and public services. Examples: PT Telkom Indonesia (telecommunications), PT Pertamina (energy), PT PLN (electricity), PT Angkasa Pura I (airports), etc. 2. Regional Owned Enterprises (BUMD): BUMD is a company owned by the regional government. They operate at a regional or local level and aim to develop the regional economy as well as provide services to local residents. Examples: PT Sarana Multi Infrastruktur (SMI) (formed by the DKI Jakarta Provincial Government for infrastructure development), PDAM (Regional Drinking Water Company) in various cities/districts. 3. State Owned Banks (BUMN Banks): State-owned banks are banks owned by the central or regional government. They provide banking services to the public, support the economic sector, and implement government policies related to finance. Example: Bank Mandiri (state owned), Bank Rakyat Indonesia (BRI) (state owned). 4. State Electricity Company (PLN): PLN is a state-owned company tasked with providing electricity for public and industrial needs in Indonesia. Example: PT PLN (Persero). 5. State Port Company (Pelindo): Pelindo is a state-owned company that manages ports in Indonesia, supports trade and national logistics. Example: PT Pelindo I (Persero), PT Pelindo II (Persero). 6. State Airline: State-owned airlines operate to connect cities and countries, supporting tourism and business. Examples: Garuda Indonesia (state-owned), Lion Air (which has state-owned shares through PT Angkasa Pura I).
Government-owned business organizations usually have the primary goal of providing services
