Meaning And Types Of Economic Organization

Meaning And Types Of Economic Organization

Economic Organization is the act of coordinating the other factors of production – land, labor, and capital. Organization performs a very important function in modern production, which is carried on a large-scale. Organization is performed by the business owner. The business owner may be referred to as the captain of industry. The economic development of several rich nations like the U.K. U.S.A was made possible only by the actions of the business owners.

Sometimes the business owner is also called “organizer” or “undertaker”. Sole proprietorship is the oldest form of business company. It is a “one-man” business. ‘one-man business’ is still common in retail trade. Though the scale of creation has increased after the Industrial Revolution, small-scale business still continues to be an important element in modern financial organization.

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In the ‘one-man’ business, an individual the chance of production. He possesses performs and capital all the functions of a business owner. ‘one-man’ business is carried on generally on a little scale. The ‘one-man’ business has some advantages and disadvantage. The owner of the firm will need a lot of interest in it and he’ll make his business as efficient as is possible because he will get all the profits for himself, as he is his own boss.

He may take quick decisions. You don’t have for him to seek advice from anyone else for changing the insurance policies of his firm. In addition, he can put into the impact his decisions immediately. He can have personal guidance of all ongoing work done in the firm. He will be in close touch along with his employees and customers.

Under such circumstances, you will see little scope for dispute between the labor and management. Because the scale of production is small under sole proprietorship, it is a convenient type of business to focus on local demands. Generally, under large-scale production, standardization of goods is the guideline. Where variety is necessary, ‘one-man’ business is a perfect form of business firm.

Since the sole proprietor will have a little amount of capital, it may be difficult for him to increase his business. Risk is great in the full case of one-man business. In the event is a loss, it has to be borne entirely by one man. The success under sole proprietorship depends upon the ability of one man. But with his death, if he could be not succeeded by similarly efficient men, the business should come to an end. And best men aren’t always succeeded by men of ability. ‘One-man’ business will be unsuitable in the full case of industries where large capital needs to be sunk.

Partnership is a type of business organization where business is carried on by two or more men. Sometimes, the small business may expand to such an extent that it could be beyond the control of one man. For its further development more capital may be necessary. Since one man cannot provide everything, he shall have a partner or two. Thus, sometimes one-man business grows into partnership. But in the full case of some firms, there will be right from the beginning collaboration. In some partnerships, you will see a sleeping partner also. That’s, imagine there are two men in a partnership.

Of both, one member simply provides some capital but will not be a part of the actual working of the business enterprise. Such somebody is known as sleeping partner. The function of a sleeping partner is pretty much similar to that of the shareholder in a Joint-Stock Company. A relationship is based on confidence and shared trust.

It has some advantages and disadvantages. The risk in a partnership is not as great as under single proprietorship. For, in the entire case of a reduction, it will be borne by both the companions. Greater amount of capital will be available than under one-man business. For the borrowing capacity of a partnership firm will be greater that of a one-man business.

Management of the company under the collaboration will be generally effective. Suppose one man looks after production matters, the other man might take care of the general administration of the firm. There is unlimited liability. One of the partners might possess a high degree of efficiency. If the other partner happens to be inefficient or a man of doubtful character, you will see a loss. Both companions have to carry the loss regardless of their integrity or capability.