Technical Articles Theme 12

Title: The Management Aspects of an Entrepreneurial Venture

Videos: 146-151

Topics Covered
146. The management aspects for entrepreneurial venture
147. Organizational Structure: How it is different from a large setup?
148. Legal form of business (Part 1)
149. Legal form of business (Part 2)
150. Discussion Group with a lawyer: how to register a firm in Pakistan?
151. Discussion Group: with a lawyer (How to approach ombudsman )

Author: Marriyam Bukhari, Instructor Business Administration, Virtual University of Pakistan

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 Management Aspects of Business Ventures
To become a successful entrepreneur, one must be good at managing the venture. The management
related considerations for an entrepreneur include decision making, leadership behavior,
organizational structures and processes, clusters & networks, creating resilience, technological
systems, departmentalization, and HR policies.

Decision-Making is an important aspect of any business venture as entrepreneur makes decision

every single hour of every single day. These decisions can be minor decisions to major strategic
decisions. How these decisions are made vary from one entrepreneur to another entrepreneur?
Some entrepreneurs make decisions on their own while others take the opinion of employees or
other friends and family. Some entrepreneurs also rely on expert opinion to make decisions
especially in case of strategic decisions. Being an entrepreneur, which decision making style you
opt is an important thing which he/she should consider while operating a business venture.
Leadership behavior is another important aspect of management of a business venture. Which
leadership style you opt for, decides the loyalty of your employees or team. It has been observed
that employees are most loyal to the organization that they stick to the same organization for 30
years if the leader is good. Organizational structure and processes are the important things to
operate the firm in an organized way. In the beginning of a new venture development, the
organization structures are usually blur and every employee reports to the owner. But as the firm
grows, the structures must have to be clear in terms of reporting and teams. On the other hand,
processes should be clear even in the beginning.

Another important aspect of a firm’s management is the Clusters & networks of an entrepreneur.
Before starting a business venture, an entrepreneur must decide the industry he/she will enter. He
must see if he has any networks and associations in that industry. Networking and associations
with other businessmen and entrepreneurs are of utmost importance for an entrepreneur especially
in the initial stages of new venture development. Being resilient and creating resilience in teams
is the key to the success of any firm. Whether it is the development stage of a business venture or
the growth stage, an entrepreneur can face setbacks or any uncertainties which should be faced by
being resilient. In those times, it is the entrepreneur who must manage resources and make
decisions which are in the favor of the firm. These setbacks can be the result of entrepreneur’s bad
decisions or competitors but there are certain uncontrollable factors (like COVID 19) which can
be the reason of these setbacks.

Entrepreneur must also see which Technological systems are needed by the firm. As this is the
era of technology and a lot of tasks have been digitized. For these tasks, you do not need any
human resource. Some business models are based on technology, so they need more technological
systems than others where human capital is more important. In the initial stages of new business
development, there are no separate departments for each business function. Usually, one team

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performs several functions. But in the growth stage of business venture, departmentalization can
be a major concern for an entrepreneur. On the other hand, whether it is the initial stage or growth
stage, an entrepreneur must devise the HR policies. It should be clearly decided which financial
or non-financial rewards would be given to employees and when. Which type of contracts would
be built with the employees and which actions would be taken against the employees who are
involved in any fraudulent activities.

What is Organizational Structure?

An organizational structure is defined as “a visual presentation of a company’s structure showing
what employees do, decision making style, span of control, and chain of command”. In the initial
stages of venture development, organizational structures are blurred and usually all employees
report to the entrepreneur or CEO. But as the organization grows, it becomes important to define
the organization structures and chain of command. Organizational structures are classified in terms
of functions, products, markets, and geographical location.

Functional Organizational Structure departmentalizes an organization based on the common

job functions e.g., marketing, finance, human resource, management, operations and IT. It is the
most common structure organizations adopt. In small scale firms, if you want to make teams, you
can give responsibility to some people of marketing function and some of finance function.
Usually, one team is handling two or multiple tasks. Following is the pictorial representation of
functional organization structure.

Product-Based Structure divides an organizational structure based on products. It is ideal for

organizations with multiple specialized products. If an organization is dealing with multiple
specialized products, it can make separate teams for each product each performing all the functions
of marketing, finance, research, and operations independently. For example, an entrepreneur
dealing with clothing as well as beauty products can make two separate teams. Each team will do
the marketing separately. Similarly, all other functions (finance, HR, research, and operations)
would be performed separately by each team.

Market-Based Structure divides an organizational structure based on industries, markets, or

customers. Some entrepreneurs deal with different markets like government market, consumer
market, and B2B market. For those entrepreneurs, the organization structure would be market
based. There will be separate teams for each market served by the firm. If a firm deals with local

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market and international market, there will be two separate teams for both markets who will
perform each organizational function independently.

Geographical Structure deals with division of an organizational structure on the basis of

geography. This is mostly adopted by the entrepreneurs who deal with import and export business.
For example, if the firm deals with Canadian market and UAE market, there will be two separate
teams for both the markets.

Flat Structure deals with an organizational structure where employees are only a few steps away
from senior leadership and decision making is centralized. In the beginning of the start-up,
organizational structures are usually flat where employees report directly to the owner or CEO.

Tall Structure deals with multiple layers of reporting and decentralized decision making. In the
growth stage of business venture, when an entrepreneur has a big team, there are multiple layers
of employees. Each layer of employees’ report to the upper layer. For example, labors report to
the line managers and the line manager reports to the senior manager. Further, senior manager
reports to the middle manager who reports to the manager operations.

How the structure of small setup is different from large firms.

1. Blur organizational structures

2. Centralized decision making

3. Multiple roles of managers

4. Need for growing firms

5. Lack of R&D and human resource development (we don’t see it in small business)

6. Flexibility of organizational structure (you can change the structure easily in small firm not
in the large firms.)

Legal Forms of the Business

There are four basic legal forms of business which are: sole proprietorship, partnership, joint stock
Company, and nonprofit organization.

Sole proprietorship is a business owned and operated by a single person who enjoys the whole
profit and bears all the loss. This form of business has unlimited liability which means in case of
non-payment of debt, the proprietor’s business property as well as personal property will be taken
to pay off the debt.

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Some of the characteristics of sole proprietorship business are:

 Single ownership
 No need of registration of business
 No documentation required (except for some businesses like pharmacy where
documentation is needed)
 No separate legal entity from the proprietor
 Small scale business
 Tax on owner’s income (No double taxation)
 Unlimited liability
 Sue and can be sued in the name of the owner
 Sole manager
 Business commencement and closure is on the will of the single owner

Another legal form of business is partnership which is a legal entity formed by two or more
people. The partners are personally responsible for all the losses and debts and partnership has
unlimited liability. A partnership can be a partnership at will when it is open-ended. A partnership
at will is formed to carry out a general business without specifying the time of termination of
partnership business or without specifying the duration of partnership. On the other hand, a
partnership can also be a particular partnership which is formed for a particular project and
terminated as soon as the project is completed.

Usually, it is not mandatory for firms to register a partnership, but it is recommended to register a
partnership to get the legal protection. A Partnership deed is usually prepared in order to get a
partnership registered.

Some of the characteristics of partnership are:

 At least two individuals are required to form a partnership

 Unlimited liability of all partners collectively and individually
 Profit is shared equally or in agreed ratio
 Voluntary registration
 No perpetual succession/continuity
 For transfer of share, mutual consent of all partners is needed

SECP has introduced a relatively new concept in partnership business in May 2018, that is limited
liability partnership (LLP) where the liability of all partners will be limited to the extent of their
investment except for one partner whose liability would be unlimited. LLP is form of business
which is near to the corporate form of business in terms of some of its characteristics. The two
main characteristics which distinguishes the LLP from general partnership is:

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  Separate legal entity (it is the main characteristic of corporate form of business where the
firm is separate from the owners. It can sue and be sued in its own name.)
 Perpetual succession (in general partnership, in case of death of a partner, partnership gets
dissolved but in the case LLP it will continue. The death or insanity of any partner will not
affect the existence of partnership).

Partnership Act 1932 explains the detailed procedure of registering and dissolution of partnership,
right and duties of partners.

Another legal form of business is non-profit organization. A nonprofit organization is a business

that has been granted tax-exempt status because it serves a special cause and provides public
benefit. This type of organizations supports the government. Some of the characteristics of
nonprofit organizations are:

 They are formed for the public service or benefiting the society.
 Donations which are given to NGOs are tax deductible. If you show it in your tax return,
you will get the tax rebate or exemption.
 NGOs itself pay no tax on the received donations or on any other income earned through
fundraising activity.

Entrepreneur can also start a nonprofit organization. Abdul Sattar Edhi is the example of NGO
entrepreneur who started a nonprofit organization which has all the systems and processes, but it
works for public service instead of profit making. A nonprofit organization can be started at local
level, district level, divisional level, or provincial level in Pakistan whereas it can be registered
under Punjab government welfare department if any individual wants to start it in the vicinity of
province Punjab.

Another basic and most common form of business is corporation. There are four types of
corporations which are:

1. SMC or single member company is a limited liability private company owned by a single
director/member. This type of company was introduced by SECP in Companies Act 2017.
The purpose of introducing SMC was to facilitate the sole proprietor. It gives the sole
proprietor the benefit of limited liability.
2. Limited liability partnership: SECP has introduced a relatively new concept in
partnership business in May 2018 that is limited liability partnership (LLP) where the
liability of all partners will be limited to the extent of their investment except for one
partner whose liability would be unlimited. LLP is form of business which is near to
corporate form of business in terms of some of its two characteristics perpetual succession
and limited liability.
3. Private limited company: it is the form of corporation started by two or more people. It
is registered with SECP. The liability of members of a private company is limited to the

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 extent of their investment. The shares of private limited company are not offered to the
public for purchase. All the profit is divided among the shareholders. Private limited
company is not listed on the stock exchange for trading.
4. Public limited company: a public limited company is owned by the shareholders and
managed by the directors who are selected by the shareholders. Shareholders get the profit
in form of dividend. The shares of a public limited company are offered to the public for
purchase hence public limited company is listed on stock exchange. It is registered with
SECP under the Companies Ordinance 1984. The liability of the shareholders is limited in
public limited company. For a public limited company, it is mandatory to show all the
financial statements publicly hence it is more open to public as compared to the private
company.

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