FORMS
OF BUSINESS ORGANISATIONS
A
business enterprises is an organisation which undertakes business activities.
Here we are going to collect awareness about different type of business
organisation in private sector and public sector. They are
{ Sole
proprietorship
{ Joint
Hindu family business
{ Partnership
{ Co-operative
society
{ Joint
stock company
SOLE PROPRIETORSHIP
A
business organisation owned by a single person is called sole proprietorship.
It is also known as one man business. Sole trader is the owner of sole
proprietorship business. He brings capital for the business. He uses his own skill and manages the
business. Also he get all the profit and suffers all the losses.
Characteristics of
Sole proprietorship
Any individual with good financial and
managerial advantage can start this type of business
Ø Individual
ownership
Ø Personal
control
Ø Individual
risk
Ø Unlimited
liability
Ø No
legal restrictions
Advantages of sole
proprietorship
ü Easy
formation : no legal formalities for starting this business, any one can start
those who have fund and managerial stability.
ü Quick
decision : sole trader is the supreme authority so no necessary to ask any
others for taking decisions.
ü Efficient
management : attention control by the owner reduces risk and wastes.
ü Business
secrecy : a sole trader can easily keep all his informations related to
business safely.
ü Better
personal contacts : it is through the personal and smooth and cordial
relationship with customers.
ü Flexibility
: the sole trader has no necessary to ask about the changes in the running of
business.
ü Less
expensive management : high salary paid
managers are not necessary for managing Sole proprietorship.
ü Loan
Facilities : due to unlimited liability he will get loans easily.
ü Continuity
: the business is continuing nature like from the father to the son.
ü Prevention
of concentration of wealth : it motivates all people to do the business and
helps to reduce the concentration of wealth in few business peoples / firms.
Disadvantages of
sole proprietorship
v Shortage
of capital : the fund required for running the business is brought from his own
hand. Banks gives loans on the basis the
financial stability of the owner.so shortage of capital is the problem.
v Risk
and unlimited liability : the entire risk and losses of the business are to be
borne by the sole trader.
v Lack
of management ability : the business runs on the managerial talents of a single
person.
v Weak
bargaining powers : sole trader cannot make a control in the market in front of
large scale business firms.
v Absence
of large scale buying and selling : he operates on a small scale basis so he
cannot conduct large scale buying and selling.
JOINT HINDU FAMILY
BUSINESS
It is one of the oldest forms of
business found in India. It is owned by the individuals of Hindu family and it
is controlled by the Mitakshara School of Hindu Law. The business is managed by the eldest male
member known as “ Karta ”. The liability of Karta is unlimited.
Features of Joint
Hindu Family Business
o
It is created on the basis of Hindu Law
and not out of a contract.
o
Only male members of Hindu family can
become members.
o
The membership is obtained only through
the birth of particular family conducting business.
o
Business undertaken for the benefits of
members of the family.
o
The liability of members is limited
except of Karta
o
The capital for the business is from
their ancestral properties.
Advantages of Joint
Hindu Family Business
Ø It
enjoys greater stability in the running and continuity of business.
Ø It
provides scope for division of labour.
Ø There
is no limit for number of members.
Ø Enables
to take accurate decisions.
Ø Business
secrecy can be maintained easily.
Ø The
members have only limited liability.
Ø It
enjoys better creditworthiness than the sole trading concern.
Ø It
enjoys flexibility in organisation.
Ø It
provides an excellent training ground for the junior members.
Disadvantages of
Joint Hindu Family Business
Ê The
resources of Joint Hindu Family are limited than joint stock company.
Ê The
management is in the hands of the Karta who may lack skill, initiative and
efficiency.
Ê There
is no direct relationship between reward and effort.
Ê Disputes
may arise among the members in the case of partition of property and closing of
business.
Ê The
liability of members is limited so they take little interest in the business
activities.
PARTNERSHIP
The
partnership business tries to reduce the defects of sole trading and Joint Hindu Family Business. In a partnership business two or more persons
combine their skills, experience and capital. The persons organising
partnership business are known as partners.
A partnership is defined as “
the relationship between persons who have agreed to share profits of a business
carried on by all or any one of them acting for all ”.
Characteristics of
Partnership
{ Relation
between two or more : minimum members
required for starting this business is 2, maximum 10 in banking and 20 in other
business.
{ Agreement
: it starts based on a oral or written agreement. It is known as Partnership
Deed.
{ Business
: the agreement is to do lawful business and cannot form charitable
institution.
{ Sharing
profits : profit or loss share as per agreement.
{ Business
is carried on by all or any of them acting for all.
{ Unlimited
liability : liability of each partner is unlimited.
{ No
separate legal existence : a firm has no separate existence apart from the
partners.
{ Utmost
Good Faith : partners should disclose all material facts and present true
accounts to one another.
{ Transfer
of Interest : no chance to transfer interest of one partner to another in the
firm.
{ Implied
authority : all partners should follow the laws of organisation.
Types of Partnership
1.
General or Ordinary Partnership : The
liability of all partners is unlimited. On the basis of duration it is divided
into two type ;
a. Particular
Partnership : partnerships formed for the completion of a particular purpose
for a fixed period.
b. Partnership
at Will : in this type the duration of the partnership will not be fixed in
advance.
2.
Limited partnership : in limited
partnership the liability of the partners is limited. But this type is not
allow.ed in India.
Kinds of Partners
1.
Active or Working Partner : A partner
who will contribute capital and take active participation in day to day
affairs.
2.
Sleeping or Dormant Partner : the
partner who does not contribute any active participation in business
activities.
3.
Nominal Partner or Ostensible Partner :
a person who do not contribute capital towards the organisation but his
reputation will be beneficial to the firm.
4.
Partner by Estoppel : is a person who by his behaviour or words
gives an impression to the third parties that he is a partner.
5.
Partner by Holding Out : a person may
be represented as a partner to the public by others.
6.
Partner in Profit Only : with a special
agreement a person may be admitted to share only profits.
7.
Sub – partner : an outsider appointed
by a partner as his agent with a share in the profits.
Minor as a Partner
Section
30 of the Indian Partnership Act , allows a minor to be admitted as partner . the
liability of a minor partner is limited. He
has the following rights ;
a.
He has the right to share the profits
and properties of the firm.
b.
He can check the accounts of the firm.
c.
He can sue the partners for the payment
of his share of profits.
Partnership Deed
It is the written
agreement by partners. It may be oral or written. It is also known as Articles
of Partnership. It may contains the following ;
a.
Name of the firm, address and name of
partners.
b.
The term and duration of partnership
and its objectives.
c.
The amount of capital contributed.
d.
Profit sharing ratio.
e.
The amount which can be withdrawn by
each partner.
f.
Management of the business
g.
Amount of salary paid to partners.
h.
The right and duties of partners.
i.
Preparation of accounts of the firm.
j.
Arrangement for audit
k.
Rate of interest on the capitals.
l.
Details of division of work among
partners.
m.
Method of valuation of Goodwill on
Admission, retirement an death of a partner.
n.
Provisions regarding admission , death
and retirement of a partner.
o.
Settlement of disputes.
p.
Any other important matters.
Advantages of
Partnership
1.
Easy of Formation : formation of
partnership is easy.
2.
Larger resources : helps to collect
more amount of capital through different partners.
3.
Efficient Management : through skilled
and experienced two or more persons management of the firm is effective.
4.
Division of labour : division of work
is possible between partners.
5.
Prompt and balanced decisions : for
taking decisions all are meeting at a time.
6.
Greater Interest : equality in sharing
of profit or loss makes them greater interested.
7.
More Credit Facilities : it can obtain
more credit facilities from money lenders, financial institutions etc.
8.
Flexibility : easy to change according
to the conditions of the society.
9.
Protection of minority interest : each
partners get opportunity for expressing their views.
10.
Simple Dissolution : it is easy to
dissolve partnership
11.
Maintenance of Business secrets : no
necessary to publish their accounts.
12.
Less
Controls : govt. control over partnership is very low.
CO-OPERATIVE
ORGANISATION / CO-OPERATIVE SOCIETIES
It
is an organisation which is working on the basic objective of service than
profit . they function under the principle of mutual help.
Characteristics or
Principles of Co-operative Societies
F Voluntary
Association : every individual is free to join or not to join in co-operative
society.
F Association
of persons : individuals join co-operatives as human beings and not as
capitalists.
F Unrestricted
Membership : any one who is major can become member of co-operative society.
F Equal
Voting Rights : one member one vote is the principle of co-operative society
and not one share one vote.
F Democratic
Management : Each for all and all for each is the principle of management in a
co-operative society.
F Service
is the Motto : A co-operative is formed to give maximum service to its members.
F Limited
Distribution of Surplus : only limited portion of profit is given to the
members.
F Cash
Trading : business in co-operative society is done on cash own basis.
F Corporate
Status and State Control : co-operative society in India are registered under
co-operative society Act 1912. On registration it become a body corporate
enjoying separate legal entity.
F Liability
: liability of a co-operative society is generally limited
Advantages of a
co-operative society
v Easy
of Formation
v Perpetual
succession : not affected by the death or insolvency of members.
v Democratic
management : one man one vote helps for democratic management
v Mobilisation
of Savings : Small savings are mobilised for constructive purposes.
v Economy
of operation : expense for working
co-operative society is minimum
v Saves
Members From Exploitation : By giving loans at reasonable interest rate , by
providing consumer goods at fair prices.
v State
Assistance : exempted from tax, stamp duty and registration fees, etc
v Social
Importance : co-operative society render services without profit motive.
Disadvantages of a
Co-operative Society
·
Inadequate Capital : non availability
of capital for large scale operations.
·
Inefficient Management : they have no
financial stability to appoint specialists.
·
Lack of business secrecy : there will
periodical discussions in general body about all facts.
·
Lack of Motivation : remuneration is
very low
·
Excessive State Control : excessive
state control affects successful functioning of co-operatives.
·
Internal Conflict : local politics
adversely affects the smooth functioning of co-operatives .
Types of
Co-operative Societies
1.
Co-operative Credit Societies : it
gives short term finance at reasonable interest . there are four types of
credit societies ;
a. Rural
Banks : provides loans at lower rate to buy seeds, fertilisers, agricultural
implements,etc.
b. Urban
banks : formed in district towns for providing facilities to small traders and
artisans.
c. Employees
Credit Societies : formed by employees in govt., semi govt. ,banks, etc. to
meet financial problems.
d. Wage
Earner’s Societies : formed by workers in and around town areas.
2.
Co-operative Marketing Societies :
these are formed for helping farmers, artisans, and small producers for
marketing their products .
3.
Co-operative Farming Societies : formed
by farmers for maximise production and secure benefits of large scale
cultivation.
4.
Consumers Co-operative Societies : formed
by low and middle income groups , to ensure supply of consumer goods at fair
prices.
5.
Producer co-operative societies :
organised by small scale producers and craftsmen that helps them conduct small
scale business.
6.
Co-operative housing Societies : to
solve housing problems. It includes land societies, finance societies , house building
societies and tenancy co-operative
societies.
JOINT STOCK
COMPANIES
A
company which is formed and registered under the Indian Companies Act 1956 is
known as Joint Stock Company. The
peoples who contribute capital for the business is to be considered as members.
The portion of capital to which each member is entitled as his share , for that
he will get dividend as return .the members are known as Shareholders.
Features of Joint
Stock Company
F Incorporated
Association : a Joint Stock Company is registered under the Indian Companies
Act 1956.
F Separate
Legal Entity : On incorporation Company will become a Legal person .
F Common
Seal : A common seal is used as a signature of the company.
F Perpetual
succession : company is created on the basis of law, so the law only can put an
end to it .
F Limited
Liability : liability of shareholders is limited to the extent of face value of
shares held.
F Separation
of ownership and management : shareholders are owners of a company. But the
daily activities are controlled by elected representatives of shareholders
known as directors.
F Extensive
Membership : in a public company there is no limit for membership
F Transferability
of Shares : shares of a public company are freely transferable.
Advantages of Joint
Stock Company
1.
Huge capital : it can collect huge
amount of capital for its working.
2.
Limited liability : liability of
members is usually limited.
3.
Transfer of Shares : shares are easily
transferable in the case of public companies.
4.
Diffused Risk : risk of loss is spread
over a large number of persons.
5.
Continuity of Existence : it has a
legal entity separate from the persons.
6.
Organised Intelligence : the process of
capital formation is implemented with organised intelligence which increases
efficiency of directors.
7.
Tapping Economic Resources : a joint
stock company offers vast scope for turning economic resources to the best use.
8.
Greater Scope for Expansion : with the
increase of earnings and financial resources and managerial ability helps for
the expansion of the company.
9.
Democratic Management : the elected
members of shareholders are responsible for all activities.
10.
Public Confidence : they enjoys greater
public confidence than sole trading and other types of organisations.
11.
Extensive Membership : Share capital of
a company is divided into a large number of shares of small value with no
maximum limit to the number of members.
12.
Employment Opportunities : it can
provide a large number of job opportunities.
Disadvantages of
Joint Stock Company
1.
Difficulty of formation : the formation
of a company is difficult and costly.
2.
Inflexibility : the constitution of Joint
Stock Company IS RIGID.
3.
Impersonality : it difficult to
maintain close relation between the management and employees.
4.
Fraudulent Management : the company may
be used and managed by inefficient promoters and fraudulent directors.
5.
Oligarchic Management : actually a
company is managed by a few directors ,they may ignore the interests of shareholders.
6.
Delay
in decision : for making decisions there must be meeting of all members, that
may lead to delay in decision .
7.
Lack of motivation : company is managed
by directors so there is not as much interest as real owners.
8.
Excessive Regulation : management has
to spend its precious time and money in
complying with the statutory requirements .
9.
No Secrecy of Business : publication of
the progress of the company will reveal all secrets .
10.
Social ill effects of large companies :
companies faces some social evils such as monopoly, pollution, exploitation of
labours .
Types of Companies
1.
Private Company
2.
Public Company.
Private Company
A private company has been define as a company
which by its articles
a.
Limits the number of members to 50.
b.
Restricts the right to transfer its
shares.
c.
Prohibits an invitation to public for
deposits.
d.
Prohibits an invitation to public to
subscribe to its shares and debentures.
e.
Puts the minimum paid up capital to
rupees one lakhs.
Privileges of
A private Company
F It
can be formed with 2 members.
F It
can commence business after incorporation.
F It
need not obtain minimum subscription to allot shares
F No
necessary to hold statutory meeting.
F It
can issue any kind of shares.
F Two
directors are required for a private company
F Directors
need not retire by rotation
F It
need not keep an index of its members.
F Only
2 members can make the quorum for a meeting.
Public Company
A public company means a company which
is not a private company. It can have any number of members. Its shares are
freely transferable.it has a minimum paid up capital of rupees 5 lakhs.
Deemed Public
Company
A
private company automatically becomes a public company , if 25% of the paid up
capital is held by a public company.
Choice of Form of
Business Enterprise
{ Nature
of business running.
{ Finance
required for its running.
{ Degree
of controlling power desire by a person.
{ Degree
of risk involved in a business.
{ Freedom
from govt. regulations.
{ Duration
of the business Venture.
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