choice of business organization and others

choice of business organization and others

1. CHOICE OF BUSINESS ORGANIZATION

2. The selection of a suitable form of ownership organization is an important
entrepreneurial decision because it influences the success and growth of
a business —e.g., it determines the decision of profits, the risk associated
with business, and so on. The ultimate choice of the form of business,
depends upon the balancing of the advantages and disadvantages of the
various forms of business. The right choice of the form of the business is
very crucial because it determines the power, control, risk and
responsibility of the entrepreneur as well as the division of profits and
losses. Being a long-term commitment, the choice of the form of business
should be made after considerable thought and deliberation.

3. FORMS OF BUSINESS ORGANIZATION

4. COMPANY
PUBLIC LIMITED COMPANY:
An organization in which public is interested and it is allowed to issue securities to the public. It has minimum 3 Directors
and minimum 7 members. The name of such company ends with the word “Limited”.
PROS CONS
Limited Liability Legal Requirements
Offers continuity Extra Costs
Separate Legal Entity Time-consuming
Possible to raise large amounts of capitalMore rules and regulations
No limit on shareholders Stockholders entitled to information
Shares sold to everybody Risk of uncontrolled growth
Flexibility for shareholders Management issues
Trade without agreement Stock exchange listing expensive
Business has greater success Original owners may lose control over the business

5. PRIVATE COMPANY
Aprivatelimitedcompanymusthaveaminimumof2Directorsandcanhavea
maximumof15directors.OneoftheDirectorofaprivatelimitedcompanyhasto
beanIndianCitizenandIndianResident.
PROS CONS
Limited Liability Governance required to be done is sizeable
Cost of setting up are not high Statutory Audit is required from the first Day
Scalable form of business organisation Corporate Rate of tax is 30%
Payment Gateways and few others require the business to
be a company
Cost of running a company is sizeable
Investors are willing to fund on companies because shares
are relatively easy to transfer and trade
There are a lot of legal restrictions that are to be complied
with
A corporate veil separates the actions of the company from
the actions of the owners
People may come and people may go, but the company
goes on forever. It outlasts the founder.

6. PARTNERSHIP FIRM
APartnershipisoneofthemostimportantformsofabusinessorganization,wheretwoormorepeoplecome
togethertoformabusinessanddividetheprofitsthereofinanagreedratio.APartnershipiseasytoform,and
thecomplianceisminimalascomparedtocompanies.
Personswhohaveenteredintopartnershipwithoneanothertocarryonabusinessareindividuallycalled
“Partners”;collectivelycalledasa“PartnershipFirm”;andthenameunderwhichtheirbusinessiscarriedonis
calledthe“FirmName”.
PROS CONS
Easy to step up. Quick way to commence businessLiability is unlimited
Cost of setting up are not high Not a scalable form of business organisation
Governance required to be done is low Payment Gateways and few others require the
business to be a company
Till turnover reaches a sizeable amount, no Audit is
required
Beyond a certain level of income, the rate of tax
becomes 30%
More than 1 person can be part of the ownership
structure of the business
Unless it’s a registration firm, it cant file a suit
against anybody
Profit sharing ratio between partners can be
different from the Loss sharing Ratio
Investors are unwilling to fund a firm

7. Limitedliabilitypartnershipisacombinationofbothpartnershipand
corporation.Ithasthefeatureofboththeseforms.Asthename
suggestspartnershavelimitedliabilityinthecompanywhichmeans
thatpersonalassetsofthepartnersarenotusedforpayingoffthe
debtsofthecompany.
PROS CONS
Limited Liability
Governance required to be done is
sizeable
Costs of setting up are not high
Payment Gateways and few others
require the business to be a Company
Statutory Audit is NOT required from the
First Day
Corporate Rate of tax is 30%
Cost of running a company is NOT high
Investors are willing to fund only
companies because shares are relatively
easy to transfer and trade
Legal restrictions that are to be complied
with are low
Not a very scalable form of business
organisation
Some benefits of a company without the
problems of a company

8. SOLE PROPRIETORSHIP
Asoleproprietorshipisthemostcommonformofbusinessorganization.Itisbusinessofonewithout
corporateandlimitedliabilitystatus.It'seasytoformandofferscompletecontroltotheowner.Butthe
businessownerisalsopersonallyliableforallfinancialobligationsanddebtsofthebusiness.
PROS CONS
Very easy to set up. Quick way to
commence business
Liability is unlimited
Costs of setting up are very low
Not a scalable form of business
organisation
The same PAN, Service Tax number
that the individual has, can be used by
the business
Payment Gateways and a few others
require the business to be a Company
Tax is based on the slab rate and
hence tax outflow is limited
Can’t induct a partner/co-owner into
the business
Governance required to be done is
low
Till turnover reaches a sizeable
amount, no Audit is required

9. •AnewconcepthasbeenintroducedintheCompany’s
Act2013,abouttheOnePersonCompany(OPC).
•InaPrivateCompany,aminimumof2Directorsand
MembersarerequiredwhereasinaPublicCompany,a
minimumof3Directorsandaminimumof7
members.Asinglepersoncouldnotincorporatea
Companypreviously.
•Incasethepaid-upsharecapitalofanOPCexceeds
fiftylakhrupeesoritsaverageannualturnoverof
immediatelyprecedingthreeconsecutivefinancial
yearsexceedstwocrorerupees,thentheOPChasto
mandatorilyconvertitselfintoaprivateorpublic
company.

10. ADVANTAGES
•One Person Companyholds a separate legal entity where an entrepreneur is capable of implementing any
plan of action regarding a company without awarding any owner, or C level person. One Person company is
specifically known for an individual business.
•OPC can easily raise funds through angel investors, venture capital and financial institutes. Graduating to
aprivate limited company; OPC can raise funds and continue business.
•One Person Company holds a lot of efficient opportunities, limited liability since the liability of the OPC is
limited to the extent of the value of the share you hold, the individual could take more risk in business
without affecting or suffering the loss of personal assets.
•Single ownership is beneficial than having one or more owner. It is highly beneficial in making a quick
decision, managing the business without following any suggestions and methodologies, and controlling.

11. Minimum 1
Shareholder
Minimum 1 Director
.
The director and shareholder can be the same person
.
Minimum 1
Nominee
A B C D
MINIMUM REQUIREMENT
A B C D
Letters ‘OPC’ to be suffixed with the name of OPCs to distinguish it from other companies
E
E
D

12. DISADVANTAGES
Compliance cost of partnership firm or proprietary is very low compared to One Person Company.
A shareholder is one and all the decisions are done by a person. On the off chance that he is insightful, it
is great however in some cases cross- check is required for business development.
There is the procurement of automatic conversion of One Person Company into Private Limited Company.
In the event that you appraise high turnover of your business or you have effectively high turnover, the
better choice is to build up a private limited company than One Person Company.
•As OPC has more focus on various functional and core areas, OPC have to face a little burden as
compared to private limited companies

13. Itisahybridbetweenaprivatelimitedcompanyandaco-operative
societywhichDealsprimarilywithagricultureandpost-harvest
processingactivities.PrimaryObjectivesincludeproduction,
harvesting,procurementandrelatedactivitiesofprimaryproduce.
Minimum5Directors&10shareholdersarerequiredtoforma
producercompany.

14. ADVANTAGES:
Changes in the Board of Management of
a producer company can swiftly be made
just through filing few simple forms with
the ROC concerned.
Only a duly registered
producer company is
entitled to sell or own a
property in its own name.
Producer companies offer greater
credibility as compared to that
offered by unregistered
organizations of
agriculturists/farmers.
Aproducercompanyenjoysa
separatelegalentity,and
offersthefacilitiesoflimited
liabilityandperpetuity.
A registered producer company is fully
entitled to accept deposits from or give
loans to its agriculturist members, at
reasonable rates of interest.

16. TRUST
Trustisnothingbuttransferofpropertybytheownertoanotherpersononwhomtheownerhas
confidenceforthebenefitofathirdperson.Propertydoesn’tjustmeanrealestate.Itcouldbe
cash,sharesoranyothervaluableasset.
Further,theinstrumentbywhichthisentiretrustisdeclared/creatediscalled“theinstrumentof
trust”orthe“trustdeed”.
•Minimum2Trusteesrequired.
•Anobligationannexedtotheownershipofproperty.

17. SOCIETY
ASocietycanbeformedforthepromotionofliterature,scienceorfineartsorthediffusionof
usefulknowledgeorpoliticaleducationorforcharitablepurposes.AsperSection20ofthe
SocietiesAct,1860, aSocietycanberegisteredforthefollowingpurposes:
•Grantofcharitableassistance.
•CreationofMilitaryOrphanfunds.
•PromotionofScience,Literature,FineArtsorinstructionor
DiffusionofusefulKnowledge&PoliticalScience.
•Foundationormaintenanceoflibrariesorreadingrooms
orpublicmuseumorgalleries.
InadditiontotheabovepurposesspecifiedbytheSocieties
Act,1860, aSocietycanalsoberegisteredforotherpurposes
basedontheamendmentthathasbeenenactedtothe
SocietiesAct,1860bytheconcernedStateGovernment.

18. TheCompaniesActdefinesaSection8companyasone
whoseobjectivesistopromotefieldsofarts,commerce,
science,research,education,sports,charity,socialwelfare,
religion,environmentprotection,orothersimilar
objectives.
Thesecompaniesalsoapplytheirprofits
towardsthefurtheranceoftheircauseand
donotpayanydividendtotheirmembers.

19. CHOOSING BETWEEN DIFFERENT FORMS OF BUSINESS ORGANIZATIONS
Factors to be considered for choosing the right form of business organization are:
NATURE OF
BUSINESS
•Foremostimportant
factor.Thebusiness
whichrequirediverse
mindsetscannotbe
runonsoletrader
basis.
SCALE OF
OPERATIONS
•Forlargescale
operations,
companiesarebest
option.Andinthat,
ifyouareplanning
forlistingofshares,
go forpublic
company.
•Partnershipscanalso
bemadeformedium
scaleofoperations
likeifthebusinessis
expanded in
differentstates.
•ChooseLLPover
partnershipbecause
of itsmote
advantages.
OWNERSHIP
•Ifyoudon’twant
tosharethe
authorityto
manage&the
profit, sole
proprietorshipor
OPCisbest.A
PrivateCompany
canalsobe
incorporatedfor
sharingbetween
lesspeople.
REQUIREMENT
S OF FUNDS
•For accessing
funds,public
companyisthe
bestoption
•Partnershipscan
alsomeformed
tocontributebut
againcapitalin
thehandsof
individualwillbe
limited.Statusof
businessisvery
crucialfactorfor
long term
prospects.