Forms of Business Organization

Sole proprietorship: Meaning, Features, Merits and Demerits. Partnership: Meaning, Features, Merits and Demerits. Joint stock company: Meaning, Features, Merits and Demerits. Co-operatives: Meaning, Features, Merits and Demerits.

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BUSINESS
ORGANISATION
UNIT-2
FORMS OF BUSINESS
ORGANIZATION

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•Abusinessowner’sfirstdecisionwhilestartingabusinessistodecide
whatformofbusinesshewantstoStart.Tochoosethebusinesstypeis
essentialbecauseitwilldeterminehowmuchtaxneedstobepaid,the
quantityofpaperwork,individualliability,andhowmuchtoinvestetc.
•Thebusinessformationisregulatedbythestatelawwherethecompany
isestablished.
Forms of Business Organization
1.Soleproprietorship.
2.Partnership.
3.JointStockCompany.
4.Cooperatives.
5.Corporations.
6.HinduUndividedFamily(HUF).

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Sole proprietorship
Meaning
•Thisisthetraditionalandpopularformof
businessorganizationinwhichanindividual
operatesabusinessontheirown,without
formingaseparatelegalentity.
•Itsformationissimple,andtheownercontrols
thecompleteoperationsofabusinessandis
liableforallfinancialburdensanddebts.

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Key Features of a Sole Proprietorship
1.Ownership:Thebusinessisownedandoperatedbyasingle
individual.Thisindividualispersonallyresponsibleforallaspectsof
thebusiness.
2.Liability:Theownerhasunlimitedpersonalliability,meaningthey
arepersonallyresponsibleforallofthebusiness'sdebtsandlegal
obligations.Thismeanspersonalassetsmaybeatrisktosatisfy
businessdebts.
3.Taxation:Inmostcountries,thebusinessincomeisreportedonthe
owner'spersonaltaxreturn.Theownerisresponsibleforpaying
incometaxonthebusiness'sprofits.
4.Simplicity:Soleproprietorshipsareeasytosetupandmaintain,
withminimalformalitiesandpaperwork.
Types of Sole Proprietorships:
1.Service-BasedSoleProprietorship:Thisisoneofthemostcommontypesofsole
proprietorships.Itinvolvesprovidingservicesasaself-employedindividual.Examples
includeconsultants,freelancers,tutors,andhealthcareprofessionals.
2.RetailSoleProprietorship:Thesebusinessesinvolvethesaleofphysicalproductsto
consumers.Smallshops,boutiques,andonlinestoresrunbyasingleindividualcanbe
consideredretailsoleproprietorships.
3.CraftsmanshipSoleProprietorship:Individualswhocreateandsellhandmadeor
custom-madegoods,suchasartists,craftsmen,andjewellerymakers,oftenoperateas
soleproprietors.
4.ConsultingSoleProprietorship:Consultants,suchasbusinessconsultants,
marketingconsultants,andITconsultants,oftenoperateassoleproprietors,offering
theirexpertisetoclients.

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Continue…
5.ProfessionalPracticeSoleProprietorship:Professionalslikedoctors,
lawyers,accountants,andarchitectsmaychoosetooperatetheirpractices
assoleproprietorships.
6.Home-BasedSoleProprietorship: Manyindividualsstartsmall
businessesfromtheirhomes,suchas home-baseddaycare,online
businesses,orconsultingservices.
7.ContractingSoleProprietorship:Contractorsinvariousfields,suchas
construction,plumbing,electricalwork,andlandscaping,oftenruntheir
businessesassoleproprietorships.
Advantages of Sole Proprietorships:
1.EaseofFormation:Settingupasoleproprietorshipisrelativelysimple
andinexpensive.Inmostcases,youonlyneedtoregisteryourbusiness
name,obtainanynecessarylicensesorpermits,andyou'rereadytostart
operating.
2.FullControl:Asthesoleowner,youhavecompletecontroloverall
aspectsofyourbusiness,includingdecision-making,operations,and
financialmanagement.Youdon'tneedtoconsultwithpartnersor
shareholderswhenmakingchoices.
3.SimplifiedTaxation:Incomegeneratedbythebusinessistypically
reportedontheowner'sindividualtaxreturn,simplifyingthetaxprocess.
Thiscanalsooffertheopportunitytotakeadvantageofcertaintax
deductions.

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4.DirectAccesstoProfits:Allprofitsearnedbythebusinessbelongtothe
soleproprietor.Thereisnoneedtosharetheprofitswithpartnersor
shareholders.
5.Flexibility:Asoleproprietorshipoffersflexibilityintermsofthetypesof
businessyoucanoperateandhowyourunit.Youcanadaptquicklyto
changingmarketconditionsandcustomerneeds.
6.MinimalRegulatoryRequirements: Comparedtootherbusiness
structures,therearefewerregulatoryandcompliancerequirementsforsole
proprietorships.Thismeanslesspaperworkandadministrativeoverhead.
7.LowOperatingCosts:Soleproprietorscankeepcostsdownbecause
theydon'tneedtopayfeesorsalariestopartnersorshareholders.Theycan
alsochoosetooperatefromhomeorinasmalloffice,reducingoverhead
expenses.
Continue..
8.QuickDecision-Making:Withnopartnersorboardofdirectorstoconsult,sole
proprietorscanmakedecisionsrapidly,whichcanbecrucialinseizingopportunitiesor
respondingtochallengesinadynamicbusinessenvironment.
9.Privacy:Soleproprietorshipsofferahigherdegreeofprivacy,asthereisno
requirementtodisclosefinancialorbusinessinformationtothepublicorshareholders.
10.EasyDissolution:Ifyoudecidetocloseorsellthebusiness,itisrelatively
straightforwardtodissolveasoleproprietorship.Therearenocomplexlegalprocedures
ortheneedtoobtainapprovalfromotherowners.

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Disadvantages of Sole Proprietorships:
1.UnlimitedPersonalLiability:Inasoleproprietorship,theownerandthe
businessareconsideredoneandthesamefromalegalstandpoint.This
meansthattheownerispersonallyresponsibleforallthebusiness'sdebts
andliabilities.Ifthebusinessincurssignificantdebtsorfaceslegalissues,
theowner'spersonalassets(suchastheirhomeandsavings)canbeatrisk.
2.LimitedAccesstoCapital:Soleproprietorsmayfinditchallengingto
raisecapitalfortheirbusinesses.Theyoftenhavetorelyontheirpersonal
savingsorloans,asitcanbedifficulttoattractinvestorsorsecurebusiness
loanswithoutaseparatelegalentity.
Continue..
3.LimitedExpertiseandResources:Runningabusinessalonecanbe
overwhelming,especiallyforthosewithlimitedexpertiseinvariousaspects
ofbusinessmanagement,suchasfinance,marketing,andoperations.Sole
proprietorsmaylacktheresourcestohirespecialistsintheseareas.
4.LackofContinuity:Soleproprietorshipsaretiedtotheowner'slife,and
thebusinesstypicallydissolvesupontheowner'sdeathorretirement.This
lackofcontinuitycanmakeitdifficulttopassthebusinessontoheirsorsell
itasagoingconcern.
5.DifficultyinScaling:Expandingandscalingasoleproprietorshipcanbe
challengingbecausetheownermayhavelimitedtime,resources,and
expertisetomanageagrowingenterpriseeffectively.

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6.LegalFormalities:Whilesoleproprietorshipshavefeweradministrative
requirementscomparedtootherbusinessstructures,theymaystillrequire
licensesorpermits,andtheownermusthandlealllegalandregulatory
compliancemattersthemselves.
7.DifficultyinRaisingCapital:Soleproprietorsmayfinditchallengingto
securefundingorattractinvestors,aspotentialinvestorsmaypreferto
investinbusinesseswithamorestructuredandprotectedlegalentity.

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Trade License
Everysoleproprietorship,
partnershipfirmorcompanydoing
businessinBangalorelistedunder
ScheduleXoftheKarnataka
MunicipalCorporation(KMC)
Act,1976shouldmandatorilyapply
fortheBBMPtradelicense.
Suchbusinessesshouldcomply
withtherulesandguidelinesissued
bytheBBMP.
Partnership

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Meaning
•Partnershipisaformofbusinessorganizationinwhichtwoormore
individualsorentitiescometogethertomanageandoperateabusiness
withacommongoalofmakingaprofit.
•Partnershipsareapopularchoicefor
smallandmedium-sizedbusinesses
duetotheirflexibilityandsimplicity.
Key Features of Partnership

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Key Features of Partnership
1.NumberofPartners
Apartnershipfirmshallhaveaminimumoftwopartners.However,themaximumnumberofpartnerscanbe
50.ThelimitonthemaximumnumberofpartnersinthisfirmisprescribedbytheCompanies
(Miscellaneous)Rules,2014.Also,theGovernmenthasthepowertoincreasethislimitto100.
2.PartnershipDeed
Therightsanddutiesofpartnersinapartnershipfirmaregovernedbyawrittenagreementbetweenthem,
knownasPartnershipDeed.Suchadeedshallbesignedbyallthepartners.
3.SharingofProfits
Sharingofprofitsisthemostfundamentalcharacteristicofapartnershipfirm.Therefore,allthepartners
shallsharetheprofitsofthebusinessintheratioasmentionedinthePartnershipDeed.However,inthe
absenceofaparticularratio,profitsshallbesharedequally.
Moreover,sharingofprofitsincludessharingoflossesaswell.
Continue…
4.UnlimitedLiability
Inageneralpartnership,theliabilityofallthepartnersisunlimited.Thismeansthatincaseoflossesifthe
assetsofthefirmareinsufficienttopayoffthedebtsofthefirm,thepartnersbecomepersonallyliableto
thirdparties.
5.BusinessMotive
Themotivebehindtheformationofapartnershipfirmshallbecarryingonabusiness.Inaddition,such
businessshallbelawful.
Further,thetermbusinessincludestrade,occupation,andprofession.
6.MutualAgency
Thereisacontractofmutualagencybetweenthepartnersofapartnershipfirmandbetweenapartnerand
thefirm.Itmeansthatallthepartnersareliablefortheactsofeachotherandsimilarly,apartnerisliablefor
theactsofthefirm.

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Partnership Deed
Partnershipdeedisapartnership
agreementbetweenthepartnersof
thefirmwhichoutlinestheterms
andconditionsofthepartnership
betweenthepartners.
Contents of Partnership Deed
•The name of the firm.
•Name and addresses of the partners.
•Nature of the business.
•The term or duration of the partnership.
•The amount of capital to be contributed by each partner.
•The drawings that can be made by each partner.
•The interest to be allowed on capital and charged on drawings.
•Rights of partners.
•Duties of partners.
•Remuneration to partners.
•The method used for calculating goodwill.
•Profit and loss sharing ratio

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Documents required for registration of a
partnership firm
1.Certified original copy of Partnership deed
2.Partner’s documents ( PAN Card and Aadhar or Driving License)
3.Address proof of the firm (Rent agreement and utility bills)
4.GST registration
5.Specimen of an affidavit certifying all the details mentioned in the partnership
deed and documents are correct.
6.Application for registration of partnership i.e. Form 1

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Types of Partners

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Types of Partnership Firms

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BASEDONDURATION
•PartnershipatWill
Whenthecontractbetweenthepartnersdoesnotspecifythetimelimit,thepartnershipisat
thewillofthepartnersandcontinuestooperateforanindefiniteperiod.However,the
partnerscandissolvesuchapartnershipbywayofmutualagreementorbyoperationoflaw.
Forexample,Mr.A,aCharteredAccountantbyprofession,andMr.B,aCompany
Secretarybyprofessiondecidetoprovideconsultancyservicestogetherunderthefirm
name‘ABConsultancy’.Thisisapartnershipatwill.
•PartnershipforaFixedTerm
Whenthedurationofthepartnershipismentionedinthecontractbetweenthepartners,itis
knownasPartnershipforaFixedTerm.Itmeansthatthepartnershaveagreedbythe
contractastothedurationforwhichthefirmwillcontinue.Inaddition,thefirmdissolves
onthecompletionofsuchtermorthedatementionedinthecontract.
Thistypeofpartnershipfirmissuitableincaseswheretheaccuratedurationofaprojector
aventurecanbedeterminedinadvance.
Forexample,AandBenterintoapartnershipfor6months.Itisapartnershipforafixed
term.

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BASEDONLIABILITY
•LimitedPartnership
LimitedPartnershipisatypeofpartnershipfirminwhichtherearetwotypesofpartners–GeneralPartnersandLimited
Partners.Generalpartnershaveunlimitedliabilityandmanagetheday-to-dayoperationsofthefirm.Therefore,general
partnersenjoycontrolovertheactivitiesofthefirmwhilebearingtheriskoflosses.
Ontheotherhand,limitedpartnersinvesttheirmoneyintothefirmonlywiththemotiveofearningareturn.Theydonot
activelyparticipateinthedecision-makingandroutineoperationsofthefirm.Moreover,intheeventoflosses,thelimited
partnersareliableonlyuptotheextentoftheircontributiontothefirm.
Forexample,A,B,C,andDenterintoapartnershipanddecidetosharetheprofitsintheratioof3:3:3:1respectively.A,
B,andCaregeneralpartnersandDisalimitedpartner.A,B,andCmanagetheoperationsofthebusinesswhileDis
associatedwiththefirmonlyforthemotiveofearningprofit.
•LimitedLiabilityPartnership
LimitedLiabilityPartnership,commonlyknownasLLP,isatypeofpartnershipfirminwhichallthepartnershavelimited
liability.Itmeansthatintheeventoflosses,allthepartnersareliableonlyuptotheextentoftheircapitalcontribution.
TheLimitedLiabilityPartnershipAct,of2008governsLLPsinIndia.
BASEDONPURPOSE
•GeneralPartnership
GeneralPartnershipisatypeofpartnershipfirmthatisformedtogenerallycarryoutbusinessactivities.It
meansthescopeofbusinessisnotdefinedinageneralpartnership.
Therightsanddutiesofthepartnersaregovernedbythecontractbetweenthem,knownasapartnershipdeed.
Inaddition,thereisanimpliedcontractofmutualagencybetweenthepartnersi.e.,theyareliablefortheacts
ofeachother.
Forexample,A,B,andCenterintoapartnershipanddecidetosharetheprofitsequally.Allofthemareliable
fortheactsofeachotheraswellasthefirm.
•ParticularPartnership
Section8ofthePartnershipAct,1932containsprovisionsregardingParticularPartnerships.Accordingly,two
ormorepersonscanenterintoapartnershipforcarryingoutaparticularadventureorundertaking.
Suchpartnershipfirmsaretemporaryinnatureandareformedfortheachievementofaparticularpurpose.
Thepartnershipisdissolved,oncethepurposeisachievedoraprojectiscomplete.
However,thepartnerscanmutuallyagreebetweenthemselvestofurthercarryonthepartnershipafterthe
completionoftheprojectaswell.Forexample,twocontractorsenterintoapartnershipfortheconstructionof
aroad.Oncetheconstructionoftheroadiscomplete,thepartnershipwillbedissolved.

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BASEDONREGISTRATION
Registrationofapartnershipfirmisnotmandatory.Therefore,partnershipfirmscanbe
furtherclassifiedintothefollowingtwotypesbasedontheirregistrationstatus.
•RegisteredPartnership
RegisteredPartnershipsarepartnershipfirmsthatareregisteredwiththeRegistrarofFirms.
ForobtainingaCertificateofRegistration,anapplicationshallbemadeunderSection58of
thePartnershipAct,1932.
Aregisteredpartnershipenjoysseveralbenefitssuchaslegalrecognition,therighttofilea
suitagainstathirdparty,highercredibility,etc.
•UnregisteredPartnership
UnregisteredPartnershipsarepartnershipfirmsthatarenotregisteredwiththeRegistrarof
Firms.Althoughregistrationofapartnershipfirmisnotmandatory,afirmthatisnot
registeredsuffersfromseverallimitationsforexample,itcannotfileasuitagainstathird
partyforbreachofcontract.

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Advantages of Partnership Firm
1.EasyFormation
ComparedtootherformsofbusinesssuchasaCompanyoranLLP,itiseasytostartapartnershipfirm.
Thereareveryfewlegalformalitiesthatareinvolved.Inaddition,thecostofformationisalsolow.
2.PoolingofResources
Twoormorepersonswhoarehavingdifferentsetsofresourcescanjoineachotherandstartabusiness
throughapartnershipfirm.Therefore,apartnershipfirmallowsthepoolingofresources.
Forexample,ifMr.AwantstoinvesthismoneyintoabusinessandMr.Bpossessesexcellentmanagement
skills,theycanstartapartnershiptogetherbycombiningtheresourcesthattheyarehavingi.e.,capitaland
skills.
3.Flexibility
Thesefirmsareveryflexibleasbusinessdecisionscanbetakeneasilyandquickly.Thereisnoneedof
passingaresolutionasinthecaseofacompany.
Continue…
4.AccesstoFunds
Itiseasyforapartnershipfirmtoraisefundsfrombanksandotherfinancialinstitutionsascomparedtoa
SoleProprietorship.Thisisbecauseapartnershipisa‘collectionofpartners’andtherefore,itenjoyshigh
credibility.
5.DivisionofWork
Inapartnershipfirm,workcanbedividedamongstdifferentpartnersbasedontheirskillsandexpertise.
Therefore,itbringsthebenefitsofspecializationandworkefficiency.
6.Closure
Justlikeitiseasytostartapartnershipfirm,theprocessofclosureorwindingupisalsosimple.Theprocess
involvesveryfewlegalformalitiesandtakeslesstime.
7.LessComplianceCost
Incomparisontoacompany,thecompliancecostofapartnershipfirmisverylow.Apartnershipfirm
doesn’tneedtogetitsaccountsauditedbyacharteredaccountant.Inadditiontothis,MCAcompliancesare
notrequiredtobedone,unlikecompanies.
However,itshallfileanincometaxreturneveryyear.

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Disadvantages of Partnership Firm
1.UnlimitedLiability
TheliabilityofallthepartnersinaPartnershipFirmisunlimited.Therefore,intheevent
oflosses,thirdpartiescanraiseaclaimagainstthepersonalassetsofpartnersiftheassets
ofthefirmarenotsufficienttopayoffthedebtsofthefirm.
2.LimitedChancesofExpansion
Itcanhaveamaximumof50partners.Thisrestrictsthegrowthandexpansionof
partnershipfirmstoalimitedextent.
Also,modern-daystartupsissuesecuritieswithdifferentfeaturesformeetingtheir
financialandworkingcapitalrequirements.Forexample,debentures,convertiblenotes,
preferenceshares,etc.Apartnershipfirmcannotissuethesesecurities.
Further,companiestodayprovidetheoptionofESOPi.e.,EmployeeStockOptionPlanto
itsemployeestoretainthem,butapartnershipfirmcannotprovidesuchbenefitstoits
employees.

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3.UndesirableforInvestment
Angelinvestorsandventurecapitalistsdonotconsiderapartnershipfirmasalucrative
investmentoption.Thisisbecauseifapersonwantstoholdaninterestinapartnership
firm,heshallbecomeapartner,andgenerallyangelinvestorsandventurecapitalistsdo
notwanttoengageaspartnersandruntheshow.
Inaddition,foreigncitizensandentitiesalsoconsiderpartnershipfirmsundesirablefor
ForeignDirectInvestment(FDI)astherecordsofapartnershipfirmarenotavailablein
thepublicdomain.
4.LackofTransparency
Thereisalackofpublictrustinthecaseofpartnershipfirmsastheirdatalikeaccounts
arenotaccessibletothegeneralpublic.OtherformsoforganizationssuchasCompanies
andLLPsenjoyhigherpublictrustastheirdataisavailableinthepublicdomain.
Continue…
5.HigherTaxLiability
TherateofincometaxapplicableonapartnershipfirmishigherascomparedtoaSoleProprietorship.Aflat
taxrateof30%isleviedontheincomeofthepartnershipfirm.
6.NoPerpetualSuccession
UnlikeaCompany,apartnershipfirmisnotaseparatelegalentityandtherefore,itdoesnotcontinuefora
perpetualperiod.Thedissolutionofapartnershipcantakeplaceonthehappeningofeventslikethe
retirementofapartner,orthedeathofapartner.Therefore,thereisnoperpetualsuccessioninapartnership
firm.
7.RestrictionontheTransferabilityofInterest
Thereisarestrictiononthetransferabilityofinterestinapartnershipfirm.Apartnermaytransferhisinterest
inapartnershipfirmtoanotherpersonwiththepriorconsentofotherpartnersifrequiredaspertermsofthe
partnershipdeed.Therefore,takinganexitfromapartnershipfirmmaybeacomplexprocessattimes.

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Joint Stock Company
Meaning
•AJointStockCompanyisa
typeofbusinessstructure
thatisownedcollectivelyby
allshareholders.
•Theseshareholdersowna
shareofthecompany,which
isfreelytransferableandthe
investorshavelimited
liability.

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Features of Joint Stock Company
Continue…
1.Separatelegalentity
Acompanyhasitsownlegalidentity,whichisseparatefromitsshareholders.Itisknown
asanartificialpersonandhasitsrights.Hence,ashareholdercan’tbindacompanybyhis
acts,asthemembersandcompanyareconsideredastwodifferentindividualsintheeyes
ofthelaw.Acompanycanbuyitsproperty,borrowmoney,incurdebts,enterintoa
contractorevenfileacaseagainstitsshareholders.Inthesameway,shareholderscanalso
suethecompany,andtheywon’tberesponsibleforthedebttakenbythecompany.

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2.Limitedliability
OneofthemostattractivefeaturesofaJointStockBusinessisitslimitedliability.The
liabilityoftheshareholderswillbelimitedtothevalueoftheirshares.Forexample,ifa
companymakesalossandcannotpayitscreditors,thenshareholderswon’tpayanything
morethanthevalueoftheirshares.Shareholderswon’tbepersonallyliable,andtheir
personalpropertywon’tbeusedtorecovertheduesofthecompany.

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3.Transferableshares
Everyshareholderwillhavetherighttotransfertheirshareswithout
consultingwithothershareholders.ThesharesoftheJointStockBusinessare
listedinthestockexchange,hence,theycaneasilybepurchasedorsold
throughstockexchanges.

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4.PerpetualSuccession
Acompanyanditsshareholdersareconsideredastwodifferentindividuals,
anditisestablishedbylaw;henceonlythelawcanbringittoanend.There
won’tbeanyinterruptionduetothedeath,retirement,orinsolvencyofany
shareholder;itwon’taffecttheexistenceofthecompany.
Continue…
5.Commonseal
Althoughacompanyisconsideredtohaveitsownseparateidentityasan
artificialperson,itcan’tputitssignatureasarealperson.Thecommonseal
actsastheofficialsignatureofacompany,anditbindsthecompanytoits
acts.Thelawrequireseverycompanytohaveitscommonseal,anditmustbe
affixedonallimportantdocuments.Anydocumentthatdoesn’thavethe
commonsealofacompanywon’tbebindingtothecompany.

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6.Publicationoffinancialstatements
AJoint-stockcompanyshouldpublishitsauditedfinancialstatementsothat
itcanprovideinformationtotheshareholdersaboutthecompany’srevenue,
expenses,debt,andprofitability.
Continue…
7.Separationofownershipand
control
Acompanywillhavemultiple
shareholders,whowillbeconsidered
theownersofthecompany,butthey
won’tbeabletotakepartinday-to-
dayactivities.Ownershipwillbe
withshareholders,butcontrolwillbe
inthehandsoftheboardof
directors,whowillbeelectedby
shareholdersastheirrepresentatives.

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Types of Joint Stock Company
Continue…
A.ONTHEBASISOFINCORPORATION
1.CharteredCompany
CharteredCompanyisnotformedinpresentdays;theyusedtobeformedbefore1844.A
CharteredCompanyisacompanythatisincorporatedbythekingortheheadofthestate.These
kindsofcompaniesareusuallyfoundincountriesthathaveamonarchy;charteredcompaniesused
tohaveexclusiverightsandprivilegesastheyusedtocomeintoexistencewiththehelpofthe
powerrootedinthehandsofaking.ExamplesofCharteredcompaniesaretheBankofEngland,
TheEastIndiaCompany,andtheBritishandSouthAfricaCompany.
2.Statutorycompany
StatutorycompaniesarethosethatareestablishedbyaspecificactoftheParliament.Suchan
entity’spower,task,andresponsibilitiesareallstatedthroughtheact.Thesekindsofcompanies
comeintoexistencetocarryonsomebusinessthatisimportantforanation.
3.RegisteredCompany
ForcompaniesthatareincorporatedundertheCompaniesAct,itsformationandregulationsare
governedbytheCompaniesAct.

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B.ONTHEBASISOFOWNERSHIP
1.GovernmentCompany
Itisacorporationinwhichthecentralorstategovernment,ora
combinationofthetwo,ownsatleast51%ofthestock.
2.Non-GovernmentCompany
Privatepeopleorinstitutionsownthebulkofthestock.
Continue…
C.ONTHEBASISOFLIABILITY
1.LimitedLiabilityCompany:
Thisisthemostfrequenttypeofbusinessownership.Theliabilityislimitedtothe
valueofthesharesheldbytheshareholders.
2.UnlimitedLiabilityCompany:
Shareholders’responsibilitiesinsuchafirmincludepersonalpropertyandassets.
3.CompanyLimitedbyGuarantee
Intheeventofliquidation,theshareholdersmustpayasetamount.Theamountis
specifiedintheMemorandumofAssociation.

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D.ONTHEBASISOFTHENUMBEROFMEMBERS
1.PublicCompany:
Apubliclytradedcorporationcanhaveasmanymembersasitwants,inmost
cases.Sharesofthecorporationmaybeboughtandsoldatanytime.These
businessescanalsopublicizetheissuanceofsharesordebentures.
2.PrivateCompany:
Aprivatelimitedcompanymeetsthefollowingthreerequirements:a)ithasa
setnumberofmembersasdeterminedbytheapplicableCompaniesAct;b)it
hasrestrictionsonthetransferofshares;andc)itisnotpermittedtoissue
sharesordebenturestothegeneralpublic.
Merits of Joint Stock Company
1.Largefinancialresources
TherearedifferenttypesoforganizationsapartfromJointStockCompanies,namelypartnership,andasole
proprietorship,butonlythroughJointStockCompanyonecanaccumulatelargefinancialresources.The
reasonbeingaJointStockCompanyiscapableofraisingfundsbyissuingsharesanddebentureswhichcan
beboughtbypeople.
2.Limitedliability
Havinglimitedliabilityencouragespeopletoinvestinacompanyastheywillgetashareoftheprofitifthe
companygrows,buttheywon’thavetopayanythingmorethanthevalueoftheirshares.Italsoallowsthe
managementofthecompanytotakerisksandundertakebigoperations.
3.Diffusedrisk
Asacompanyhasalargenumberofshareholders,riskwillbebornebyalltheshareholders;hencethe
burdenofriskisn’thugeforanindividual.Italsoencouragestheinvestorstoinvestmore,astheywon’tbe
theonlyoneswhowillbetakingrisks.Whilethesamecan’tbesaidforsoleproprietorshiporpartnership
business.

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Continue…
4.Scopeforgrowthandexpansion
Asacompanyhaslargefinancialresources,itcanoperateonalargescale,andexpansion
canbedonethroughissuingnewsharesanddebentures,there’sahugescopeforgrowth
andexpansion.
5.Stability
PerpetualSuccessionandhavingaseparatelegalidentitymakesacompanystableasit
offerscontinuousexistence.
6.Professionalmanagement
AJointStockCompanyusuallyemploysexpertstomanageitsbusiness,asthereareso
manypeoplewhosemoneyisatstake.Theboardofdirectorsiselectedbyshareholdersas
theirrepresentatives,andtheyaremostlypeoplewhohaveyearsofexperience.Hence,the
companycanutilizetheirspecializationinthemosteffectiveandefficientmanner.
Continue…
7.PublicConfidence
JointStockCompanycomesintoexistencethroughlawandissupervisedbylegal
authorities.Hence,thereisnochanceforfraudandmisconduct.Itsaccountsareaudited
byauditors,andfinancialstatementsarepublishedyearly,whichhelpsincreating
confidenceinthepublicaboutthefunctionalityofthecompany.
8.GoodInvestment
InvestinginJointStockCompaniescanbeagreatmediumtogrowfunds,asitisbeing
supervisedbylegalauthority,professionalmanagementusestheirskillsandknowledge,
andthesesharesofferlimitedrisk.

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Demerits of Joint Stock Company
1.Conflictsofinterest
ConflictsofinterestarethemostobviousdrawbackofaJointStockCompany,asthereare
variousgroupsinacompanywhohavedifferentpowers,votingrights,andshares.The
decisionsofmajorityshareholdersinfluencetheoperationsanddecisionsofminority
shareholdersmightnotbeconsidered,whichmightraiseaconflict.Apartfromthat,there
mightbeconflictsbetweenshareholdersandmanagementaswell,whichwillendup
creatingmisunderstandingsanddisputes.
2.Delayindecisionmaking
Therearetimeswhenabusinessneedstotakeaquickdecisioninordertograban
opportunity,butinaJointStockCompany,it’snotpossible.Thiscanbeoneofthebiggest
drawbacksofaJointStockCompany;whenalltheimportantdecisionsareeithermadeby
theboardofdirectorsthroughAnnualGeneralmeetings,thisdelayindecisionmaking
mightmakethemloseabigopportunity.
Continue…
3.Separationofownershipandcontrol
Asshareholderscan’tparticipateindaytodayactivitiesofacompany,there
isnoguaranteethatthemanagementisworkingefficiently.
4.Complexprocedure
Theformationofacompanyisatime-consuming,expensive,andaswellas
complicatedprocess.Therearemanylegaldocumentsthatneedtobefilled
andsubmittedtotheregistrar.Theprocedurethatisrequiredtobefollowed
toformacompanyisextremelylong;onecannotcommencebusinessuntil
theyreceiveacertificateofincorporationandacertificatetocommence
business.

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Continue…
5.Lackofsecrecy
MaintainingsecrecyinaJointStockCompanyisdifficult,asitismandatorytopublish
financialstatements,minutesofmeetings,andvariousreportstotheregistrar.Andevery
issueisdiscussedinthemeetingoftheboardofdirectors,evenemployeesmightleakout
confidentialinformation,sotradesecretscan’tbemaintained.
6.CorruptionandFraud
NoteveryJointStockCompanyfollowsethicalpractices;somemightpresentafake
brightimageoftheircompanyinordertogainthepublic’sconfidencetoattracttheir
capital.Sometimesacompanycanevenformgroupstogetamonopolyandhavepower
overthevotingrightsandcanmanipulatethedecisionsfortheirselfishreasons.
Cooperatives
Acooperativeformof
businessorganizationisa
typeofbusinessentitythat
isownedandoperatedbya
groupofindividualsfor
theirmutualbenefitwhere
individualsvoluntarily
cometogethertomeettheir
commoneconomic,social,
andculturalneeds.

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features of Cooperatives
1.VoluntaryMembership:Membersjointhecooperativevoluntarily,andthey
havethefreedomtoleavethecooperativeiftheywish.
2.DemocraticControl:Eachmemberhasequalvotingrights,regardlessofthe
numberofsharesorcapitalcontributed.Decisionsaremadedemocratically,
typicallyonaone-member-one-votebasis.
3.LimitedInterestonCapital:Thecooperativeusuallyprovidesalimitedreturn
onthecapitalinvestedbyitsmembers.Profitdistributionisoftenbasedonthe
levelofparticipationorpatronage.
continuation…
4.ServiceMotive:Cooperativesareoftenformedwiththeprimaryobjective
ofprovidingservicestotheirmembersratherthanmaximizingprofits.
5.OpenMembership:Cooperativesaregenerallyopentoallindividuals
willingtousetheirservicesandaccepttheresponsibilitiesofmembership.
6.MutualAssistance:Membersworktogethertoachievecommongoals,
andthereisaspiritofmutualassistanceandcooperation.

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Types of Cooperatives
1.ProducerCooperatives:Formedbyproducerstocollectively
process,market,orselltheirproducts.
continuation…
2.ConsumerCooperatives:Ownedandcontrolledbyconsumers
whobuygoodsorservicesfromthecooperative.

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continuation…
3.WorkerCooperatives:Ownedandmanagedbytheemployees,
whoalsoshareintheprofits.
continuation…
4.CreditCooperatives:Providefinancialservicestomembers,
suchassavingsandloans.

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continuation…
5.HousingCooperatives:Memberscollectivelyownandmanage
residentialproperty.
Merits of Cooperatives
1.DemocraticManagement:Membershaveequalsayindecision-
making,fosteringasenseofequalityanddemocracy.
2.StabilityandContinuity:Cooperativesoftenhaveastable
existenceasmembersarelesslikelytoleave,ensuringcontinuity.
3.ProfitSharing:Profitsaresharedamongmembersbasedontheir
levelofparticipation,fosteringasenseofownership.
4.SocialBenefits:Cooperativesoftencontributetothesocialand
economicdevelopmentofthecommunity.
5.EconomiesofScale:Bypoolingresources,cooperativescan
achieveeconomiesofscaleinproductionandmarketing.

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Demerits of Cooperatives
1.LimitedCapital:Capitalgenerationmaybelimitedasmembers
mightbereluctanttoinvestmoreduetothelimitedreturn.
2.PotentialforConflict:Democraticdecision-makingcanleadto
conflictsamongmembers.
3.LimitedProfessionalManagement:Lackofprofessional
managementexpertisemayhindertheefficientoperationofthe
cooperative.
4.RiskofExploitation:Insomecases,theremaybeariskof
membersexploitingthecooperativeforpersonalgain.
5.LimitedAccesstoCapitalMarkets:Cooperativesmayface
challengesinaccessingcapitalmarketscomparedtootherformsof
business.