Meaning And Types Of Economic Organization

Meaning And Types Of Economic Organization

Economic Organization is the work of coordinating the other factors of production – land, capital, and labor. Organization performs an essential function in modern production, which is carried on a large-scale. Organization is performed by the entrepreneur. The entrepreneur might be described as the captain of industry. The economic development of many rich nations like the U.K. U.S.A was permitted only by the activities of the entrepreneurs.

Sometimes the entrepreneur is also known as an “organizer” or “undertaker”. Sole proprietorship is the oldest form of business firm. It really is a “one-man” business. ‘one-man business’ continues to be common in retail trade. Though the scale of production has increased after the Industrial Revolution, small-scale business still continues to be an important component in modern financial organization.

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

He can take quick decisions. There is no need for him to consult anyone else for changing the plans of his company. Furthermore, he can put into effect his decisions immediately. He can have personal guidance of all the work done in the firm. He will maintain close touch with his customers and employees.

Under such circumstances, you will see little scope for dispute between the labor and management. Since 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 rule. Where variety is necessary, ‘one-man’ business is an ideal form of business.

Since the sole proprietor will have a small amount of capital, it might be difficult for him to expand his business. Risk is fantastic in the case of one-man business. In case is a loss, it needs to be borne completely by one man. The success under sole proprietorship is dependent upon the ability of 1 man. But with his death, if he is not succeeded by similarly effective men, the business should come to a finish. And best men are not been successful by men of ability always. ‘One-man’ business will be unsuitable in the case of industries where large capital needs to be sunk.

Partnership is a type of business company where business is carried on by several men. Sometimes, the small business may expand to such an extent that it might be beyond the control of one man. Because of its further development more capital may be necessary. Since one man cannot provide everything, he shall take a partner or two. Thus, one-man business increases into partnership sometimes. But in the case of some firms, there will be a partnership from the beginning. In some partnerships, there will be a sleeping partner also. That’s, assume there are two men in a collaboration.

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

It has some advantages and disadvantages. The risk in a partnership is not as great as under single proprietorship. For, in the case of a loss, it’ll be borne by both partners. Greater amount of capital will be accessible 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 firm under relationship will be generally efficient. Suppose one man looks after production matters, the other man may look after the overall administration of the firm. There is certainly unlimited liability. One of the partners may possess a high degree of efficiency. But if the other partner happens to be inefficient or a man of doubtful character, there will be a loss. Both the companions have to bear the deficits irrespective of their capability or integrity.