Forms of Business Units 7
The Act outlines the following;
Management
- The public corporations are managed by a board of directors appointed by the president or the relevant minister
- The chairman and the board of directors are responsible for the implementation of the aims and objectives of the corporations.
-The chairman of the board of directors reports to the government (president) through the relevant minister.
- The managing director who is usually the secretary of the board of directors in the chief executive officer of the corporation
Sources of capital
- The initial capital is usually provided by the government as a vote of expenditure for the ministry concerned
- Those corporations jointly owned by the government and the public raise capital through the sale of shares
-financial institutions in form of loans
-Retained profits/profits ploughed back.
-Hire purchase
Advantages of public corporations
Disadvantages of public corporations
• They are managed by political appointees who may not have the necessary managerial know how.
because the costs of providing them may surpass the returns
long.
Dissolution of public corporations
They can only be dissolved by the government due to:
1. Persistent loss making
2. Bankruptcy- where the corporation cannot pay its debts
3. Change in the act of parliament that formed the corporation
4. Privatization
5. Mismanagement, resulting in poor management of the corporation
Trends in Forms of Business Units
(1) Globalizations:
This refers to the sharing of worlds resources among all regions i.e where there are no boundaries in business transactions
Some companies referred to as multinationals, have branches in many parts of the world e.g coca-cola company
Globalization has been made possible and effective through the development and improvement of information and technology organization i.e
internet.
This is referred to as Electronic Commerce (E- Commerce) and E-Banking.
This occurs when two independent business enterprises combine to form one large organization
Levels of combinations
i) Vertical combination; This is when businesses engaged in different but successive levels of production combine e.g. primary(extractive) level
combines with secondary(manufacturing)level or secondary level combining with tertiary level.
Example; A company producing cotton (raw materials) combining with a textile industry.
ii) Horizontal combination; This is where business enterprises of the same level combine e.g. secondary and secondary levels e.t.c
Types of Amalgamation/combination
Amalgamations whether vertical or horizontal can be achieved in these ways;
a) Holding companies A holding company is one that acquires 51 percent or more shares in one or
more other companies.
- The various companies entering into such a combination are brought under a single control.
- These companies are controlled by the holding company and are called Subsidiaries.
-The subsidiary companies are however allowed to retain their original names and status, but the holding company appoints some members to be on the
board of directors of these subsidiaries, so as to control their activities.
- Holding companies are usually financial institutions because they are able to buy controlling shares in subsidiary companies
b) Absorptions (takeovers)
This refers to a business taking over another business by buying all the assets of the other business which then ceases to exist.
Example; Kenya Breweries took over the castle company in Kenya
c) Mergers( Amalgamation):
This is where two or more business organizations combine and form one new business organizations.
-The merging companies cease to exist altogether.
d) Cartels
This is a group of related firms/ companies that agree to work together in order to control output, prices and markets of their products – O. P. E. C
(organization of petroleum exporting countries) is an example.
(3) Privatization: this is the process of transferring / selling state owned corporations to public limited companies or private investors.
This is done by the Government selling their shareholding to members of the public. The main
aim is to:
(4) Check off system - this is a method of remitting money especially to SACCOS where the employer deducts the contribution from the source
and submits it to the SACCO on behalf of the employee who is a member of the SACCO
(5) Burial Benevolent Funds (B. B. F): some SACCOS have started systems/ funds to assist their members financially in burials through creation of BBF.
(6) Front Office Savings Account (FOSA); SACCOS have expanded their services to members by introducing FOSA.
The account enables members to conviniently deposit and withdraws money.
A member may also be provided with an ATM card which enables him/her to withdraw money at various pesa points/ ATM’s.
(7) Franchising: this is where one business grants another the rights to manufacture, distribute or produce its branded products using the name of the business that has granted the rights eg General motors’ has been granted franchise to deal in Toyota, Isuzu and Nissan vehicles.
(8) Trusts: This is where a group of Companies work together to reduce competition. Trusts may also be formed where a company buys more than 50% of shares in a competing company so as to reduce competition.
(9) Performance contracts: Employees in state corporations are expected to sign performance contracts in order to improve their efficiency.
Other private institutions are also adopting the same practice.
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