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Business organization forms and structures

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Business organization forms and structures

  1. 1.   Business Organization forms and  structures Dr. Satish Kumar
  2. 2. BUSINESS ORGANIZATION   To carry out any business and achieve its objective of earning profit it is required to bring together all the resources and put them into action in a systematic way, and coordinate and control these activities properly. This arrangement is known as business organization. BM103  Financial Accounting                 
  3. 3. CHOICE OF BUSINESS ORGANIZATION DEPANDS ON   Your Vision regarding the size and nature of your business.  The level of control you wish to have.  The level of “structure” you are willing to deal with.  The business’s vulnerability to lawsuits.  Tax implications of the different organizational structures.  Your need for access to cash out of the business for yourself. BM103  Financial Accounting                 
  4. 4. BM103 Financial Accounting FORMS OF BUSINESS ORGANISATION  Sole proprietorship  Partnership  Joint Stock Company
  5. 5. BM103 Financial Accounting SOLE PROPRIETORSHIP  No Separation of Ownership and Management:  Single Ownership  Less Legal Formalities  No Separate Entity  One-man Control  Unlimited Liability . • In Sole proprietorship, the business is carried on by a single individual. •This type of entity is suitable for small businesses. •One person will have the decisive authority and owns all the assets and liabilities of the business owns it. The business is not separate from the Owner who has unlimited liability. Therefore Sole Proprietorship may be the simplest type but it also the riskiest business entity. FEATURES:
  6. 6. BM103 Financial Accounting ADVANTAGES AND DISADVANTAGES OF SOLE PROPRIETORSHIP ADVANTAGES  Easy to Form and Wind Up  Quick Decision and Prompt Action  Maintenance of Business Secrets  Direct incentive DISADVANTAGES  Limited resources:  Limited managerial ability  Unlimited liability  Limited life of a business concern.
  7. 7. BM103 Financial Accounting PARTNERSHIP ‘Partnership’ is an association of two or more persons who pool their financial and managerial resources and agree to carry on a business, and share its profit. Partnership form of business organization in India is governed by the Indian Partnership Act 1932. FEATURES: •Two or More Persons •Contractual Relationship •Sharing Profits and Business •Voluntary Registration •Unlimited Liability
  8. 8. BM103 Financial Accounting ADVANTAGES AND DISADVANTAGES OF PARTNERSHIP FIRM ADVANTAGES  Ease of formation and closure  Balanced decision making  More funds  Sharing of risks  Benefits of Specialisation DISADVANTAGES  Unlimited liability  Possibility of conflicts  Lack of public confidence
  9. 9. BM103 Financial Accounting JOINT STOCK COMPANY A company is an association of persons formed for carrying out business activities and has a legal status independent of its members. The company form of organization is governed by The Companies Act, 1956. A company can be described as an artificial person having a separate legal. FEATURES: •Artificial person •Separate legal entity •Perpetual succession: •Compulsory registration under The Companies Act, 1956 •Limited liability •Capital is divided in to shares •Sharing of profits •The management and control of the affairs of the company is •undertaken by the Board of Directors
  10. 10. BM103 Financial Accounting ADVANTAGES AND DISADVANTAGES OFJOINT STOCK COMPANY ADVANTAGES  Limited liability  Transfer of interest  Perpetual existence  Scope for expansion  Professional management DISADVANTAGES  Complexity in formation  Delay in decision making:  Conflict in interests
  11. 11. Comparison of Three Types of Business Entities Sole Proprietorship Partnership Company Examples M/s ABC General Store A & company ABC Limited ABC Private Limited Owner Sole Partners Shareholders Number of owners/Sharehol ders 01 Min: 2; Max: 20 Min: 7 Max: No limit Min : 2, Max: 50 in PVT ltd. Management Control Proprietor Partners BOD Liability Unlimited Unlimited Limited Legal Registration No Provision Voluntary Compulsory Flexibility Maximum Depends on Partners Comparatively less Source of Equity Funds Proprietor brings in the funds Partners bring in the funds Shareholders bring in the funds. BM103 Financial Accounting

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