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•Natureof Business•Forms of BusinessOrganizations
Human activities involve efforts under taken 1. to satisfy human needs, 2. to earn one‟s livelihood, 3. to derive mental satisfaction.Economic activities are undertaken by people to earn one‟s living and for production of wealth. Non-economic activities are social activities which people undertake to derive personal satisfaction.
Activities connected with the production or purchase and sale of goods or services with the objective of earning profit are called Business activities. Mining, manufacturing, trade, transportation, insurance, banking are business activities. Thus business may be defined as an economic activity involving regular production or purchase and distribution of goods and services with the objective of earning profits.
Business is an economic activity. It includes the activities of production or purchase and distribution. It deals in goods and services. It implies regularity of transactions. It aims at earning profits through the satisfaction of human wants. It involves risk; it is not certain that adequate profit will be earned. It creates utilities.
Improvement in standard of living Proper utilization of resources Better quality & large variety of goods Creates utilities Employment opportunities Workers welfare
There are various forms of business. Sole Proprietorship Joint Hindu Family Firm Partnership Firm Joint Stock Company Co-operative Society
Ease of formation Adequacy of Capital Limit of Liability Direct relationship between Ownership, Control and Management Continuity and Stability Flexibility of Operations
A sole proprietorship or one man‟s business is a form of business organization owned and managed by a single person. He is entitled to receive all the profits and bears all risk of ownership.
Business is owned and controlled by one person. Risk borne by a single person & hence benefit. Liability of the owner is unlimited No separate legal entity apart from that of the proprietor, and so the business lacks perpetuity. No legal formalities are necessary, but there may be legal restrictions on the type of business. The proprietor has complete freedom of action The proprietor may take the help of members of his Family in running the business.
Advantages Disadvantages Ease of formation Limited resources Motivation Limited Managerial Freedom of Action Ability Unlimited Liability Quick Decision Lack of Continuity: Flexibility. No Economies of Large Personal Touch Scale Business Secrecy Social Utility
The Joint Hindu Family, also known as Hindu Undivided Family (HUF) is a non-corporate form of business organization. It is a firm belonging to a Joint Hindu Family. It comes into existence by the operations of law and not out of contract.
The business is managed by the Karta or the manager. Except the Karta, no other member of the family has any right of participation in the management of a JHF. members of the family cannot question the authority of the Karta. If the Karta has misused the funds, the co-parceners get to the extent of their share in the property. For managing the business, the Karta has the power to borrow funds. co-parceners are liable only to the extent of their share in the business towards the debt. The death of any member of the family does not dissolve the business of the family Dissolution of the Joint Hindu Family can take place only though mutual agreement
Advantages Disadvantages Stability No Encouragement Knowledge and Lazy and Inactive experience Members Initiative No Interference Duration Maximum Interest Abuse of Freedom: Specialization Discipline Credit Worthiness:
Section 4 of the Partnership Act, 1932 defines Partnership as “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”
Simple procedure of formation Capital Control Management Duration of partnership Unlimited Liability No separate legal entity Restriction on transfer of share.
Advantages Disadvantages. Ease of formation Great risk large resources Lack of harmony better organization Limited resources greater interest Tendency to play prompt decisions safe Balanced No legal entity Flexibility Instability Diffusion of risk Lack of public Protection to confidence minority interest Sustainability Influence of unlimited liability
A Joint Stock Company form of business organisation is a voluntary association of persons to carry on business. Normally, it is given a legal status and is subjectto certain legal regulations. It is an association of persons who generally contribute money for some common purpose. The money so contributed is the capital of the company. The persons who contribute capital to the proportion is entitled is called his share.
Artificial Person Separate Legal Entity Common Seal Perpetual Existence Limited Liability Transferability of Shares Formation Membership Management Capital
Advantages Disadvantages Limited Liability Formation is not easy Continuity of Control by a Group existence Speculation & Benefits of large Manipulation scale operation Excessive govt control Professional Mgt Delay in Policy Social Benefit Decisions R and D Social abuses
It functions under the Cooperative Societies Act, 1912 and other State Co-operative Societies Acts. The co-operatives are formed primarilyto render services to its members. Generally it also provides service to the society. The main objectives of co-operative society are: (a) rendering service rather than earning profit, (b) mutual help instead of competition, and (c) self help in place of dependence.
Voluntary association Membership Body corporate Service Motive Democratic Set up Sources of Finances Return on capital
Advantages Disadvantages Easy Formation Limited Capital Limited liability Problems in Open Membership Management State Assistance Lack of Motivation Middleman‟s Profit Lack of Co-opn Eliminated Lack of Secrecy Management Dependence on (democratic) Government Winding up
Many charity-based business organisations are run as „not for profit‟ operations They typically receive donations or funds from groups or government Any financial surplus is ploughed back into the business The organisation does not aim to generate profits
These forms refer to such aspects as ownership, risk bearing, control and distribution of profit. Any one of the above mentioned forms may be adopted for establishing a business usually one form is more suitable than other for a particular enterprise. The choice will depend on various factors like the nature of business, objective, capital required, scale of operations, control, legal requirements and so on.