Types of industrial organization

1. TYPES OF BUSINESS ORGANIZATION
Professor & Lawyer
Puttu Guru Prasad
Mudaliyar
VVIT – Nambur
93 94 96 98 98

2. WHAT IS BUSINESS ENTERPRISE?
Business enterprises are concerned directly or indirectly with
the production, purchase, sale, transfer and exchange of goods
and services on regular basis with profit motive.
According to W.O. Wheeler, “Business unit is a concern,
company or enterprise which buys and sells, is owned by one
person or group of persons and is managed under a specific set
of operating polices”.
Characteristics of business organization:
 Business should be an economic activity
 Business units must be concerned with Production,
purchase, sale and transfer of goods and services
 Business units must have Profit motive
 There must be regulatory in the business dealings
 Business activity Satisfy human needs
 Business activity is aimed at transfer of ownership of goods
and services for value
 Business activity involves coordination of resources.

3. Forms business organisation:
Sectors/Forms of business organization
Private sector Public sector Joint sector
Sole trade
Partnership
Joint Hindu family business
Cooperative organisation
Joint stock company
Departmental organisations
Public corporations
Government companies

4. 1.Private sector:
under this sector business is owned by one of the members of
society. Business activities performed individually or
collectively.
Features:
a)Profit motive: main objective to earn profit instead of service
to society.
b)No state participation: Central or state governments can’t
participate to establishment of public sector enterprises.
c)Private ownership: ownership lies in the hands of one or
more private businessmen.
d)Independent management: the management and control of
private sector enterprise is vested in the hands of one or more
private businessmen.
Types of private sector:
a. Sole trade
b. Partner ship
c. Joint Hindu family business
d. Cooperative organization
e. Joint stock company

5. 2.Public sector:
Enterprise is owned, managed and controlled by the government form
public sector enterprises.
Features:
1.Public accountability: the capital is supplies from public exchequer or
government department in charge of public money. Therefore it is
answerable to the parliament.
2.Government control: government controls over management of public
enterprises. Ultimate control of a public enterprise lies with the
parliament.
3.Service motive: the primary objective is to render service to the
public.
4.State owner ship: these are owned by the government. Even where
private entrepreneurs are permitted to invest capital, more than 50%
capital is contributed by govt.
Types of public sector:
(a)Departmental organization
(b)Public corporations
(c)Government companies

6. 3.Joint sector:
It is the sector, which is owned, managed and controlled jointly by the
public and private sector. It is the combination of the vast resources of
the government and managerial and technological expertise of the
private sector. generally the distribution of capital is made in the
following manner;
Government – 26%
Private sector – 25%
Public sector – 49%
These enterprises also known as mixed ownership enterprises.
Features:
1.Joint share capital: in this, government, private businessmen and
public subscribe for 26%, 25% and 49% shares respectively.
2.Combined management: it is combined management of government,
private businessmen and public and the control of this sector lie with
the nominee or representatives.
3.Mixed ownership: Governments as well as private businessmen both
have ownership of joint sector enterprises.

7. SOLE PROPRIETORSHIP:-
Sole proprietorship is the form of business organization, which is
owned, managed and controlled by an individual, who is solely
responsible for the results of the business ‘operations’.
“A sole trader is a person who carries on business exclusively by and for
himself. He is not only the owner of the capital of undertaking, but is
usually the organizer and manager and takes all profits or responsibilities
for losses”. ----James Stephenson
Characteristics/features of Sole proprietorship:
1. Easy of formation
2. Limited resources
3. Unlimited liability
4. Freedom of choice of the business
5. Prompt decisions
6. Secrecy

8. Advantages/merit of Sole proprietorship:
1. Easy formation
2. Prompt decisions
3. Secrecy
4. Economy
5. Personal touch
6. Freedom of business
7. High degree f flexibility
8. Low rate of taxation
9. Direct motivation
10. Total control
11. Minimum interference from government
Disadvantages/demerits/limitations of Sole proprietorship:
1. Limited resources
2. Limited management efficiency
3. Unlimited liability
4. Hasty decisions
5. Temporary existence
6. No division of labour
7. Uncertainty
8. Inadequate for growth and expansion
9. Lack of specialization
10. Low bargaining power

9. Suitability of Sole proprietorship:
1. If the size of the business is small
2. If small amount of capital is required
3. Suitable for artistic goods
4. Suitable for services
5. Where secrecy is to be maintained.

10. PARTNERSHIP:-
It is an agreement between two or more persons to carry on legal
business with profit motive, carried on by all or any one of them acting
for all.
According to partnership act, 1932 “partnership is relationship
between persons who have agreed to share the profits of the business
carried by on all or any one of them acting for all”.
Characteristics/features of partnership:
1. Agreement between two or more persons
2. Legal business
3. Profit motive
4. Unlimited liability
5. Utmost good faith
6. Mutual agency
7. Restriction on transfer of interest

11. Partnership deed:
The written agreement between partners is known as partnership
deed. This agreement may be oral or written or implied in the
conduct of persons concerned.
Contents of Partnership deed:
1. Name and address of the firm
2. Name and address of partners
3. Duration of the partnership
4. Nature of the business
5. Profit sharing ratio
6. Amount of capital contribution by each partner
7. Rate of capital, if allowed
8. Remuneration payable to partners etc.
Registration of partnership:
Registration of partnership is not compulsory but it is useful.

12. Advantages/merits of partnership:
1. Easy to form
2. Availability of large resources
3. Better decision making
4. Sharing of risk
5. Democratic management
6. Flexibility
7. Division of labour
8. Personal touch with customers
9. Quick decisions and prompt actions.
Disadvantages/demerits of partnership:
1. Unlimited liability
2. Limited resources
3. Instability
4. Mutual distrust
5. Lack of public confidence
6. Limitation on transfer of share
7. High tax rate
8. Limited growth

13. Kinds of partners:
1. Active partner
2. Sleeping or dormant partner
3. Nominal partner
4. Partner by estoppels
5. Secret partner
6. Minor as a partner

14. Difference between partnership and sole trader
Point of difference partnership Sole trader
1 Legislation It is established according to
partnership Act 1932
It has no specific legislation
2 No of members The minimum no of partners
is two and maximum number
in case of banking business is
ten and in other business is
twenty
It is owned and carried on by
only one person. He may
employ other persons or take
help from the members of his
family
3 Agreement There must be agreement
among partners
No agreement required
4 Distribution of profit Profit is shared among
partners
The entire profit is enjoyed by
the proprietor alone
5 capital It has got more capital,
because there are more
members
It has limited capital, because
the capital is contributed by
one person only.
6 secrecy Business secrecy cannot be
maintained
Business secrecy is
maintained
7 personal touch It does not have personal
touch as much as the sole
trader has with his customers
It is located amidst
consumers, so it has personal
contact and touch with them

15. Joint stock company:-
The drawbacks of sole proprietary ship and partnership gave
rise to company form of organization.
First Joint Stock Company was started in Italy in 13th century.
In India the first companies Act was passed in 1850. In 1956, a
comprehensive Act was passed, which is still in existence.
Meaning: A joint stock company is an artificial person, created
by law with a fixed capital, divisible into transferable shares,
with perpetual succession and common seal.
Definitions:
According to Haney, “A joint stock company is a voluntary
association of persons for profit, whose capital is divided into
transferable shares and ownership is required for its
membership”.
In the opinion of kimbal and kimbel “corporation by nature is
an artificial person, which is created by law for specific
purpose”.

16. Features/characteristics of a joint stock company:
1. Artificial person
2. Created by law
3. Fixed capital
4. Limited liability
5. Perpetual succession(permanent life)
6. Democratic management
7. Common seal.

17. Types/kinds of companies:
A. On the basis of corporation
1. Chartered companies
2. Statutory companies
3. Registered companies
B. On the basis of liability
1. Unlimited liability companies
2. Limited liability companies
3. Limited by shares
4. Limited by guarantee.
C. On the basis of ownership
1. Public company
2. Private company
3. Government company
4. Holding company
5. Subsidiary company
6. Foreign collaboration and Multinational Company
7. Deemed public company

18. Advantages/merits of Joint Stock Company:
1. Permanent existence
2. Limited liability
3. Availability of large capital
4. Transferability of shares
5. Economies of large scale
6. Tax relief
7. Diffused risk.

19. Disadvantages /demerits of company:
1. Excessive legal formalities
2. Fraud by promoters
3. Speculation in shares
4. Lack of secrecy
5. Evils of large scale business.

20. State/public enterprises:
Public enterprises or public sector are owned and controlled by the
government .it may be central government or state government or
local body individually or jointly. The whole or major part of capital is
contributed by the govt. service motive and public interest is the main
objective of these enterprises. These industries supply goods and
services at nominal rate or even free of cost.
Definition: public enterprise is an undertaking owned and operated
by the central or state or local government. The basic aim of these
enterprises is to provide goods and services to citizens at a reasonable
price.
Characteristics/features of public enterprises:
1. Government ownership and control
2. Satisfying basic needs
3. Investment of heavy fixed capital
4. Service motive
5. Public interest

21. Forms of public enterprises:
A. Departmental undertaking
B. Statutory undertaking
C. Government companies
A. Departmental undertaking:
It works as the ministry or a department of the government.
The budget of these departmental organizations is presented to
the parliament just like other ministries. Indian railways and
post and telegraph departments are the examples.
These are entirely owned and controlled by the government.
Features of departmental undertaking:
1. Department of the government
2. Government treasury
3. Staff from civil service
4. Full government control
5. Meeting government needs

22. Advantages/merits:
1. Service motive
2. National importance
3. Secrecy
4. Proper management
Disadvantages/demerits:
1. Least profit earning venture
2. Redtapism
3. Lack of competent workers
4. Political evils
5. Lack of competition

23. B. Statutory/public corporations:
Public corporations are formed by the special act of
parliament or legislative assemblies. Their existence is
separate from the government. This is why, these
corporations are called autonomous bodies. Though these
corporations are independent in financial matters, even
then they remain under the control of government.
According to Morrison, “public corporation is a
combination of public ownership, public accountability
and business management for public end”.
Features:
1. Created by parliament/state legislature
2. Separate entity
3. Government control
4. Appointment of employees
5. Free from government budgeting
6. Managed by board of directors

24. Advantages:
1. Free from government control
2. Service motive
3. Independent decision
4. Efficient management
5. Economic self independence
Disadvantages:
1. Redtapism
2. Continued political interference
3. Misuse of power
4. Inefficient management
5. Danger of monopoly

25. C. Government Company:
The company whose at least 51% of the paid up share
capital is held by the government is government company.
Shares may be held by the central government or state
government jointly or individually. It is registered as a
private limited company, under Indian companies Act.
The reason behind the formation of Government
Company in the presence of departmental organizations
and public corporations is simply to leave the door open
for private local and foreign participation in the capital.
Examples of government companies:
1. Heavy Electrical Ltd.
2. Hindustan Steel ltd.
3. Hindustan Machine tools ltd.
4. Hindustan Aircraft Ltd.
5. Indian Telephone Industries Ltd.

26. Features:
1. Formation
2. Separate legal entity
3. Source of capital
4. Management
5. Autonomy
Advantages:
1. Independent business policies
2. Benefit of expertise
3. Additional financial resources
4. Doubly benefited
Disadvantages:
1. Undue government intervention
2. Transfer of employees
3. No professional managers

27. Comparison between different forms of public enterprises
Points of
difference
Departmental
organizations
Public
corporations
Government
companies
1. Formation
It is formed as a department or
ministry of the government
It is formed by the special
act of the parliament or
legislature
It is formed by a government
department or ministry
1. Capital
Capital is provided by
budgetary provisions of the
government.
Capital is provided by
the government.
At least 51% is provided by the
government and the rest by
private participation
1. Legal position
There is no separate
existence. It is part of
government setup
It has got separate
legal entity.
It has got separate
corporate existence.
1. Management
It is managed by
government officials.
It is managed by
separate board of
directors.
It is managed by
separate board of
directors.it may include
private individuals.
1. Staff
Government employees
form staff
Private employees
are appointed by the
corporation staff.
Private employees of the
company form staff
1. Autonomy
There is no autonomy
There is substantial
autonomy
There is little autonomy

28. THANK YOU ALL
Professor & Lawyer
Puttu Guru Prasad
Mudaliyar
VVIT – Nambur
93 94 96 98 98