Chapter 2 - Organizing

Question 1

3 Elements of effective organization within the brokerage.

Answer 1

1. Creating organizational structure.
   - decide which organization structure to use.
2. Defining employee relationships.
   - clarify authority and responsibility.
3. Establishing position descriptions.
   - title, purpose, primary responsibilities, and scope of position.

Question 2

3 Forms of organizational structure

Answer 2

1. Line organization
2. Functional organization
3. Line and staff organization

Question 3

3 Advantages of line organization

Answer 3

1. Simplicity
2. Clear delegation of authority
3. Quick decision making

Question 4

3 Disadvantages of line organization

Answer 4

1. Line managers must be fully knowledgeable in a wide range of areas for efficient decision making.
2. Power concentrated at top, senior management makes all decisions.
3. Limits employees growth by stifling innovation.

Question 5

Line organization

Answer 5

• Authority concentrated at top, flows vertically downward.
• Responsibility flows upward.
• Each subordinate has one person to report to.
• Best suited for small brokerage where senior management personally directs activities.

Question 6

Functional organization

Answer 6

• Activies grouped together by function.
• Departmentalized.
• Departments are headed by specialists with authority over the area.
• AKA Matrix System
• Created to overcome weakness of line organization (ie. too many activities, too few managers)
• Difficult to implement properly.

Question 7

2 Advantages of functional organization

Answer 7

1. Provides employees with expert advice.

2. Decisions made by management specialist.

Question 8

3 Disadvantages of functional organization

Answer 8

1. Employees have several bosses, resulting in conflicting instructions.
2. Slow decision making.
3. Too many managers distracts employees from serving clients.

Question 9

Line and staff organization

Answer 9

• Combines strengths of line/functional organization.

- Best suited for large corporations.

Question 10

3 Advantages of line and staff organization

Answer 10

1. Authority is clearly defined.
2. Readily available expert advice results in quick decision making.
3. Encourages co-operation and communication on all levels.

Question 11

3 Legal forms of organization

Answer 11

1. Sole propietorships.
2. Partnerships.
3. Corporations.

Question 12

3 Advantages of sole proprietorship

Answer 12

1. Right to all profits.
2. Easy to start.
3. Simple decision making.

Question 13

3 Disadvantages of sole proprietorship

Answer 13

1. All liability rests with owner.
2. Expertise limited to owner.
3. Business lives and dies with owner.

Question 14

General or Limited Partnership.

Answer 14

• General Partnership: all owners have same rights/obligations.
• Limited Partnership: At least one general partner and one limited (silent) partner.
• liability of silent partner is restricted to the amount of the investment.

Question 15

4 Advantages of partnerships

Answer 15

1. Broader expertise.
2. Liability shared.
3. Business carries on after death.
4. Earning “all the profits”.

Question 16

3 Disadvantages of partnerships

Answer 16

1. More potential for conflict.
2. Difficult to dissolve.
3. Partnership agreements should be in place.

Question 17

2 Advantages of corporations

Answer 17

1. Liability is limited to corporate asses only.

2. Tax advantages.

Question 18

3 Disadvantages of corporations

Answer 18

1. Start-up fees.
2. Legal fees.
3. Income tax considerations - under greater scrutiny.

Question 19

Operating Affiliations are not legal forms. What are the four types?

Answer 19

1. Loosely knit affiliations.
   - meet/discuss informally.
2. General purpose groups.
   - formalized version of loosely knit.
3. Clusters.
   - sharing “back room” services, maintaining ownership of book of business.
4. Common identity groups.

Question 20

What would you consider before joining an operating affiliation?

Answer 20

1. Services and support
2. Exclusivity
3. Fees
4. Contractual agreement
5. Financial strength

Question 21

Exclusivity - questions to ask.

Answer 21

1. How many other brokerages in the area will be allowed to join?
2. What is the legal nature, and how tight is the contract?
3. What is the reputation of brokerages already part of the affiliation?

Question 22

Why should a lawyer review a contractual agreement?

Answer 22

1. Determine responsibilities of the brokerage.

2. Determine benefits of the contract.

Question 23

Law of Agency

Answer 23

Rights and responsibilities that arise when one entity represents another.

Question 24

Types of authority

Answer 24

1. Express authority.
   - written, clearly stated.
2. Implied authority.
   - not stated.
3. Apparent authority.
   - Perceived by third party.

Question 25

Sub-brokers

Answer 25

1. Brokerage appoints individual to represent it. | 2. Brokerage places business through another brokerage.

Question 26

What is ratification?

Answer 26

Retroactive approval.

Question 27

General purpose group

Answer 27

- More formalized extension of loosely knit affiliation. - Often a fee to participate. - Provides resources like education, information, advice. - Non-competitive, non-threatening.

Question 28

Common Identity Group

Answer 28

-Gives participating brokerages an image and resources of national or international strength.

Question 29

Implied Authority

Answer 29

-Not stated in the contract, but law and custom permit other acts to be undertaken in conjunction with the express authority. (example: A brokerage uses an insurer logo in their advertising)