ENT 211 ENTREPRENEURSHIP AND INNOVATION

The concepts of entrepreneurship, intrapreneurship, opportunity seeking, new

value creation, and risk-taking are central to understanding how businesses and
innovations are initiated and developed.

Here's a breakdown of each:

1. Entrepreneurship

Definition: Entrepreneurship refers to identifying, developing, and bringing a business

opportunity to life. It involves creating and managing new ventures or startups that offer
innovative products or services. Higgin defines entrepreneurship as the function of seeking
investment, production, and opportunity, organizing an enterprise to undertake new production
processes, raising capital, hiring labour, arranging resources, and introducing a new organization.

Entrepreneurs
An entrepreneur is a person who organizes, manages, and assumes the risk of a
business or enterprise. He is “a person who starts a business and is willing to risk a
loss to make money. Entrepreneurs drive business, create new jobs, and are very
important to the economy.

Theories:

i. Economic Theory of Entrepreneurship: This theory posits that

entrepreneurship is driven by market conditions and economic factors,
where entrepreneurs exploit economic opportunities to meet unfulfilled
demands.
ii. Psychological Theories: These focus on the personal traits of
entrepreneurs, such as creativity, risk tolerance, and the need for
achievement.
iii. Sociocultural Theory: It highlights the influence of societal norms,
culture, and values on entrepreneurship. Entrepreneurs may emerge due
to their social environment.
Innovation Theory (Schumpeterian): Joseph
Schumpeter's theory states that entrepreneurs are
agents of change and innovation, creating "new
combinations" that lead to economic development
(new products, processes, markets, and
organizations). Creative destruction refers to the
phenomenon of economic change by creating new
ways of doing things that endogenously destroy and
replace the old ways. It is assumed that new products
and new processes are the main source of the
capitalist economy's development. OR
Creative destruction is a concept introduced by
economist Joseph Schumpeter that refers to the
process of innovation and technological change that
leads to the destruction of existing economic
structures, such as industries, firms, and jobs.
Schumpeter’s theory of creative destruction links
closely with his view of the importance of economic
dynamism. Most economic analyses are performed
in the static sense, where the economist looks at the
world in its current state to estimate the effect of,
say, introducing a new policy. While this snapshot
analysis can frequently be useful, it also risks
obscuring an important
2. Intrapreneurship
Definition: Intrapreneurship is entrepreneurship
within an existing organization. Intrapreneurs are
employees who use entrepreneurial skills to innovate
and develop new products, processes, or services
that enhance the organization’s An intrapreneur is “a
corporate executive who develops new enterprises
within the corporation”.
Key Concepts:
i. Autonomy within the Organization:
Intrapreneurs are granted a certain degree of
freedom to experiment and take risks within
the confines of an established company.
ii. Innovation without Ownership: Unlike
entrepreneurs who start their own ventures,
intrapreneurs work within an existing
organization but drive change and
 innovation as if they were running their own
business.
iii. Theory of Organizational Innovation: Suggests
that organizations can cultivate intrapreneurial
behavior by creating an environment that
encourages creativity, flexibility, and risk-taking.

3. Opportunity Seeking

Definition: This is the process by which entrepreneurs

identify market gaps or unmet needs that can be turned into
profitable ventures. It involves scanning the environment,
gathering information, and analyzing trends.

Theories:

i. Discovery Theory: Suggests that opportunities are

objective and exist independently of entrepreneurs,
waiting to be discovered.
ii. Creation Theory: Proposes that opportunities do
not exist independently but are created through the
actions, decisions, and creativity of the
entrepreneur.

Key Stages in Opportunity Recognition:

i. Idea Generation: Brainstorming new concepts and

innovations.
 ii. Opportunity Identification: Sifting through ideas to
find feasible and valuable ones.
a. Opportunity Development: Refining the idea into a
clear opportunity with market potential.

4. New Value Creation

Definition: Entrepreneurs and intrapreneurs seek to create

new value by offering products, services, or solutions that
are novel and beneficial to society or the market.
Key Concepts:

i. Innovation as Value Creation: Schumpeter emphasized that the core

of entrepreneurship lies in creating something new (a product,
method, or market) that delivers value beyond existing offerings.
ii. Customer-Centric Value: New value creation often centers on
addressing unmet customer needs or improving customer experiences
through innovation.
iii. Value Proposition: This refers to the unique benefit or solution
offered by a new product or service that differentiates it from
competitors.

5. Risk-Taking

Definition: Entrepreneurship and intrapreneurship both involve taking calculated

risks in pursuit of new opportunities and value creation. Risk-taking refers to the
willingness to engage in activities with uncertain outcomes, especially in terms of
investment, innovation, and market entry.

Theories:

i. Uncertainty and Risk-Bearing Theory (Knight): Frank Knight

differentiated between risk (measurable uncertainty) and uncertainty
 (non-measurable risk), with entrepreneurs bearing the latter by
making decisions in the face of uncertainty.
ii. Risk-Reward Tradeoff: Entrepreneurs balance the potential rewards
(profits, growth) with the risks (failure, financial loss). The greater the
risk, the higher the potential reward, but also the higher the potential
loss.
iii. Risk Mitigation: Entrepreneurs often engage in strategies to
minimize or manage risks, such as market research, pilot testing, or
securing financial backing.

Integration of Concepts:

i. Entrepreneurs recognize opportunities and take on risk to bring innovative

ideas to life, aiming for new value creation.
ii. Intrapreneurs drive innovation within organizations, balancing
opportunity-seeking and risk-taking in a structured corporate environment.

These concepts combine to form the backbone of innovative and business-oriented

activity, either through individual efforts (entrepreneurship) or within established
organizations (intrapreneurship).

FUNCTIONS OF AN ENTREPRENEUR

To list the functions of entrepreneurs, give the impression that there are clearly defined
activities which the entrepreneur is expected to perform. On the basis of this understanding, the
entrepreneur is expected to perform the following functions:

1. Perception and identification of business opportunities: This is the first function of the
entrepreneur. It has to do with the recognition and definition of an unsatisfied need of
individuals, firms or households which can be satisfied with a product or service at the right
price that will guarantee satisfactory profit to the entrepreneur. In other words, business
opportunity occurs whenever there is a vacuum in the market place which is not being
satisfied by existing organizations or is being inadequately satisfied.

2. Selection of the legal form, location and site of the business: The form of business
ownership that the entrepreneur may decide to go into depends entirely on the amount of
capital available to the individual. To this end, the business enterprise may be operated
either as sole proprietorship, partnership or a limited liability. The selection of the initial
legal form of the enterprise as well as the location and site of the enterprise is the second
function performed by the entrepreneur.

3. Identification, selection and acquisition of key resources: The identification, selection and
acquisition of key resources is yet another function unique to entrepreneurs. For any start up
firm to survive and grow depends heavily on the availability of competent manpower who
will be able to translate the entrepreneur‘s ideas into concrete forms. Thus, key personnel
must be sourced and encouraged to contribute their talents and energy during and after the
turbulent period of formation and take-off. In addition, the technology that is suitable for the
needs of the firm must be identified, evaluated and acquired. Sourcing of funds is one of the
major constraints in starting businesses by entrepreneurs, since the organization has no track
record to boost of with investors and bankers, a lot depends on the talents and trust of the
entrepreneur to develop an attractive project idea, form a credible and resourceful team in
order to encourage others to believe in the business.

4. Innovation: This is usually regarded as the height of entrepreneurship. Innovation may be

defined as the translation of a new idea into a new company. In other words, innovation
simply refers to striving to satisfy your customers better than what competitors are
doing/offering. This may take the form of a new product in an old market; old product in a
new market; or entirely a new product in a new market. It is important to emphasize that
sustaining the patronage of customers depend largely on the ability of the entrepreneur to
respond to their needs with new or modified products, new and better techniques of
production which reduce cost of production, better methods of distribution, pricing and
promotion.
5. Risk bearing: This has been traditionally associated with the entrepreneur. There are various
types of risks in business. The risk of fire, accidents, bad debts, theft etc can be minimized
by taking preventive action and by insuring against them. Other risks arise because business
decisions are future oriented. Risk of business failure may arise from adverse fluctuation in
demand, unfavourable government policies, strong competitive advantage of other firms,
obsolete technology and hence high cost of operation etc. These risks cannot usually be
insured against and must be borne by the entrepreneur. One way of managing risk is for the
entrepreneur to be engage actively in monitoring the environment in order to be able to
respond and adapt to the dynamic nature of the environment from time to time. By so doing,
the entrepreneur proactively assesses the conditions facing him/her, and on the basis of the
evaluation of his/her strengths and weaknesses, he or she makes a choice of a strategy
considered suitable. Having made a choice, the entrepreneur accepts personal responsibility
for the outcome of his/her decision.
6. Management of the ongoing enterprises: The job of an entrepreneur is not hit and run or one
off activity. But rather, it is on a continuous basis (on going activity). To be able to sustain
the ongoing nature of the business, the entrepreneur must put in place these activities
namely: establishment of goals and targets for the enterprise; determination of the tasks to
be undertaken to achieve the goals/targets; efficient and effective allocation of the necessary
resources and controlling of the activities involved. This simply implies that the
entrepreneur is a planner, organizer, communicator, coordinator, leader, motivation and
controller, and most of all, a facilitator. Management of the on-going enterprise also
involves the process whereby the entrepreneur monitors and evaluates changes that are
continuously taking place in the political, economic, socio-cultural, technological, legal and
ecological environment so as to respond appropriately to ensure the survival of the business.

CHARACTERISTICS OF AN ENTREPRENEURS

The characteristics or qualities or features or nature of entrepreneur as an individual is very

essential to contribute to the success of an enterprise.

1. Drive and Energy: Entrepreneurs are more energetic than the average person. They possess
the capacity to work for long hours and in spurts of several days with less than a normal
amount of sleep. Long hours and hard work are the rule rather than the exception, and the
pace can be grueling.

2. Self-confidence: Entrepreneurs typically have an abundance of confidence in their abilities

to achieve the goals they set and confident that they chose the correct career path. They also
believe that events in their lives are mainly self-determined, that they have a major influence
on their personal destinies, and have little belief based in fate.

3. Long term involvement: Entrepreneurship is hard work, and launching a company

successfully requires total commitment from an entrepreneur. They make a commitment to a
long term project and they work towards goals that may be quite distant in the future.
Business founders often immerse themselves completely in their companies. Entrepreneurs
who create high potential ventures are driven to build a business, rather than simply get in
and out in a hurry with someone else‘s money.

4. Money as a measure: One of the most common misconceptions about entrepreneurs is that
they are driven wholly by the desire to make money. To the contrary, achievement seems to
be entrepreneur primary motivating force: money is simply a way of ―keeping score‖ of
accomplishment – a symbol of achievement. What drives entrepreneur goes much deeper
than just the desire for wealth,

5. Persistent problem solving: Entrepreneurs possess an intense level of determination and

desire to overcome hurdles, solve a problem and complete the job in the course of
successfully building new enterprises. They are not intimidated by difficult situations.
6. Goal setting: Entrepreneurs have the ability and commitment to set goals that are both
measurable and attainable for themselves. These goals tend to be high and challenging, but
they are realistic and attainable. Entrepreneurs are doers, they are goal and action oriented
individuals. Entrepreneurs are motivated by a high need for achievement.
7. Preference for moderate risk: Entrepreneurs are not wild risk takers but instead take
calculated and moderate risk.

8. Dealing with failure: Entrepreneurs do not fear failure. Anybody who is afraid of falling
will cancel whatever achievement motivation he or she possesses. From the point of view of
entrepreneur, failing is an opportunity to learn from.

9. Desire for immediate feedback: Entrepreneurs like the challenge of doing a business and
they want to know how far they are doing in terms of performance. The use of feedback
enables entrepreneurs to assess/take stock of their performance with the aim of improving on
it.
10. Taking initiative and seeking personal responsibility: Entrepreneurs feel a deep sense of
personal responsibility for the outcome of businesses they start. They willingly put
themselves in situations where they personally take responsibility for the success or failure
of the business. They prefer to use available resources to achieve self-determined goals and
also want to be in charge of their resources.

11. Use of resources: Entrepreneurs have been known to use resources efficiently and
effectively in order to achieve organizational goals.

12. Competing against self-imposed and objective standards: High performing entrepreneurs
possess this internalized kind of competitive spirit in which he or she continuously engages
in competition with himself/herself to beat his or her last best performance.
13. Internal locus of control belief: The success or failure of a new business enterprise from the
point of view of an entrepreneur does not depend on luck chance, or other external,
personally uncontrollable factors. Rather, the entrepreneur believes that one‘s personal
accomplishments as well as setbacks lie within one‘s control and influence.
14. Tolerance of ambiguity and uncertainty: Entrepreneurs tend to have a high tolerance for
ambiguous ever-changing situations, the environment in which they most often operate. This
ability to handle uncertainty is critical because these business builders constantly make
decisions using new, sometimes conflicting information gleaned from a variety of unfamiliar
sources

THE CONCEPT OF INNOVATION

Innovation refers to the process of translating an idea or invention into a good or service that
creates value or satisfies a specific need. In essence, it involves the practical implementation of
ideas that result in the introduction of new goods or services, improvements in offering products,
or processes that enhance operational efficiency. It is the driving force behind change in
industries and economies and plays a critical role in competitive advantage.

Key elements of innovation include:

 Creativity: The ability to generate novel and useful ideas.

 Implementation: Turning ideas into reality by applying them in practical contexts.
 Value creation: Providing solutions that meet customer needs or solve problems,
ultimately leading to commercial or social success.

Innovation can occur in various fields such as technology, business, science, and even social
structures. It is the cornerstone of progress and economic development, often pushing industries
and societies toward higher levels of achievement.

2. Dimensions of Innovation

Innovation is multi-dimensional and can take several forms depending on its scope and impact.
The major dimensions of innovation include:

a. Product Innovation

This refers to the development of new products or the improvement of existing ones. It involves
creating new goods or modifying the design, performance, or functionality of current products to
meet consumer needs better. For example, the development of smartphones was a significant
product innovation in communication technology.

b. Process Innovation
Process innovation focuses on enhancing the efficiency of production or delivery methods. It
involves improving operational processes, supply chain management, and manufacturing
techniques to reduce costs or increase production speed. Automation in manufacturing or
adopting lean production strategies are examples of process innovation.

c. Organizational Innovation

Organizational innovation refers to changes in business structures, practices, or workplace

culture to improve efficiency and adaptability. This could include introducing new business
models, management systems, or adopting new workflows that foster better collaboration and
decision-making.

d. Marketing Innovation

Marketing innovation involves novel approaches to promoting or selling products. This could
include new advertising techniques, pricing strategies, or ways of interacting with customers that
improve market reach and brand engagement.

e. Service Innovation

Service innovation refers to creating new or improved services. It focuses on enhancing customer
experience or offering novel ways of delivering value. For example, the emergence of online
customer service chatbots is a significant innovation in customer support.

f. Social Innovation

Social innovation addresses societal needs in ways that improve quality of life, create
opportunities, or solve social challenges. It often focuses on sustainability, health, education, and
community development.

3. Change and Innovation

Change is often the result of innovation, and the two concepts are closely intertwined.
Organizations and industries need to innovate to adapt to changing environments, consumer
preferences, and technological advancements.

 Innovation drives change by introducing new methods, products, or systems that

improve efficiency, productivity, and customer satisfaction.
 Change facilitates innovation by creating a demand for new solutions to emerging
challenges, whether technological, environmental, or societal.
Managing innovation involves handling change effectively. Successful organizations must be
agile enough to respond to technological advancements, evolving markets, and competitive
pressures by embracing innovation.

a. Types of Change Related to Innovation

 Incremental Change: Small, continuous improvements to products, services, or

processes. It often builds on existing systems and structures. For instance, regular
software updates that fix bugs and improve functionality represent incremental change.
 Radical Change: This involves significant, groundbreaking innovation that alters
industries or markets. Radical change is often disruptive, such as the invention of the
internet or electric vehicles.

b) Barriers to Change and Innovation

Some challenges that hinder innovation and change include:

 Resistance from employees or consumers.

 Lack of resources (financial, technological, or human capital).
 Inadequate leadership and vision.
 Bureaucratic inertia or rigid organizational structures.

4. Knowledge and Innovation

Knowledge is a key driver of innovation. The ability to gather, analyze, and apply knowledge
effectively is essential for generating innovative ideas and implementing them successfully.

a) The Role of Knowledge in Innovation

Knowledge creation: This involves developing new insights, ideas, and solutions through
research, experimentation, and creativity. Scientific research, for example, often leads to
technological innovations.

Knowledge sharing: Organizations that encourage knowledge sharing among employees tend
to be more innovative. Cross-functional teams, open communication, and collaboration
between departments can foster a culture of innovation.

Knowledge management: Effective knowledge management systems are crucial for capturing
and organizing knowledge. This enables organizations to build on previous experiences and
insights to drive continuous innovation.
Tacit vs. Explicit Knowledge

Explicit knowledge: Knowledge that can be easily documented and shared, such as instructions,
patents, or blueprints.

Tacit knowledge: This refers to the personal, context-specific knowledge that is difficult to
formalize and share, often based on individual experience and insights. Tacit knowledge is
crucial for innovation as it drives creativity and problem-solving.

Innovation Through Knowledge Networks

 Internal knowledge networks: These are built within organizations to enable employees
to share knowledge and collaborate on innovative projects. For example, R&D
departments are often focal points for innovation through internal knowledge
exchange.
 External knowledge networks: Collaborations with universities, research institutions,
and other organizations allow for the cross-pollination of ideas and access to external
expertise.

5. Summary and Key Takeaways

 Innovation is about turning creative ideas into value-creating products or processes.

 It has multiple dimensions, including product, process, organizational, marketing, and
social innovations.
 Change and innovation are closely connected; innovation drives change, and change
creates the conditions for innovation.
 Knowledge is the foundation of innovation, and organizations must effectively manage
and share knowledge to foster an innovative culture.

These concepts show that innovation is not just about new inventions but also about improving
processes, creating better products, and driving organizational change through the application of
knowledge.
 ENTREPRENEURIAL RISKS AND HAZARDS

Risk taking is one of the main functions of an entrepreneur. Risk taking is assuming
responsibility by the entrepreneur for any changes, unforeseen contingencies and loses that may
occur in a planned enterprise. Rigel and Miler (1966) saw risk as “the probability of an
unfortunate occurrence”. Williams and Heins (1964) defines risk as objective doubt a person
would have concerning the future outcome of event if he knew all the possible outcomes and
their probability or choice of occurrences. In any business the higher the risks the greater the
rewards. An entrepreneur takes a calculated amount of risk depending on his ability, the
perception of an entrepreneur towards the new enterprise, and the factors required for success of
the same. It is a game where an entrepreneur acts as a captain of the team to push forward his
side of the game to win. An entrepreneur introduces new ideas and handles all the uncertainties
to ensure opportunity. The management of risk is a big challenge of business today. Risk
analysis helps the entrepreneur to comprehend the market and the environment in which they
operate. The business risks of an entrepreneur and major nature are:
a. Financing of the project:
The financial institution has to assess the bankability of the new proposal after necessary
checks. Any delays in the project schedules may bring in uncertainties in the viability of
the project and thus, the financial plans may fail:
- The rising cost of capital
- Changing norms of bank credit
- Shortage of funds
- Not able to meet the financing deadlines are some of the uncertain in financing.
b. Marketing: There is considerable risk due to the possible changes in the taste or
consumption pattern of the consumers.
- Sudden price changes
- Competitors monopolizing and changing the market.
- Changes in distribution channels
- Government policies favouring importation are some of the areas of risk in marketing.
c. Changes on Technology and Production: The techniques of production and new
products developments may take away the existing consumers of the item.
 - Arrival of substitute items in the market
- New equipment for manufacture of the item faster and cheaper.
- Poorer industrial management
- Inefficient performance against targets
- Shortage of raw materials and other output are few areas of concern.
d. Cultural Barriers
All human societies have complex ways of life that differs greatly from one to the other.
These complex ways have come to be recognized as culture.
In certain environment especially in a developed society the word profit is seen as “dirty
word”. In such environment entrepreneur is bound not to succeed. In Nigeria much
emphasizes is placed on family relationship. Entrepreneurs are obliged to employee
relation if even if they are not qualified for the job less they will be adjudged wicked by
family members and this will bring problems to the family.
e. Family Risk
Entrepreneurs are known to devote much time to their enterprise at the expense of their
family which leads to disorganized families. They are accused of being married to the
organization rather than to their families. Under these circumstances, their wives and
children may not get the required attention and this can affect their upbringings of risk is
a big challenge of business today.

CONTRIBUTIONS OF ENTREPRENEURIAL FIRMS TO NATIONAL ECONOMIC

DEVELOPMENT (RATIONALE AND RELEVANCE OF ENTREPRENEURSHIP)

(i) Job creation: Entrepreneurship helps in the employment of not only the family members of
the entrepreneurs and relations but also members of the society at large. When large firms are
taking steps to downsize, new ventures are eager to employ quality manpower. This increases
purchasing ability and increases in demand for goods and services. Entrepreneurs generate
employment both directly and indirectly. Directly, self-employment as an entrepreneur offers the
best way to an independent and honorable life. Indirectly, by setting up large and small-scale
business units they offer jobs to millions. Thus, entrepreneurship helps to reduce the
unemployment problem in the country. This results in economic growth and national
development.

(ii) New Technology: Entrepreneurial firms are fast to come to market with radical new
technologies. They are also likely to try out new business models. Ultimately this will lead to a
better standard of living for the whole society and serve as a source of wealth creation when new
companies purchase the new technologies from the entrepreneurs.

(iii) Income generation for local and central government:

Entrepreneurs generate income for the government at all levels through their activities.

Entrepreneurs upon making profits pay various forms of taxes to the government. Entrepreneurs
register their business names with government institutions like the Corporate Affairs
Commission by paying prescribed fees that go to the coffers of the government. Operational
entrepreneurs pay such taxes as billboards, sales tax, personal income tax, company tax, etc. By
this, it generates revenue to the government which it uses to provide amenities to the citizens.

(iv) Serving small markets: Large firms with their crippling overheads, do not find it profitable
to serve small populations. This is where small entrepreneurial firms play an invaluable role by
providing specialized products to needy customers.

An entrepreneur initiates change which has a chain reaction. The setting up of an enterprise has
several backward and forward linkages. For example- the establishment of a steel plant generates
several ancillary units and expands the demand for iron ore, coal, etc.

These are backward linkages. By increasing the supply of steel, the plant facilitates the growth of
machine building, tube making, utensil manufacturing and such other units.

(v) Accelerate rural and urban development: When entrepreneurs open new companies in
rural communities, they construct new access roads, provide electricity, water and other
infrastructures by way of social responsibility. The rural community benefiting from these
facilities, their economy will be improved and their standard of living enhanced.

vi. Improvement in Per Capita Income:

Entrepreneurs locate and exploit opportunities. They convert the latent and idle resources like
land, labour and capital into national income and wealth in the form of goods and services. They
help to increase net national product and per capita income in the country, which are important
yardsticks for measuring economic growth.

vii. Capital Formation:

Entrepreneurs mobilize the idle savings of the public through the issues of industrial securities.
Investment of public savings in industry results in productive utilization of national resources.
Rate of capital formation increases which is essential for rapid economic growth. Thus, an
entrepreneur is the creator of wealth.

viii.. Improvement in Living Standards:

Entrepreneurs set up industries that remove the scarcity of essential commodities and introduce
new products. Production of goods on a mass scale and manufacture of handicrafts, etc., in the
small scale sector, help to improve the standards of life of a common man. These offer goods at
lower costs and increase variety in consumption.

ix. . Economic Independence:

Entrepreneurship is essential for national self-reliance. Industrialists help to manufacture

indigenous substitutes of hitherto imported products thereby reducing dependence on foreign
countries. Businessmen also export goods and services on a large scale and thereby earn the
scarce foreign exchange for the country.

Such import substitution and export promotion help to ensure the economic independence of the
country without which political independence has little meaning.

FORMS OF BUSINESS OWNERSHIP

CORPORATION
A corporation is a separate legal and tax entity created by individual (shareholders) who
offer money, property or both for the corporation’s capital stock. The corporation remains
separate from those who manage and control the operation of the business. An incorporated
company refers to a company that is registered under the companies Act of 1968 as amended by
section 18 of the Companies and Allied Matters Decree (CAMA) of 1990.
A company may either be a private limited company or may be formed as a public
limited company. The members of the company appoint directors who are responsible for the
management of the company. The directors are collectively known as the Board of Directors. A
private limited coy can be formed with a minimum of two members and a public company may
be formed with a minimum of seven members. A private limited company can have a maximum
of 50 members excluding employee – members; whereas there is no maximum limit on the
number of members of a public company.
The memorandum of association and the articles of association have to be filed with the
registrar of companies in order to incorporate a company. The memorandum of association is
the charter of the company and specifies the name of the company, the business and activities it
can carry, its address, the capital of the company, and details of the persons who have formed
the company specify the rules and regulations of the company, the rights, duties, and liabilities
of the members and directors.
 One may start with a private limited company and later on, when the number of members
increases up to 50, the company may be converted into a public company may be suitable
amendments in the memorandum and articles of association of the company.
Limited Liability Companies
The incorporation of companies differs from one country to the other. Each country has a
body of laws that guide the registration and operations of companies. In Nigeria, the
Companies and Allied Matter Act (CAMA) of 1990 is the major law that guides formation
and registration of companies in Nigeria.
Formation of Company and Capacity of Individual
According to Section 18 of CAMA 1990, two or more persons may form and incorporate
a
company by complying within requirements of the act. It also specifies the category of
people that can come together to form a company. Section 20 states that anyone in these
categories is not qualified:

 he is less than he is less than eighteen years of age;

 he is of unsound mind and has been so found by a court in Nigeria or elsewhere;
 he is an un-discharged bankrupt;
 he is disqualified under Section 254 – which says a person is convicted by a High
Court of any offence in connection with the promotion formation or management of
a company, etc.
Types of Companies: three types of companies can be identified
 Limited by shares
 Limited by guarantee
 An unlimited company
A company is said to be limited by shares, if the liability of its members limited by the
memorandum to the amount, if any unpaid on the shares respectively held by them.
A company is said to be limited by guarantee if the memorandum to such amount as the
members may respectively thereby undertake to contribute to the assets of the company in
the event of its being wound up.
A company is said to be unlimited when the members do not have any limit on the liability
of its members.
Private liability Companies
The private liability company can be formed by minimum of two persons and maximum of
fifty persons excluding employees of the company both past and present (according to
Section 22 Subsection 3). The total number of members of a private company shall not
exceed fifty, not includipersons who are bonafide in the employment of the company or
were while in that employment and have continued after the determination of that
employment to be, members of the company. The articles of the private company must
restrict the transfer of its shares, i.e. the share of the company is not transferable through
public offer for subscription. The law also requires the name of private company to end
with the word “limited”.
The public liability company is a company where the shareholders are members of the
public. The shares are generally freely transferable. Public companies are large trading
concerns with minimum membership of two but no maximum. The name of a public
company is expected to end with Public Limited Company (PLC).
o Explain limited liability companies?
 Limited liability companies are companies incorporated or registered in Nigeria that
is regarded as an artificial person, such company can sue and be sued. They can take
the form of private or public companies.
4.3.3 Legal Requirement for Registration of Companies
The Companies and Allied Matter Acts specified the documents of incorporation, in
section35 of the acts to include:
 Memorandum of Association;
 Articles of Association;
 Notice of the address of the registered office and head office;
 Statement of the lists and particulars of the first directors of the company;
 Statutory declaration of compliance with the provisions of the acts
 Any other document that may be required by the Corporate Affairs Commission(CAC), e.g.
tax certificate of the directors, [Link] the promoters have met the requirements of the CAC, a
certificate of incorporation or
certificate of registrationwould be issued and immediately the company becomes an
artificial person or legal entity.
Memorandum and Articles of Association: These two documents constitute the
basicconstitution of a company. They are in fact the main incorporation documents. The
provision of the Articles of Association is subsidiary to that of the Memorandum ofAssociation.
In other words,
 Memorandum of association Association is superior to the Articles of Association.
Wherever there is a conflict between the provisions of the two, that of
Memorandum of Association takes pre-eminence prevails.
Contents of Memorandum of Association: Section 27 of CAMA 1990 specified the
contentof the Memorandum of Association. The content include among others:
 Name of the company: For a private company to end with (Ltd); public company toend with
(PLC), i.e. both are limited by shares. If limited by guarantee to end with
limited by guarantee or (Ltd/GTE). No two different companies must have an
identical name;
 The address of the registered office of the company must be located in Nigeria;
 The object of the company – the type of business and contract the company can lawfully enter
into;
 The restriction, if any, on the powers of the company;
 Share capital clause – minimum share capital required for private company is N10,000, while
that of public company is N500,000;
 Liability closure – the statement whether the liability of its members are limited orunlimited or
limited by share or guarantee;
 Subscription clause – the subscribers of the memorandum are required to subscribe
nothing less than 25% of the company’s share capital. Each subscriber must write his full
names, signature, profession or status as well as address on the column
provided.
Content of the Articles of Association: The Articles of Association prescribe the rules and
regulations for the internal management of the affairs of the company. The Articles of
Association regulates the rights, duties, and obligations of the members among themselves
and also the rights, duties and obligations of the members to the company and vice-versa.
Other items contained in the document include:
 Membership;
 Meetings, notices of meetings, conduct of meeting;
 Directors, their qualifications, disqualification powers, duties, etc;
 The company borrowing powers;
 Company Secretary;
  Custody of the company’s common seal.
Advantages of Limited Liability Companies
1. Huge Capital Outlay: There is a pooling of capital from many investors and it is
therefore to get the business up and running. This is so because they can offer their shares
to members of public through the stock exchange.
2. Limited Liability of its Member: Shareholders who are members are not personally
liable for the debts of the corporation. If the corporation fails, shareholders may lose their
investments in the corporation, but are not personally responsible for the corporation’s
debts. His or her personal property is not put at risk.
3. Legal Entity: It is a separate legal entity created by the shareholders. It can be sued or it
can sue using his name.
4. Continuity: The absence of a shareholder either by death or illness can not affect the
continuity of the company quite unlike in sole proprietorship where the death of the
owner marks the end of the company. Upon death of a shareholder of the company, the
shares could be transferred to another person.
Disadvantages
1. Double Taxation: The profits of the company are taxed as they are earned at a corporate
level and the profit is also taxed to the shareholders when it is distributed out as
dividends.
2. Lack of Secrecy: The affairs of the company are denied the privilege of privacy since
they are required by law to publish their affairs of business annually.
3. Cost of Running the Organization: The cost of running the organization including the
filling fee with the government is usually high.
4. Dominance by Shareholders: Shareholders that control and own a significant amount,
or majority of the corporation’s voting stock have a dominant voice in the management of
the business in comparison to shareholders that do not own as much stock.
TYPES OF BUSINESSS/ENTERPRISE ORGANIZATION

LEARNING OBJECTIVE:

The student after going through this module should be able to: discuss the various forms of
business ownership such as sole proprietorship, partnership, co-operatives and corporation.

SOLE PROPRIETORSHIP

The simplest and oldest type of business organization is the sole proprietorship. It is a
business concern owned and controlled by one person called the sole proprietor or sole trader.
The greatest number of business concerns in Nigeria is in this area. Most sole trades in Nigeria
are engaged in retail operations and in craftsmanship like carpentry, plumbering, tailoring,
automobile mechanics, drycleaners, painters etc. Some lawyers, accountants and medical
personnel also carry on business as sole proprietors.

The features of sole proprietorship include the following:

1. All profits and losses goes to the sole owner.

2. The owner is responsible for the acts of the business.
3. The owner is personally liable for all debts of the business.
4. The owner manages the business.
5. He makes policy decisions.
6. He also provides the capital needed in the running of the business.

Advantages

1. It is the easiest form of business to run.

2. He has personal contact with his customers, employees and even suppliers.
3. He is his own boss and makes decisions at his own time. He is responsible to nobody
except himself for the decision he makes.
 4. Privacy: He can keep his business affair secret and does not need anybody to inspect his
books of accounts.
5. The business is easy to dissolve and does not require legal procedures upon dissolution.
6. Easy to operate and personal contact, makes after sales services possible.

Disadvantages

1. Unlimited liability: if the business fails, his personal assets can be sold to settle his
creditors.
2. His capital is always limited and he may find it difficult to source funds from financial
institutions since he may not have the collateral needed.
3. The sole trader may overwork himself since he is his own employer.
4. In most cases the death or even ill-health of the owner might end the life of the business.
5. Bulk buying may not be possible because of insufficient capital.
6. The owner may not have the education, training, experience or managerial ability needed
to run the business.
7. Lack of specialization: Since he handles all aspect of the running of the business like
purchasing, selling, accounting it becomes difficult for him to specialize.

PARTNERSHIP

Section 1 of the partnership act 1890 defines partnership as the relation which subsists
between persons carrying on a business in common with a view of profit. In other words
partnership exists when two or more persons agree to own and run a business enterprise.

These individuals are called partners and they have joint responsibility for the risks,
profits and losses of the business they form. The number of partners normally vary between two
to twenty for ordinary business and between two to ten for banking business.

Each partner provides a specified proportion of the required capital and skill or both and
in return receives an agreed proportion of profits. Partnerships are common in the professions of
law, medicine and accountancy, engineering and architecture, but they are sometimes found in
retailing and is very rare in manufacturing.
 Partnership agreements may be verbal or written. However it is better and safer to make
formal partnership agreements or deeds to avoid future problems and difficulties. This is very
necessary because human beings are unpredictable. The best of friends today may become worst
of enemies tomorrow.

Types of Partnership

Basically there are two types of partnership – General and Limited partnership.

1. General Partnership: A general partnership is an association of two or more persons with

each general partner as co-owner having unlimited liability. General partners usually take
and play active role in the business.
2. Limited Partnership: IN this case, the liability of one or more of the partners is limited.
This will involve limited participation on the part of the limited partners in the running of
the business. He may contribute capital or good-will but his liabilities is only limited to
the amount he has contributed in the business. His personal belongings cannot be ceased
by the creditors of the business in case the business goes bankrupt. Limited partnership
are established by charter or license. He has right to inspect the books to obtain any
relevant information he may require.

Advantages of Partnership

1. Capital: More capital can be made available by pooling resources together.

2. Division of Labor: Two heads are better than one, one partner may specialize in
buying, the other in selling and the other in accounting and thereby improving
efficiency.
3. Partners may take rests or holidays due to illness and this will not disrupt the
activities of the business.
4. It is easier to borrow money from creditors because labor have more confidence in a
group of persons than on one person.
5. Better decision making: Better and informed decisions may be made by two or more
people than by one person.
6. Shared Strain: Unlike the sole proprietorship anxiety about the business may be
shared by the partners, hours of work and work are shared by the partners.
 7. Secrecy: Partners do not need to submit publicized accounts to the public for
inspection.
8. Shared Losses: In case of losses, it is to be borne by many people thereby making the
venture less risky.
9. Since partnership is also operated on small scale, personal contact with customers is
also possible.

Disadvantages of Partnership

1. Liability is unlimited for limited partners.

2. The death or retirement of a partner terminates the partnership.
3. Disagreement may arise among the partners which may retard the business.
4. It may take longer time to take decisions.
5. It is not a legal entity.
6. Lack of capital may also limit progress.

Kinds of Partners

1. General Partner: Is a member of a general or limited partnership who has unlimited

liability for the debts of the partnership.
2. Limited or Special Partner: Is a member of a limited partnership who does not assume
responsibility for the debts beyond the amount of his investment. He does not take active
part in the management.
3. Secret Partner: Is an individual who is active in the affairs of a partnership but is not
known to the public as a partner.
4. Nominal Partner: Is a man or woman (mostly very influential) who is not actually a
partner but who publicly announces himself as partner, even though he has no investment
in the business other than his contribution of goodwill.
5. A dormant or sleeping partner: Is one does not take active part in the management of the
business and is not known to the public as a partner.

CORPORATION

A common definition of corporation is the one developed by Chief Justice Marshal in

1819 as “an artificial being, invisible, intangible and existing only in contemplation of the law.”
 Being the mere creature of the law, it possesses only those properties which the charter of
its creation confers upon it either expressly or incidental to its existence. As an independent legal
entity, it may have perpetual life, hold property, conduct business and enter into contracts, sue
and be sued: its legal status and activities must be differentiated from those of the individual
owners. Ownership of the corporation is represented by transferable stock certificates.

Forms of Corporation

There are basically two types of corporations- private and public limited liability
companies.

A. Private Corporations: As the name implies the number of shareholders range between two
to fifty and a shareholder is restricted from transferring his shares without the consent of
the company and cannot invite the general public to subscribe for shares. Examples of
private companies abound in Nigeria. They include Okason Trading Company Limited,
Hamzar Group of Companies Ltd. Star Paper Mill Ltd. etc.
Advantages of Private Corporation
1. Private corporations provide small businesses with limited liability and thus give
them the feature of continuity which many partnership do not have.
2. Private corporations make it impossible for outsiders to infiltrate into them since
shares are not transferable.
3. Some degree of personal contact between the directors, staff and customers may
be possible since the business is not likely to be very big.
B. Public Limited Company (PLC): A public company must have at least seven shareholders
and no maximum number is required. Its shares can be bought or sold in the stock
exchange market, if there is a stick exchange quotation of its shares. A copy of its
Balance Sheet must be lodged once year with the Registrar of Companies. Their financial
statements must always be made public. Before a company is given a charter or license a
number of documents must be filled with the Registrar of companies.
They are the: Memorandum of Association and Articles of Association.
1. Memorandum of Association:
Nature of shares to be issued This is required for the formation of the company.
The document contains the following:
 i. Name of the company
ii. Registered office of the company
iii. The objective of the company
iv. The amount of the authorized capital and how it is divided into various classes
of shares
v. The names of the promoters
vi. The names and addresses of the directors
vii. Privileges and voting rights of each stock
viii. A statement of limited liability of members
ix. Duration of life of the company
x. The condition under which the memorandum of association can be amended
xi. An agreement by founders that they wish to form a limited liability company
(Statutory declaration).

Article of Association

This is another requirement for the registration of a company. It is a document that

contains the internal regulations of the company. Information relating to the internal
working of the proposed company including such things as:

ii. Method of increasing capital

iii. Proceedings of general meetings

iv. The number of Directors

v. Borrowing powers and procedures

vi. Duties of managing Directors

v. Procedures and proceedings of Directors meetings

vi. Dividends and capitalization of profits

vii. Indeminity of Directors

viii. Procedures for winding up the companyin the event of liquidation

ix. Rights and responsilities of share holders

 x. How the remuneration of Auditors may be fixed

Advantages of Limited Liability Companies

1. Ease of expansion: New investments and expansion schemes can be financed by inviting
the public to subscribe for shares.
2. Limited Liability: As a legal entity, owners are not personally liable for the debts of the
company except the amount they have committed the shares.
3. The separation of ownership from management makes it possible for employment of
experts to run the affairs of the company.
4. Transferability of Membership: A retiring member can sell his shares to another person
without altering the capital structure of the company.
5. Economies of Scale: Public companies enjoy internal and external economies of scale.
Internal economies of scale covers: technological advantages, advantages of division of
labor and specialization, economies in marketing (i.e in the purchase of inputs)
economies in transport and storage.

Disadvantages

1. High floating cost: Due to high legal fees, filling and registration fees, the floating of
public companies is always very expensive.
2. Double taxation: After paying the company tax, shareholders also pay tax on dividends.
3. Publicity or lack of secrecy: There is a legal requirement that yearly financial statement
must be made public.
4. Separation of ownership from management: Management may pursue a different goal
from the owners since both are separated.
5. Regulation: Government regulation on limited companies are stricter than that of sole
proprietorship or partnership.
6. Bureaucracy: Public limited companies tend to be bureaucratic and devote much time to
administration with emphasis on adherence to rules and regulations and this makes for
less rapid and flexibility decision making.

CO-OPERATIVE SOCIETY
 A Co-operative may be defined as a self-help organization formed either by consumers or
producers. It is often set up to provide service to its members who are also the major financiers
of the co-operative. Co-operatives are common in agriculture, forestry, fishing, retail distribution
and in rural credit and insurance.

Advantages- They include the following:

1. As founders and owners, members have a sense of loyalty to their co-operatives, thus
enabling business to be stable.
2. There is self control by members and in most cases management is democratic.
3. Apart from business, co-operatives do educational and welfare work for their members.
4. It is easier for co-operatives societies to borrow money from banks or any other
government agency for the benefit of their members.
5. By eliminating middlemen profits are passed to members and this helps to improve their
standard of living.

Disadvantages

1. Majority of the members of co-operative societies lack business experience and often
their method of promotion is not conducive to efficiency.
2. They are about to compete unfairly against the other retail stores because their profits are
exempted from corporation tax.
3. Members are compelled to make their purchase from corporative retail outlets.

This does not give them the freedom of wide selection afforded by shopping in many other retail
outlets.
The steps every entrepreneur must know before starting a new business venture
i. Identify your business opportunities
Choosing what kind of business to start could be an immobilizing task when confronted with
multitude of opportunities. It is important to determine where your passion lies and understand
your personality type
ii. Build a business plan
For any start ups, a business plan allows you to gain a better understanding of your industry
structure, competitive landscape and a capital requirement of starting a small business. Writing a
business plan just makes good business sense
iii. Find start up money
To start a business, you must invest in the business. The journey of finding a start up fund will be
different for each individual. Some startup such as consulting requires a few thousands to get a
website and business cards whereas retail store could need a million naira or more
iv. Name your Business
Aright business name will help you distinguish your business from a sea of brand competitors,
provide your customers with a reason to hire you and help in the branding of your company .
v. Choose a business structure
Deciding on the structure of your business is not a decision to be taken [Link] choice on
the type of business ownership (whether sole proprietorship of public corporation) will have
impact on your business liability, fund –ability as well as taxes due
vi. Get your business licence and permits
Starting a small business requires the mundane, yet necessary paper work and regulations.
Depending on your chosen business structure, you may need to register your business with the
state authorities. Setting up your small business which is also used by state taxing authorities to
identify business (1.5 marks)..
vii. Set up and determine your business location
One of the multitudes of tasks in starting s business is the setting up of your office. There are
many steps in office set up including: where to locate, buying of necessary office equipments,
designing your work space and getting supplies(1.5 marks)..
viii. Get business insurance
As a new entrepreneur or small business owner, you have the responsibility to manage the risk
associated with your business. Do not put your new start up business at risk without getting the
proper small business insurance to protect your company in the event of disaster or litigation..
ix Create an accounting system
Unless you are a number person, the accounting and book keeping aspect cannot be avoided.
Setting up your accounting will help you understand the financial of running a business and help
you in the event of failure.