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GTU MOST IMP QUESTIONS FOR E&S

Chapter 3

1. Types of Ownership

Ownership defines how a business is legally structured, impacting its liability, tax obligations, management, and decision-making.

Sole Proprietorship

Owned and operated by one individual.
Easy to set up with minimal regulatory requirements.
Owner bears unlimited liability, meaning personal assets can be used to settle business debts.
Full control over business decisions but may face difficulty raising funds.
Example: A freelance designer or a small local shop.

Partnership

Involves two or more individuals sharing ownership.
General Partnership: All partners share equal responsibility and liability.
Limited Partnership: Includes general partners (manage the business) and limited partners (investors who are only liable for their contributions).
Profit and losses are typically shared as per the partnership agreement.
Easy to establish, but conflicts among partners can arise.
Example: A law firm or family-run business.

Corporation

A separate legal entity, distinct from its owners (shareholders).
Offers limited liability, protecting personal assets of owners.
Can raise significant capital through stock sales.
Subject to double taxation: corporate income and shareholder dividends.
Example: Apple, Tesla.

Limited Liability Company (LLC)

Combines the simplicity of a partnership with the limited liability of a corporation.
Offers flexibility in management and profit-sharing.
Avoids double taxation as income is passed through to owners.
Example: A small IT consultancy.

Cooperative

Owned and operated by a group of people for mutual benefit.
Members share in decision-making and profits.
Often seen in agriculture, retail, or housing sectors.
Example: Credit unions or farmer cooperatives.

2. Leadership Models

Leadership models outline approaches leaders use to influence and guide their teams. Each model suits different organizational needs.

Autocratic Leadership

Leader makes decisions independently without team input.
Works well in crisis situations requiring quick decisions.
Can stifle creativity and innovation over time.
Example: Military or construction site leaders.

Democratic Leadership

Encourages collaboration and values team input.
Boosts morale and fosters innovation but may slow decision-making.
Example: Startups emphasizing creativity and inclusivity.

Laissez-Faire Leadership

Minimal interference from the leader.
Suitable for highly skilled and self-motivated teams.
Risks poor coordination if team members lack direction.
Example: Research teams or software development firms.

Transformational Leadership

Focuses on inspiring and motivating employees to achieve extraordinary goals.
Leaders are visionaries who encourage innovation and change.
Example: Steve Jobs at Apple.

Transactional Leadership

Based on clear structures, rewards, and penalties tied to performance.
Effective in stable environments with routine tasks.
Example: Call centers or manufacturing plants.

Servant Leadership

Leader prioritizes the needs of employees and fosters a culture of trust and empathy.
Encourages personal growth and team well-being.
Example: Non-profit organizations or educational institutions.

3. Types of Organizations

Organizations structure their operations based on their goals, size, and nature of work.

Functional Organization

Divides departments by function: HR, marketing, finance, etc.
Promotes specialization and efficiency but can lead to siloed communication.
Example: A traditional corporate office.

Matrix Organization

Combines functional and project-based structures.
Employees report to both functional managers and project managers.
Encourages collaboration but may create confusion in reporting.
Example: Consulting firms managing multiple client projects.

Flat Organization

Few levels of hierarchy, promoting open communication and faster decision-making.
Often seen in small or startup companies.
Challenges include lack of clarity in roles and responsibilities as the organization grows.

Hierarchical Organization

Traditional structure with a clear chain of command.
Works well for large organizations with defined roles.
May slow decision-making due to bureaucratic layers.
Example: Government institutions.

Non-Profit Organization

Operates to serve a social or charitable purpose rather than to make a profit.
Funded by donations, grants, or sponsorships.
Example: UNICEF, WWF.

Virtual Organization

Relies heavily on digital technology to operate with teams across multiple locations.
Reduces costs related to physical offices.
Example: Remote-first companies like Automattic (WordPress).

4. Financial Management

Financial management ensures efficient use of financial resources to achieve business goals. It involves strategic planning and careful execution.

Budgeting

The process of allocating resources to various business activities.
Helps track spending and avoid financial strain.
Example: Allocating funds for marketing, operations, and salaries.

Cash Flow Management

Ensures enough liquidity to meet day-to-day expenses like salaries and utilities.
Delayed receivables or high inventory costs can strain cash flow.
Tools like cash flow forecasts help manage inflows and outflows.

Investment Decisions

Involves assessing potential projects or purchases to ensure profitability.
Includes long-term investments in equipment or expansion.
Uses tools like Net Present Value (NPV) or Internal Rate of Return (IRR).

Cost Control

Focuses on identifying and reducing unnecessary expenses.
Helps improve profitability without compromising quality.
Example: Negotiating supplier contracts or optimizing processes.

Financial Reporting

Prepares key reports like balance sheets, income statements, and cash flow statements.
Provides insights into profitability, financial health, and operational efficiency.

Risk Management

Identifies financial risks, such as currency fluctuations or credit risks.
Uses insurance, diversification, or hedging to mitigate risks.
Example: Buying insurance to protect against potential lawsuits.

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DIPLOMA CH 3 MOST IMP QUESTION