Forms of business organisations

1. FORMS OF BUSINESS
ORGANISATIONS
By
BADM Dept.

2. WHAT IS A BUSINESS ORGANISATION?
The term "business organization" refers to how a
business is structured.
It refers to a commercial or industrial enterprise
and the people who constitute it.

3. WHAT IS THE RIGHT FORM OF
OWNERSHIP ?
• There really is not one right form of ownership.
• The correct form depends of the type of
company, the goals of the owners, and the plans
of what the company may become.
• Factors such as tax considerations, liability
exposure, capital requirements and structure
and ownership control all play a role is
determining which form is correct for a
business.

4. Types
of
Ownership
Private
Enterprises
Co-operative
Sector
Enterprises
Public Sector
Enterprises

5. TYPES OF BUSINESS
ORGANISATIONS
• Private Sector
• Sole Proprietorship
• Joint Hindu Family Business
• Partnership Firm
• Joint Stock Company
1) Private Limited
2) Public Limited
• Company
• Co-operative Society

6. TYPES OF BUSINESS
ORGANISATIONS
• Public Sector
• Departmental Organization
• Corporations
• Government Company

7. Choosing a Form of Business Organization
The choice of the form of business is governed by
several interrelated and interdependent factors :-
• The nature of business is the most important
factor
• Scale of operations i.e. volume of business ( large,
medium, small) and size of the market area (local,
national, international)

8. • The degree of control desired by the owner(s)
• Amount of capital required for the establishment
and operation of a business
• The volume of risks and liabilities as well as the
willingness of the owners to bear it
• Comparative tax liability

9. • Choice of Suitable form of ownership –
A Crucial Decision
• The form of ownership determines the -
• Division of Profits
• Extent of liability
• Extent of Risk
• Division of Power
• Control of Owner

11. SOLE PROPRIETERSHIP
When the ownership and management of a business are
in control of one individual the form of business is called
sole proprietorship.

12. SOLE PROPRIETERSHIP
• The most common form of business organization.
• Owned by one person, who performs most roles and
owns everything
• Very few legal requirements for setting it up.
• Owner gets all profits, takes all the losses → called
unlimited liability
• Easiest and least expensive to set up
• Easiest for tax purposes → income recorded under
personal income

13. CHARACTERISTICS
• Oldest form of business organization
• The business enterprise is owned by one
single individual (i.e. both profit and risk
belong to him)
• Owner is the Manager
• Owner is the only source of Capital
• The proprietor and business enterprise are
same in the eyes of the law.

14. CHARACTERISTICS
• Liability of sole proprietor is unlimited
• Sole proprietorship business is free from
many legal formalities subjected to the
general law of the land
• Proprietor makes all decisions pertaining to
the business
• Limited scope of operations.

15. ADVANTAGES
OF
SOLE
PROPREITORSHIP
• Ease in formation
• Discretion in start and dissolution
• Flexibility
• Free from legal Formality
• Independence of proprietor
• Quick decesions

16. ADVANTAGES OF
SOLE PROPREITORSHIP
• Facilitate Coordination
• Personal contacts with customers
• Secrecy
• Perfect Control
• Economy in operation
• Ease to borrow funds
• Direct relation between effort and rewards
• Successors benefited by inherited business
• Social advantage

17. DISADVANTAGES OF SOLE
PROPREITORSHIP
• Limited managerial
capacity
• Hasty decisions
• Secrecy causes
suspicion
• Owner has unlimited
liability
• Limited financial
resources

18. DISADVANTAGES OF SOLE
PROPREITORSHIP
• Loss in absence
• Difficulty in attracting and retaining good
employees
• High morality rate
• Lack of stability
• Unfit for medium and large businesses

19. Is the sole proprietorship the best
form of business ownership ?
• To understand this statement we can divide it
into following two parts:-
• One man control is the best
• It is the best provided certain conditions are
satisfied.

20. One man control is the best
• Ease in formation
• Discretion in start and end
• Flexibility
• Free from legal formalities
• Quick decisions
• Facilitate coordination
• Personal contacts with customers
• Secrecy
• Perfect control

21. One man control is the best
• Economy of operation
• Easy to borrow funds
• Direct relation between efforts and reward
• Successors benefited by inherited business
• Social advantages

22. Provided certain conditions are
satisfied
• It mean sole proprietorship business suffers from
many limitations or demerits. These are-
• Limited managerial capacity
• Hasty decisions
• Secrecy causes suspicion
• Unlimited liability
• Limited financial resources
• Loss in absence
• Lack of stability
• Unfit for medium and large business

23. JOINT HINDU FAMILY BUSINESS
• A Hindu Undivided Family (HUF) or Joint
Hindu Family (JHF) consist of all persons who
lineally descended from a common ancestor
and includes their wives and unmarried
daughters (Hindu Law).
• When a joint Hindu family carries on a
business, it is called a joint Hindu family firm.
• The members of such firm are not called
partners, but known as coparceners.

24. JOINT HINDU FAMILY BUSINESS
• Comes into existence as per
the Hindu Inheritance Act of
India
• This form of business found
only in India
• All members of the Hindu
Undivided Family(HUF) own
the business jointly
• The affairs of the business
are managed by head of the
family called “Karta”. All
other members are called
“Coparceners”

25. • Membership is restricted only to
members of the Joint family. No
outsider can become the
member
• Karta has unlimited liability
while all other members have
limited liability
• The share of each member keeps
on fluctuating
• Business continues to exist upon
the death of any member or
Karta.

26. ADVANTAGES OF HUFs
• Every coparcener has an assured
share in profits
• The business has continued
existence
• Decision making is quick as the
powers are with the Karta
• No corporate tax
• People use it mostly for tax
benefits these days

27. DISADVANTAGES OF HUFs
• Absolute power in the hands
of Karta.
• Instability
• Limited Resources can be
raised
• Scope for conflict

28. PARTNERSHIP FIRM
A Partnership consists of two or more
individuals in business together

29. Meaning of Partnership
• A partnership is an association of two or
more persons who agree to carry on business
for earning and sharing profit among them.
• According to Indian Partnership Act,
“Partnership is the relation between persons
who have agreed to share the profits of a
business carried on by all or any of them
acting for all.”

30. CHARACTERISITCS OF PARTNERSHIP
• Minimum 2 number of partners and maximum 20
partners. All of must be competent to contract.
• The relation between the partners is created in the
form of a contract. Written contract is called
“Partnership Deed.”
• The firm means partners, the partners mean the
firm
• The profit is divided in any as ratio as agreed
• No partner can sell/transfer his interest in the firm
to anyone without the consent of other partners

31. CHARACTERISITCS OF PARTNERSHIP
• The relation of partnership arises from a valid
agreement.
• The liability of partners is unlimited.
• To constitute a partnership, there must be a
relation of mutual agency between the partners.
• The relation of partnership is founded upon
mutual trust and confidence. Therefore, every
partner is bound to be faithful to each other.
• A firm does not have separate legal existence from
its partners. Firm is not a person in the eye of law.
• The registration of partnership is not compulsory
in India.

32. Test of Partnership
• There must be an agreement between two or
more persons.
• There must be a business of partnership.
• The partners must have agreed to share the
profits of the business.
• The business must be carried on by all or any
one

33. ADVANTAGES OF PARTNERSHIP
• Easy Formation
• Larger Resources
• Greater Management Talent
• Flexibility of Operation
• Prompt Decision
• Balanced decisions
• Sharing Of Risk and liability
• Personal care and
supervision of business

34. ADVANTAGES OF PARTNERSHIP
• Secrecy
• Direct relation between work and reward
• More possibility of growth and expansion
• Protection of minority interest
• Easy dissolution

35. DISADVANTAGES OF PARTNERSHIPS
• Unlimited Liability
• Limited resources
• Limited managerial skill
• Fear of Dispute
• Instability
• Non- transferability of
interest
• Lack of public interest
• Risk of mutual agency
relations

36. Partnership Deed
• When the contract of partnership is made in
writing, it takes the form of a document.
Thus, the document which contains the terms
of contracts of partnership is called the deed
of partnership.
• It must contain all the important terms of
partnership agreed by the partners.

37. Contents of deed
• Name of the firm
• Name of the partners
• Nature and place of business
• Date of commencement of partnership
• Duration of the partnership/ firm.
• Capital employed or to be employed by each partner.
• Profit and loss sharing ratio
• Interest on capital
• Limit of drawing and interest on it
• Interest on loans by and to partners
• Salary or commission, if payable, to the partners

38. Company
• According to companies act 1956, “Company”
means a company formed and registered
under this act or an existing company formed
and registered under any of the previous
companies law.
• According to Prof. Haney, “ A company is an
artificial person created by law, having
separate entity with a perpetual succession
and common seal.”

39. CHARACTERISITCS OF COMPANY
• Registered voluntary association/ body corporate
• Members/ Subscriber
• Artificial person
• Separate legal entity
• Perpetual succession
• Common seal
• Limited liability

40. CHARACTERISITCS OF COMPANY
• Share Capital
• Transferable shares
• Separate property
• Capacity to sue and be sued
• Management team
• Governance by majority
• Nationality
• Not a citizen and has no fundamental rights

41. ADVANTAGES OF COMPANY
• Limited Liability
• Huge financial resources
• Perpetual existence or stability
• Transferability of shares
• Sound management
• Diffusion of risk
• Economy in operation

42. ADVANTAGES OF COMPANY
• Democratic management
• Scope of expansion and growth
• Public confidence
• Encourages capitalization
• Social advantages

43. DISADVANTAGES OF COMPANY
• Difficulty in formation
• Regulation and Control
• Oligarchy of directors
• Neglect of minority interests
• Lack of Secrecy

44. DISADVANTAGES OF COMPANY
• Delay in decisions
• Lack of motivations
• Tax Burden
• Difficulty in winding up
• Insider trading

45. MEANING OF A CORPORATION
• The term ‘Co-operation’ has been derived by
adding a prefix ‘Co’ with the word ‘operation’. ‘Co’
means together and ‘operation’ means work.
Therefore the literal meaning of the term co-
operation is to work together.
• Co-operation means working together for a
common good of all.

46. CO-OPERATIVE SOCIETY
It is a voluntary
association of
people or
business to
achieve a an
economic goal
with a social
perspective

47. DEFINITION OF A CORPORATION
• A Co-operative society or organization is one which
has been voluntarily formed by some persons for
the promotion of their common economic interest.
• According to the Indian Co-operative Societies Act,
1912, A Co-operative society is “a society which
has its object as the promotion of economic
interests of its members in accordance with co-
operative principles.”

48. CHARACTERISTICS OF A CO-OPERATIVE
ORGANIZATION
• Voluntary organization
• Must be registered
• Separate legal entity and artificial person
• Liability is limited
• Perpetual existence
• Every member has to buy at least one share
• Non-transferable shares

49. CHARACTERISTICS OF A CO-OPERATIVE
ORGANIZATION
• Each member of a co-operative society has a
right to one vote
• Managed on Democrative principles
• Certain proportion of profit is of co-operative
society is distributed among its member
• Works for promotion of economic interest of
its member
• Primary object is to serve its members
• Based on principles equality, justice and
mutual benefit

50. CO-OPERATIVE PRINCIPLES
• Principle of voluntary and open membership
• Principle of democratic member control
• Principle of member’s economic participation
• Principle of autonomy and independence
• Principle of education, training and
information
• Principle of co-operation among co-operatives
• Principle of concern for community

51. ADVANTAGES OF A CO-OPERATIVE ORGANISATION
• Organisational Advantages
• Easy formation
• Small amount of investment
• Equal voting rights
• Democratic management
• Stability
• Easy to wind up

52. ADVANTAGES OF A CO-OPERATIVE ORGANISATION
• Economic Advantages
• Economic management
• Tax advantages
• Ploughing back the profits
• Government aid
• Equitable distribution of profits
• Limited liability

53. ADVANTAGES OF A CO-OPERATIVE ORGANISATION
• Social Advantages
• Spirit of mutual help and brotherhood
• Uplift standard of living of weaker sections of
society
• Promotes equal distribution of income and wealth
in the society
• Relief from exploitation
• decentralisation of economic power
• Changes in society by peaceful means
• Promotes maximum social welfare

54. Public Enterprises
• Public enterprises (PE) refers to an enterprise
which is owned and controlled by the
Government or public authority.
• A public enterprise refers to an industrial,
commercial or service enterprise which is
owned and controlled by the Government or
by public authority/ Government
organisation for providing goods and services
to the public.

55. CHARECTERISTICS OF PUBLIC ENTERPRISES
• Owned by the government or any public
organisation
• Managed, controlled and operated by the
Government
• Carry on activities of production of goods or
services
• Run in different form of organisation
(departmental organisation, public
corporation, Government Company, Boards,
Trusts etc.)

56. CHARECTERISTICS OF PUBLIC ENTERPRISES
• Established with some special objectives
(economic objectives, social objectives, political
objectives etc.)
• Service motive is prime motive
• PE accountable to the public
• Subject to audit rules of the Government
• Required to prepare annual return of working &
place the same before the Lok Sabha.
• Monopoly position in certain economic activities
such as railways, mining, petro-products etc

57. ROLE & IMPORTANCE OF PUBLIC
ENTERPRISES
• Infrastructure Development
• Strong Industrial Base
• Planned Development
• Balanced regional development
• Employment
• Promotes capital formation or investment
• Export promotion

58. ROLE & IMPORTANCE OF PUBLIC
ENTERPRISES
• Import Substitution
• Contribution to the GDP
• Contribution to Exchequer
• Research and Development
• Help reduce disparities of income and wealth/
concentration of economic power
• Protection of consumer interests

59. Forms of Organization
Departmental
organisations
Government
Company
Public
Corporations

60. Departmental Organisation
• Departmental form of organisation is the oldest
form of organising public enterprises.
• Under this form of organisation, an enterprise is
put under the control of a department.
• Such department is headed by the concerned
minister.
• For example- Railway is a public enterprises
which is under the control of Railway department
and is headed by Railway Minister.

61. Public/ Statutory Organisation
• A public or statutory corporation is a body
corporate incorporated under a special Act or
State Legislature.
• According to Morrison, “In public corporation,
we are seeking a combination of public
ownership, public accountability and business
management for public ends.”

62. Government Company
• According to the Companies Act 1956, a
Government company means any company in
which not less than fifty-one per cent of the
paid-up share capital is held by the following-
a) By the central Government
b) By any State Government or Governments
c) Partly by the Central Government and Partly by
one or more State Governments
• A Government company is one in which not less
than 51% of the paid-up capital is held by the
Central or/ and State government.

63. Joint Sector
• A Joint Sector Enterprise is one which is
established in the partnership of the public
sector and the private sector.
• It is refers to a form partnership between the
Government and private sector.
• According to M. Adhikari, “Joint sector is a form
of partnership between the public sector and
the private sector or between the government
and business.”

64. Characteristics of a Joint sector
Enterprise
• Public & Private sector partnership
• Both entrepreneur contribute to the capital
• Managed & controlled by a Board of Directors
• Day to day operations of the enterprise are
conducted by the managing director
• Not accountable to the public

65. Characteristics of a Joint sector
Enterprise
• Organised in company form of organisation
• Both public enterprises and private enterprises
may be converted into joint sector enterprises
• Whenever a big business house or a foreign
enterpreneur wants to participate in a joint
sector enterprise, prior permission of the central
government is essential
• Effective voice in the management and
operations

66. AMUL
• Amul is an Indian dairy cooperative, based at Anand in the state
of Gujarat, India.[2] The word amul (अमूल) is derived from
theSanskrit word Anand Milk Utpadan Limited , meaning rare,
valuable .[3] The co-operative was initially referred to as Anand Milk
Federation Union Limited hence the name AMUL.
• Formed in 1946, it is a brand managed by a cooperative body, the
Gujarat Co-operative Milk Marketing Federation Ltd. (GCMMF),
which today is jointly owned by 3.6 million milk producers in
Gujarat.[4]
• Amul spurred India's White Revolution, which made the country the
world's largest producer of milk and milk products.[5] In the process
Amul became the largest food brand in India and has ventured into
markets overseas.
• Dr. Verghese Kurien, founder-chairman of the GCMMF for more
than 30 years (1973–2006), is credited with the success of Amul.

67. Role & Importance of Joint sector
enterprises
• Integration of public and private sector
• Board-based entrepreneurship
• Social control over industry
• Promotion of socio-economic objectives
• Acceleration of industrial growth
• Curbing concentration of economic power
• Helps develop entrepreneurship
• Promotion of mixed economy

68. Problems/ Demerits of Joint sector
enterprises
• Problem due to capital contribution ratio
• Problem of management and operation
• Many formalities
• Difference of opinion among the directors
• Selection of project

69. Problems/ Demerits of Joint sector
Enterprises
• Difficulty in choosing private entrepreneur
• Change in the board
• Conflict on objectives
• Delay in completion of the project
• Under utilisation of capacity

70. 2. PUBLIC COMPANY
• Stocks are held by a large
number of people
• Minimum 7 shareholders
and no limit for maximum
• Can be listed on stock
exchange and can go
public
• Have to follow many laws
with regards to the board
composition and AGM.

71. TWO TYPES OF CORPORATIONS
1. PRIVATE COMPANY
• Closely held by a few people
• Minimum 2 and maximum 50
shareholders
• Stocks cannot be traded on exchanges
and private equity cannot be raised
• Less regulations as compared to
Public Companies

72. CHARECTERISTICS OF CO-OPERATIVE
• Voluntary association
• Minimum membership requirement is 10
and there is no maximum limit
• Registration of Co-operative is must
under the “Co-operative Societies Act” is
a must. After the registration it enjoys
certain privileges of a Joint Stock
Company

73. ADVANTAGES OF CO-OPERATIVE
• Easy Formation
• Limited Liability
• Stability
• Democratic
Management
• State Assistance

74. DISADVANTAGES OF A CO-OPERATIVE
• Possibility of
conflict
• Long decision
making process
• Not enough capital

75. JOINT STOCK COMPANY
A joint stock company is a voluntary
association of people who contribute
money to carry on business