Forms of business organisations

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 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

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

6. 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)

7. 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

8. 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

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

10. 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

11. 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.

12. 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.

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

14. 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

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

16. 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

17. 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.

18. 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

19. 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

20. 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

21. 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.

22. 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”

23. 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.

24. 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

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

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

27. 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.”

28. 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

29. 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.

30. 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

31. 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

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

33. 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

34. 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.

35. 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

36. 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.”

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

38. 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

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

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

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

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

43. 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 .

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

45. 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.”

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

47. 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

48. 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

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

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

51. 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

52. 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.

53. 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.)

54. 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

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

56. 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

57. Forms of Organization Departmental organisations Government Company Public Corporations

58. 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.

59. 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.”

60. 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- By the central Government By any State Government or Governments 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.

61. 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.”

62. 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

63. 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

64. AMUL Amul  is an Indian dairy cooperative, based at  Anand  in the state of  Gujarat , India. [2]  The word  amul  ( अमूल ) is derived from the Sanskrit  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 .

65. 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

66. 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

67. 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

68. 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.

69. TWO TYPES OF CORPORATIONS 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

70. 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

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

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

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

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