Introduction To Business
Chapter No: 02 Ownership of Business
1. Organization Of Business
What is an Organization?
An organization is a system or setup where people and resources are arranged to work together to
achieve a goal. When you work alone, you can’t always reach big goals — but working in an
organized way with others helps reach goals better and faster.
In Simple Words:
A business organization is a group of people working together to do a business and achieve goals
like earning money. It divides work between people so everyone works together easily and
efficiently.
Key Point:
People in organizations come from different backgrounds. Their behavior, thoughts, and actions
affect how the organization works.
2. Types Of Business Organizations
When someone starts a business, they have to choose the type of ownership.
There are 3 main types:
1. Sole Proprietorship: One person owns and runs the business.
2. Partnership: Two or more people run the business together.
3. Corporation (or Limited Liability Company): A separate legal company, usually owned by
shareholders.
Note:
The type of ownership affects the business’s growth, profit, risk, and value.
How Business Organizations Are Different from Other Organizations:
Point Business Organization Public/Nonprofit Organization
a) Purpose To earn profit To serve people (like education, health,
police, etc.)
b) Ownership Owned by individuals or Owned by the government or members
shareholders (cooperatives)
c) Funding Gets money from profit, shares, Gets money from taxes, donations, or
loans grants
d) Accountability Managers are answerable to Managers are answerable to
owners/shareholders government or public
Two Main Types Of Organizations:
1. Business Organizations: Main goal is to make money.
2. Not-for-Profit Organizations: Main goal is to help society, not to earn profit.
2.1 Business Organizations
These are businesses that sell products or services to make a profit (earn money).
2.1.1 Sole Proprietorship
A sole proprietorship is a business owned by one person.
Key Points:
One person owns and runs the business.
No legal documents needed to start.
All profits (after tax) go to the owner.
Owner is the boss and makes all decisions.
Common examples: small shops, salons, laundry, restaurants, etc.
Qualities a Sole Proprietor Needs:
Takes full responsibility for success or failure.
Works long and flexible hours.
Leads the team, organizes work, communicates well.
Usually has experience in the same field before starting.
Advantages of Sole Proprietorship:
1. Easy & Cheap to Start
Very few legal steps. May only need a license based on the business type.
2. Secrecy
No need to share plans or financial info with others. Competitors can’t steal ideas easily.
3. All Profits Belong to Owner
Owner keeps all the money earned. Can use it however they want.
4. Full Control & Quick Decisions
Owner can change prices, products, or plans fast without asking anyone.
5. Fewer Government Rules
Less regulation than big companies. Still must follow laws (like hygiene rules for food).
6. Lower Taxes
Profit is counted as the owner’s personal income. No company tax or double tax.
7. Easy to Close
If owner wants to shut down, they can do it without asking anyone else (just pay debts first).
Disadvantages of Sole Proprietorship:
1. Unlimited Liability
If business loses money, the owner has to pay from personal savings, car, or house.
2. Hard to Get Money
Owner must use personal money or borrow from friends, family, or banks. Banks may charge
more interest because it's riskier.
3. Limited Skills
Owner must do many jobs (marketing, accounting, etc.) May need to hire help for certain tasks.
4. No Continuity
If owner gets sick or dies, business may stop. Hard to sell the business or ensure customers stay.
5. Hard to Hire Good Employees
Can’t always offer good salary or promotions like big companies. Talented workers may not stay
long.
6. Tax Can Be High (Sometimes)
If income is high, tax can be high too. But it still avoids double tax (like corporations pay).
2.1.2 Partnerships
What is a Partnership?
A partnership is a business owned by 2 or more people (usually max 20). The owners are called
partners, and together they run the business (called a “firm”).
How It Works:
Partners agree (verbally or in writing) to share profits and losses.
A written agreement is better to avoid fights later. It usually includes:
Business name & purpose
What each partner gives (money, assets, skills)
Roles, duties, and how they’ll divide profits or losses
Rules for adding/removing partners, solving disputes, or closing the business
Types of Partnerships:
1. General Partnership
All partners share control and decisions. All partners have unlimited liability (they’re responsible
for debts).
2. Limited Partnership
At least one general partner. (Full control & full risk) At least one limited partner (only gives
money, has limited risk, no control) Common in risky investments (like oil or real estate).
3. Limited Liability Partnership (LLP)
Similar to a general partnership, but each partner is safe from others’ mistakes or debts.
Advantages of Partnerships
1. Easy to Start
Like sole proprietorships, they’re easy and cheap to set up.
2. Easier to Raise Money
More partners = more money, better credit = easier to get loans.
3. More Skills and Knowledge
Partners share different skills (e.g., one expert in taxes, one in marketing). This teamwork helps
the business grow and solve problems better.
4. Quick Decisions
Partners are directly involved, so they can make fast choices.
5. Fewer Government Rules
No need to publish reports or follow as many rules as big companies.
Disadvantages of Partnerships
1. Unlimited Liability
In a general partnership, if the business fails, any partner might have to pay all debts, even from
personal money or property.
2. Sharing Profits
All profits must be divided among partners. If one partner gives more time and another gives
more money, fair sharing can be tricky.
3. Disagreements
Partners may fight over decisions like: Who to hire? What direction to take? Who does what?
These arguments can hurt the business.
4. Hard to Leave
If one partner wants to leave, it’s hard to decide: What is their share worth? Who will buy it?
Will others agree with the new partner?
If a main partner (with over 50% share) dies or leaves, the business may end unless there's an
agreement in place.
2.1.3 Limited Companies / Corporations
What is a Limited Company?
A limited company (or corporation) is a legal business that is separate from its owners. Owners
are called shareholders. If the company loses money or fails, owners don’t lose personal money
— only the money they invested.
Key Features of a Limited Company:
It's a legal person: can buy property, sign contracts, sue or be sued — just like a real person.
Owners have limited liability = risk is limited to their investment. People become owners by
buying shares (stock).
Types of Companies:
1. Private Limited Company (Pvt Ltd)
Shares are owned by a few people. Shares are not sold to the public.
2. Public Limited Company (PLC or Ltd)
Shares are sold to the public through the stock market. People can buy/sell shares anytime.
3. IPO (Initial Public Offering)
When a private company wants more money, it can become public by selling shares to the
public.
Company Structure (Who runs it?)
1. Shareholders – Own the company
Buy shares
Vote at annual meetings
Elect the board of directors
Can sell their shares anytime
2. Board of Directors – Make big decisions
Set goals and policies
Hire the top managers (executives)
3. Management (Executives) – Run daily operations
CEO, CFO, Vice Presidents, etc.
May also be shareholders or board members
Advantages of Companies
1. Limited Liability
Owners are not personally responsible for company debts
2. Easy to Sell Ownership
Shareholders can sell their shares anytime without affecting the business
3. Unlimited Life
Company continues even if owners die or leave
4. Tax Deductions
Companies can deduct expenses before paying taxes
5. Can Raise Large Funds
Sell shares or get big loans easily. Great for growing big businesses like telecom or car
manufacturing.
6. Economies of Scale
Big companies can save costs by buying/selling in large quantities
Disadvantages of Companies
1. Double Taxation
Company pays tax on profits. Then shareholders pay personal tax on dividends. (Profits they
receive)
2. Costly & Complicated to Start
Needs registration, licenses, and legal help. (Costs a lot)
3. More Government Rules
Must follow many laws. Public companies must file reports and share financial info. Competitors
can see your financial details.
Comparison: Sole Proprietorship vs. Partnership vs. Corporation
✔ Advantages
Feature Sole Proprietorship Partnership Corporation
(Company)
Easy & cheap to start ✅ Yes ✅ Yes ❌ No (expensive &
complex)
Secrecy ✅ High (owner keeps ⚠ Less than sole ❌ Must share reports
plans private) publicly
Full control ✅ Owner makes all ⚠ Shared with ❌ Controlled by
decisions partners board & managers
Keeps all profits ✅ Yes ❌ Shared among ❌ Shared via
partners dividends
Flexibility ✅ Very flexible ✅ Flexible decision- ⚠ Slower due to
making board
Low rules from govt ✅ Few regulations ✅ Also fewer rules ❌ Many regulations
(especially public
ones)
Lower taxes ✅ Personal income ✅ Same ❌ Double taxed
tax only (company +
dividends)
Easy to close ✅ Yes ⚠ A bit harder ❌ Complex to
dissolve
Raise funds easily ❌ Hard ✅ Easier with more ✅ Very easy (sell
partners shares, take loans)
Unlimited life ❌ Ends if owner dies ❌ Ends if major ✅ Continues forever
partner leaves (separate legal entity)
Attract skilled staff ❌ Hard ⚠ Better ✅ Easier (can offer
salary & benefits)
Disadvantages
Feature Sole Proprietorship Partnership Corporation
(Company)
Owner pays all debts ❌ Yes (unlimited ❌ Yes (all partners ✅ No (limited
liability) responsible) liability)
Hard to raise money ❌ Yes ⚠ Easier than sole ✅ Easy (shares, loans)
Limited skills ❌ One person does ✅ Shared expertise ✅ Professional
everything management
No continuity ❌ Ends with owner ❌ Ends if key partner ✅ Keeps running
leaves
Profit sharing ✅ Keeps all ❌ Must share profits ✅ Based on shares
Partner conflicts — ❌ Arguments can ✅ Board handles
occur decisions
Exit is difficult ✅ Easy ❌ Hard to value & ❌ Complex legal
sell share process
Double taxation ✅ No ✅ No ❌ Yes
Govt rules ✅ Few ✅ Few ❌ Many legal rules
and reporting needed
2.2 Not-for-Profit Organizations (NPOs)
These are organizations that don’t aim to earn profit. They work to help society, not to make
money — but they still need money (funds) to keep running.
Types of Not-for-Profit Organizations:
1. Public Sector Organizations
Run by the government
Funded by tax money
Work for the public’s benefit, like: Free or quality education, Health services for
everyone, Clean water access
Goal: Improve people’s lives
2. Non-Government Organizations (NGOs)
Not owned by the government
Funded by: Private donations, Foreign aid, Fundraisers.
Examples: Charities (like Edhi Foundation), Welfare societies, Social service groups
Goal: Help poor people, solve social issues, etc.
3. Clubs and Societies
Formed by people with common interests (e.g., sports, reading, social groups)
Funded by members’ fees (subscriptions)
Not for profit – but they keep financial records to see: Surplus (extra money left), Deficit
(money shortage)
They don’t make a profit — just want to run smoothly for members' enjoyment
4. Cooperatives (Co-ops)
A group of people join together to achieve a common goal
Example: Farmers pooling money to buy seeds in bulk
Everyone: Gives money (capital), Shares risks and benefits
Goal: Help each other — not to make big profits
Profits, if any, are shared fairly
3. Laws Governing Business Organizations
Laws affect how businesses run. Every country has different business laws, but some
international laws (like banking rules) apply everywhere.
Why Business Laws Matter
Business decisions are often based on laws.
For example:
A company may move to a country with lower taxes
Some businesses may shift operations because of strict or easy employment laws
Many businesses must follow environment and safety laws (how they make, design, and
sell products)
3.1 Companies Law (Pakistan)
If someone wants to open a private or public company in Pakistan, they must follow the
Companies Act, 2017
This law is managed by SECP (Securities and Exchange Commission of Pakistan)
It explains: How to form a company, How to run it, How to close (wind up) the
company
Purpose of the Law:
To protect: Owners (shareholders), Lenders (creditors), Public and others involved
To promote good governance (transparent and fair company rules)
What Companies Must Do:
Register the company
Hire staff
Audit financial reports
Hold annual meetings
Maintain proper records
Warning: If companies don’t follow the rules, they can be fined.
So business managers must always consider: Cost of following rules, Risk of not following them
3.2 Partnership Law (Pakistan)
The law for partnerships is the Partnership Act, 1932
It explains: How to register a partnership, How to end it (dissolution), What are the
rights and duties of partners
Why Partnerships Are Easier:
Fewer rules than companies
No need for: Annual reports, Audits, Board meetings
But… partners must clearly understand their rights and duties
Type
🧠 Summary:
Main Law Who Regulates Easy/Hard? Key Points
Company Companies Act, 2017 SECP Harder Many rules, more cost, more protection
Partnership Partnership Act, 1932 — Easier Fewer rules, less cost, but need trust
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