Forms of Business Organization

Trade is the selling and distribution of goods for the satisfaction of wants, in the early days, early man lived on subsistence economy i.e by satisfying all his wants through self-activities. Later early man realizes that by self-efforts only some of his wants could be directly satisfied. A man came to understand that he would have to rely on others for commodities he cannot produce, which he or lack, hence he began the exchange of goods. This mutual exchange of good or service is known as trade by barter. However, This type of trade has a lot of disadvantages, which includes:-

  1. Double coincidence
  2. Indivisibility
  • Storage problem
  1. Transportation problems
  2. Time wasting
  3. Lack of relatively of values

With the advent of modern trade, the practice of exchanging goods and services for service became extinct.

A key decision to be made by anyone into business is the form of ownership to adopt. To a large extent, the legal form of ownership that is chosen depends on:

  1. The nature of the business
  2. The scales of operation involved the i.e size of the business
  • The resources required and the financial ability of the promoters? (s)
  1. The amount of control! The promoters(s) intends to maintain the enterprise.

Types of business organization

  1. Sole proprietorship
  2. Partnership/firms
  3. Foreign company (branch of subsidiary of foreign company)
  4. Private or public limited liability company
  5. A company limited by guarantee

Business activities may be undertaken in Nigeria through the above means. All business enterprise, both local and foreign must be registered with the registrar general of corporate affairs commission (CAC) and must cope with a myriad of internal regulations applicable to particular businesses.

  1. Sole proprietorship

This is the simplest form of business enterprise. It is a one-person business that bears all the risk and profits alone. He alone provides the risk capital, in Nigeria, the sole proprietorship is found in a few sectors of the economy i.e retail trade and direct service. They are the ultimate traders, hawkers, roadside traders, units hop owners, shop holder, diagnostic laboratories, roadside mechanics, etc some sole proprietorship have distinguishing names while others have none.


A sole proprietorship must be registered with the corporate affairs commission (CAC) as a business name under part B of the Companies Act, the procedure for the registration of a business name for use by a sole proprietor involves the submission of a duly completed form, to the corporate affairs commission (CAC).

  1. the form must be signed by the appropriate person
  2. the form must disclose certain particulars
  3. it must contain a number of document i.e
  4. reservation of name form
  5. the proposed Business name

iii. the general nature of the business or proposed activities

iv the full address of the principal place of business and every other subsidiary place of business

  1. Where the registration to be effected is that of a firm, the present formats and surnames, nationality, age, sex, occupation and residential address of each of the shareholders, name and registration office if such corporation which is an intending partner as the case might be
  2. The proposed date of commencement of the business: passport photograph duly certified in the of sole proprietorship or firms consisting only of the individual.

Source of capital

The sole proprietorship may derive initial capital from the following sources:

  1. Personal savings; this is the savings that might have accumulated over time. He does not pay interest however, this amount may not be enough to start the business.
  2. Grants from friends or relations: friends, parents, guardian. Or relations might rally round the sole proprietor by giving him the grant to start a business. This sum is not repayable.
  3. Loans from friends: very often, a sole proprietor might get loans from friends or well-wishers. Such loads are repayable when the proprietor begin to reap profits.
  4. Loans from the bank: the sole proprietor might obtain loans and advance from his bank. He provides collateral for the loan, the advance is only extended to a person who has a current account with the bank.
  5. Loans from the government: the graduate employment scheme of 1987 and other such schemes like the SMSts were funded by the state and federal government to make loans available for many unemployed graduates and entrepreneurs.

Advantages of a sole proprietorship

  1. The sole proprietor has complete control over his business
  2. He has the freedom to re-establish and run any business(s) at a time
  3. He gives personalized service, efficiency and devoted management to his customers.
  4. He is not compelled by law to make public his books account. He enjoys his secrecy.
  5. He enjoys his profit alone
  6. His business management and organization is simple and easy.
  7. He pays no corporate tax. However, he pays tax as an individual.

Disadvantages of a sole proprietorship

  1. He shoulders the enormous task of raising capital for the business.
  2. The sole proprietor is not able to retain professional and managers he employs.
  3. He bears the risk of the business alone
  4. He stands the risk of forfeiting his personal belongings if his business assets cannot pay its liabilities.
  5. Because it is easy and cheap to start, over-crowding of a particular business is often noticed.
  6. The death of the sole proprietor usually brings the business to an end; especially if the business is direct service.
  7. Partnership

The partnership Act 1980 as well as Cap 86 laws of western Nigeria 1995 defines partnership as the relation, which exists between persons carrying on a business in common with a view of profit. The number of partners should not be fewer than two and not more than twenty. In the case of banking, the number should not exceed ten (10)

Features of partnership

  1. No corporate existence: the partnership and it owners are not separate from one another
  2. Limited membership: membership is limited i.e from two to twenty or ten (for banks)
  3. Unlimited liability each partner has unlimited liability for the debts of the firm
  4. No unnecessary formalities: the formulation of the partnership can be done orally. In writing or by conduct.

Mutual confidence and trust: members must allow and show mutual confidence and trust in their dealings with each other.

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