Business Ownership, Growth and Organisational Structure
Forms of ownership
Candidates must compare sole trader, partnership, private limited company, public limited company, cooperative and public corporation. Compare them on: number of owners, liability (limited or unlimited), legal personality, continuity, capital-raising ability, control and privacy of accounts. In Botswana, the Companies Act governs registration, and cooperatives are common in agriculture and savings. A sole trader keeps all profit but bears unlimited liability; a partnership shares capital and skills but partners may disagree; a company is a separate legal person with limited liability but must publish accounts and file returns.
Growth and structure
Growth can be internal (organic) or external through merger or takeover (integration) - horizontal, vertical (forward or backward) or conglomerate. Larger firms gain economies of scale but risk diseconomies: poor communication, slower decisions, loss of personal touch. Organisational structure may be tall (many levels, narrow span) or flat (few levels, wide span). Understand span of control, chain of command, delegation and centralisation versus decentralisation.
Traps to watch
- Saying a private limited company 'sells shares to the public' - it cannot; only a public limited company can.
- Confusing limited liability with limited capital.
- Assuming bigger is always better; diseconomies of scale are examinable.
- Mixing vertical integration with horizontal integration.
Worked example / rule of thumb
A dairy buys a milk-processing plant: this is backward vertical integration if the dairy was the processor buying a farm, or forward if the farm buys the processor. Rule of thumb: ask 'who is closer to the final consumer?' - moving towards the consumer is forward.