CHAPTER ONE

Meaning of Business Units

What is Business Units?

Business unit is a division, department or functional area within a company

responsible for a specific corporate activity.

Forms of Business units:

The six major types of business units are:

 Sole proprietorship
 Partnership
 Co-operative Societies
 Credit Union and Thrift Societies
 Public enterprises
 Companies

Sole Proprietorship

A sole proprietorship is a form of business enterprise owned, financed,

and managed by one person with the primary aim of making profit.
Examples of sole proprietorships are found in primary industries.

Advantages of Sole Proprietorship

1. It is very easy to establish.

2. Decision making is fast.
3. It involves small capital.
4. There is a close relationship between the owner and the customer.
5. It requires a small operation.
Disadvantages of Sole Proprietorship

1. There is limitation to expansion.

2. It has unlimited liability.
3. The problem of continuity. That is, the death of the owner can lead to
the end of the business.
4. Inadequate capital.
5. The sole proprietor lacks specialization.

Characteristics of a Sole Proprietorship

1. It is owned, controlled, and managed by the sole proprietor.

2. The capital is provided by the sole proprietor.
3. The main objective of a sole proprietorship is making profit.
4. Sole proprietor business is not a legal entity.
5. The lifespan of the business depends majorly on the owner.

Sources of capital for a Sole Proprietorship

1. Loans and overdrafts from banks.

2. Trade credit.
3. Personal savings.
4. Grants and loans from government.
5. Loans/contribution from friends and relatives.

Partnership

A partnership is a type of business organization in which two to twenty

persons who agree together legally, set up and manage a business with the
aim of making profit.

Characteristics of Partnership

1. The capital is provided by the partners based on legal agreement.

 2. The main objective of a partnership business is profit-making.
3. A partnership business is not a legal entity as partners are not
separated from the business.
4. The lifespan depends on the agreement made by the partners.
5. The business is managed and controlled by the partners.

Advantages of Partnership

1. There is a great possibility of expansion.

2. There is a better chance of continuity.
3. There is access to loan facilities.
4. It brings about an increase in production.
5. The risk and liabilities of the business are shared among the partners.

Disadvantages of Partnership

1. There is limited growth.

2. Disagreements between partners can bring the business to an end.
3. There is difficulty in management.
4. There is unlimited liability.
5. The action of one partner affects the other partners

Sources of capital for a partnership business

1. The partner’s initial contribution.

2. Loans and overdrafts from banks.
3. Credit purchases from companies or individuals.
4. Undistributed profit.

Types of Partnership
 1. General or ordinary partnership: In a general partnership, partners
have equal responsibilities and risks in the business. The liabilities of
the partners are unlimited as they all take an active part in the
administration and management.
2. Limited Partnership: This is a partnership in which only one partner
is required to be a general partner. The partners do not take an equal
part in the management and administration of the business.
Other kinds of partners are active partners, sleeping or dormant
partner, nominal partner, limited and general partners.

Rights of partners

1. A partner that pays the agreed capital in advance is entitled to 5%

interest.
2. The partners are entitled to share the profit of the business.
3. Every partner must have access to the business book of accounts.
4. Every general partner can take part in the management of the
business.

Kinds of Partners

1. General partners: They have the full power of participation in the

conduct and management of the business and are entitled to full
shares in the management.
2. Limited partners: They contribute a certain sum to the business and
are prevented by law from taking an active part in the management of
the business.
3. Active partners: He takes an active part in the management of the
business and also takes care of the business on behalf of the other
partners. He is liable for the acts of the firm and must give public
notice before retirement.
 4. Sleeping or dormant partner: He does not take an active part in the
management of the business. He only contributes to the capital, shares
profit and loss, and he is bound by the activities of other partners but
he is not known to the outsiders. He does not require public notice
before retirement and he is not liable to third parties for the acts done
after his retirement.
5. Nominal partner: He is admitted with the purpose of taking
advantage of his name or reputation. He is known to outsiders but he
does not share the profits of the firm nor take part in its management.

Formation of Partnership and Terms of Agreement

A partnership business is formed based on the agreement made by the

partners. They express their intention in a partnership agreement known as
the deed of partnership. The provisions in the partnership deed are:

a. The names of the partners.

b. The name and nature of the business.
c. The objective and duration of the business.
d. Capital contribution.
e. Sharing of profit and loss of the business.
f. Interest payable on loan from the members.
g. Procedure in the event of the death of one of the members.
h. Remunerations and salaries.
i. Drawing rights.
j. Management of the business.

Co-operative Society

A co-operative society is a voluntary organisation in which different

people with common interest pool their resources together to promote the
economic interest of their members.
Characteristics of a co-operative society

1. It is owned and managed by the members.

2. The objective is to promote the interest of the members.
3. Profit is shared based on patronage.
4. It is a voluntary organisation.
5. It is democratic in nature.

Advantages of a co-operative society

1. It encourages savings.
2. It improves the member’s standard of living.
3. It renders financial assistance to members.
4. It ensures low prices of goods.
5. It helps in marketing members' products.

Disadvantages of a co-operative society

1. Weak and unprofessional management.

2. Political intervention and government control.
3. Opportunity for embezzlement of funds.
4. Financial problems.
5. High level of illiteracy

Types of co-operative societies

1. Retail co-operative society: This is formed by independent retailers

who pool their resources together to enable them to purchase goods in
bulk and sell at lower prices to their members.
2. Wholesale co-operative society: This is formed by wholesalers who
purchase goods in bulk from the manufacturers at a reasonable price
and sell in small quantities to retail co-operatives.
 3. Producer co-operative society: This is formed by producers of
similar products who organise co-operative production and undertake
joint marketing of the products on a wholesale or retail basis.
4. Consumers co-operative society: This is owned and operated by
consumers who pool their resources together to purchase goods and
services in large quantities and distribute primarily to its members.
5. Credit and thrift co-operative society: This is an association of
low-income earners who jointly pool resources or funds together by
contributing on a weekly or monthly basis.
6. Multipurpose co-operative society: This is a society formed by
existing co-operative societies. It undertakes any form of activity that
is profitable to the society.

PUBLIC ENTERPRISES

A public enterprise is a large-scale business organization set up, owned, and

financed by the government of a country with the aim of providing services
to the members of the public.

OR

Public Enterprises are business organizations established, owned, managed

and controlled by the government. They are also referred to as Public
Corporations or Statutory Corporations. Examples of Public Enterprises in
Nigeria are PHCN, NNPC, NRC, NPA etc.

FORMATION OF PUBLIC ENTERPRISES

 Public Corporation
 Quasi Government departments
 State government owned enterprise
 Local Enterprises
 Creation by Act of Legislature or a Decree
  Nationalization of private industries

Nationalization is the bringing of ownership and management of private

industries under the control of the government. Nationalized industries are
therefore industries taken over from private owners by the government.

SOURCES OF CAPITAL TO PUBLIC CORPORATIONS

 Internally generated revenue

 Grant from foreign countries
 Grant from international financial institutions
 Loans and Overdraft

FEATURES OF PUBLIC ENTERPRISES

1. They are owned and financed by the government

2. They render essential social services
3. Profit-making is not the main motive of their establishment.
4. They are usually monopolies
5. They are established by Acts of Parliament or Decrees
6. They are managed by appointed Board of Directors
7. Their employees are public servants
8. Huge amount of capital is involved in their establishment.
9. They are separate legal entities
10. Their services are restricted
11. They enjoy perpetual existence

Reasons for government ownership of Public Enterprises

 Employment opportunities
 For strategic and security reasons
  To provide infrastructural facilities
 To prevent Monopoly
 To promote Economic Development
 To ensure even distribution of income
 To prevent foreign dominance of the economy
 High capital requirement / The large capital requirement which is
needed in some business cannot be provided by private interests
 For price control and consumer protection purposes i.e. to prevent
exploitation of consumers
 To control or curtail private monopoly powers
 For strategic and security reasons
 To generate revenue for the government
 To prevent foreign dominance of the economy
 To provide essential services to the citizens at affordable prices.
 To avoid wasteful duplication of facilities and services inherent in
market competition.
 To provide employment opportunities to the people
 To ensure even distribution of income.
 To ensure a constant supply of goods and services and checkmate the
activities of hoarders of goods
 To control vital economic activities e.g. NNPC, FAAN.
 To promote rapid and even economic development of the whole
country e.g. Rural industrialization
 To encourage research and development activities.
 To provide a model of efficient management in some social and
economic activities e.g. State farms, universities, schools, hospitals
etc.

ADVANTAGES OF PUBLIC CORPORATION

1. There will be availability of large and sufficient capital to work with.

 2. They base their decisions on the full costs and benefits involved.
3. They can be used to influence economic activity.
4. Public corporation would not abuse its market power.
5. Planning and coordination easier.
6. It is important to ensure that basic industries.
7. It serves as a creation of higher standard of living for the people.
8. It also caters for the interest of the workers.
9. There will be continuity; there is perpetual existence.
10. Avoidance of exploitation of consumers.

ASSESSMENT

1. A public corporation objective is to

(a) make profit
(b) exploit consumers
(c) to render essential service to the public
(d) to get more customers
2. The public corporation is managed and controlled by the
(a) individual
(b) the workers
(c) the taxpayers
(d) government
3. The following are examples of public corporation except
(a) Power Holding Company Of Nigeria (P.H.C.N)
(b) Guarantee Trust Bank (GTB)
(c) Nigeria Ports Authority (N.P.A)
4. All the following are advantages of public corporation except
(a) there is continuity
(b) danger of monopoly
(c) availability of large capital
(d) creation of higher standard of living
5. The employees in public corporation are regarded as
(a) public servants
(b) private servants
(c) company workers
(d) none of the above