The PPT is for reference purpose.

1. ENTREPRENEURSHIP DEVELOPMENT – KMB 402
Topic: Various Forms of Business Ownership
(Part 2 of 2)
ACHLA TYAGI, ABES EC (032), AKTU, LUCKNOW

2. Various forms of Business Ownership
1. Sole Proprietorship
2. Partnership
3. Company
i. Private Company
ii. Public Company
4. Cooperative
ACHLA TYAGI, ABES EC (032), AKTU, LUCKNOW

3. 1. Sole Proprietorship
• A business owned and operated by one
person.
• A sole proprietorship, also known as the
sole trader, individual entrepreneurship or
proprietorship, is a type of enterprise that
is owned and run by one person and in
which there is no legal distinction between
the owner and the business entity.
• Sole proprietorship examples include small
businesses, such as a single person art
studio, a local grocery, or an IT consultation
service. The moment you start offering
goods and services to others, you form
a Sole Proprietorship.
ACHLA TYAGI, ABES EC (032), AKTU, LUCKNOW

4. Sole Proprietorship – Main Features
The main features of Sole Proprietorship form of business are:
1. One man ownership.
2. No separate business entity
3. No distinction between ownership and management
4. Unlimited liability
5. All profits or losses belongs to the proprietor
6. Less formal
ACHLA TYAGI, ABES EC (032), AKTU, LUCKNOW

5. Sole Proprietorship: Advantages & Disadvantages
Advantages
• Simple form of organization
• Owner’s freedom to take
decision
• High Secrecy
• Tax advantage
• Easy dissolution/ closure
Disadvantages
• Limited resources
• Limited ability
• Unlimited liability
• Limited life of the enterprise
• Difficult to raise capital
ACHLA TYAGI, ABES EC (032), AKTU, LUCKNOW

6. 2. Partnership
• A form of business ownership in which two or
more people share the assets, liabilities, and
profits.
• A partnership is a form of business organization
in which owners have unlimited personal liability
for the actions of the business. The owners of
a partnership have invested their own funds and
time in the business, and share proportionally in
any profits earned by it.
• As per The Indian Partnership Act (1932, Section
4) – Partnership is “the relation between persons
who have agreed to share the profits of the
business carried on by all or any of them acting
for all”.
ACHLA TYAGI, ABES EC (032), AKTU, LUCKNOW

7. Partnership – Main Features
• The main features of Partnership form of business are:
1. Minimum two people required
2. Profits and losses are mutually shared
3. Combined resources
4. Contractual relationship
5. Lawful business
6. Utmost good faith and honesty
7. Restrictions on transfer of shares
8. Principal agent relationship
ACHLA TYAGI, ABES EC (032), AKTU, LUCKNOW

8. Partnership: Advantages & Disadvantages
Advantages
• Easy Formation
• Availability of more capital
• Talent on task
• Distribution of risk
• Flexibility
• Tax benefit
Disadvantages
• Unlimited liability
• Divided authority
• Lack of continuity
• Risk of implied authority
• Difficulty in closure
ACHLA TYAGI, ABES EC (032), AKTU, LUCKNOW

9. 3. Company
• A company is an artificial person being created by law
that has an existence separate and apart from its
owners.
• In other words, a company is an artificial person
created by law with a distinctive name, a common
seal and perpetual succession of members. It can sue
or be sued in its own name.
• Lord Lindley defined it as – “an association of many
persons who contribute money or money’s worth to a
common stock and employ it for a common purpose.
The common stock so contributed is denoted in
money and is the capital of the company. The persons
who contribute it or to whom it belongs are
members. The proportion of capital to which each
member is entitled is his/ her share”.
ACHLA TYAGI, ABES EC (032), AKTU, LUCKNOW

10. Company – Main Features
• The main features of Company form of business are:
1. Artificial legal person
2. Separate legal entity
3. Common seal
4. Perpetual existence
5. Limited liability
6. Transferability of shares
7. Separation of ownership from management
8. Minimum number of members is seven (7)
ACHLA TYAGI, ABES EC (032), AKTU, LUCKNOW

11. Company: Advantages & Disadvantages
Advantages
• Limited liability
• Perpetual existence
• Professional management
• Expansion potential
• Transferability of shares
• Diffusion of risk
Disadvantages
• Lack of secrecy
• Restrictions
• Management mischiefs
• Lack of personal interest
• Difficulty in diffusion and closure
ACHLA TYAGI, ABES EC (032), AKTU, LUCKNOW

12. Company – Private Company Vs. Public Company
Private Company
Under Section 3 (i), (iii) of Companies
Act (1956), a private company has been
defined as a company which by its
Articles of Association –
a) restricts the rights to transfer the
shares , if any,
b) limits number of its members to
fifty and
c) Prohibits any invitation to the
public to subscribe for the shares or
the debentures of the company
Public Company
• Under Section 3 (i), (ii) of Companies
Act (1956), a public company is a
company which is not a private
company. By implication, a public
company is one which places no
restrictions by its Articles of
Association on the transfer of shares
or on the maximum number of
members can invite the public to
subscribe for its shares and
debentures and public deposits.
ACHLA TYAGI, ABES EC (032), AKTU, LUCKNOW

13. Company – Private Company Vs. Public Company
Private Company
1. The minimum number of members
is two and maximum is fifty.
2. Minimum number of directors
needed is two.
3. Filing of prospectus or a statement
‘in lieu of prospectus’ with the
Registrar of Companies is not
necessary before company can allot
shares.
4. Two members need to sign the
memorandum and articles of
association.
Public Company
1. The minimum number of members
is seven and there is no maximum
limit.
2. Minimum number of directors
needed is three.
3. Filing of prospectus or a statement
‘in lieu of prospectus’ with the
Registrar of Companies is necessary.
4. Seven members need to sign the
document.
ACHLA TYAGI, ABES EC (032), AKTU, LUCKNOW

14. Private Company
5. It may commence allotment of shares
before minimum subscription has been
applied for.
6. It can commence business soon after
incorporation.
7. Transfer of shares is restricted by the
articles.
8. It need not file its balance sheet with
the Registrar.
9. It need not hold the statutory
meeting nor it is necessary for it to
forward the statutory meeting report to
the registrar.
10. No provisions of the Companies Act
regarding appointment of Directors,
their consent to act or to pay for
qualification shares apply to them.
Public Company
5. It cannot commence allotment of
shares unless minimum subscription has
been applied for.
6. It cannot commence business
without obtaining a certificate to that
effect.
7. Shares are freely transferable.
8. It must file its balance sheet with the
Registrar.
9. It must hold a statutory meeting and
forward the statutory meeting report to
the registrar.
10. The provisions of the Companies Act
regarding appointment of atleast three
Directors, their consent to act or to pay
for qualification shares apply to them.
ACHLA TYAGI, ABES EC (032), AKTU, LUCKNOW

15. 4. Cooperative
• The Cooperative form of organization is based on
the philosophy of self help and mutual help.
• According to Indian Cooperative Societies Act
(1912 Section – 4) – “ a society which has its
objective of promotion of economic interests of
the members in accordance with cooperative
principles.
• A cooperative organisation needs to be registered
with the Registrar of Cooperative Societies of the
State in which the society’s registered office is
located.
• It should have a minimum of ten (10) members
and there is no limit for the maximum numbers of
members.
ACHLA TYAGI, ABES EC (032), AKTU, LUCKNOW

16. Cooperative – Main Features
The main features of Cooperative form of business are:
1. Voluntary organization
2. Democratic management
3. Service motive
4. Capital and return
5. Government control
6. Distribution of surplus
ACHLA TYAGI, ABES EC (032), AKTU, LUCKNOW

17. Cooperative: Advantages & Disadvantages
Advantages
1. Easy formation
2. Limited Liability
3. Perpetual existence
4. Social service
5. Open membership
6. Tax advantage
7. State assistance
8. Democratic management
Disadvantages
1. Lack of secrecy
2. Lack of business acumen
3. Lack of interest
4. Corruption
5. Lack of mutual interest
ACHLA TYAGI, ABES EC (032), AKTU, LUCKNOW