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1. Subject : Managerial Economics
Topic :- Forms of Business
Organization
Course: MBA-1
Subject: ME
Unit:1.2

2. Forms of Business Organizations
Sole Proprietorship
Partnership
Corporation
Franchisee
Limited Liability Company (LLC)

3. Sole Proprietorships
The Original Form of Business
Advantages
Simple
Single Taxation
Disadvantages
Unlimited Liability
Limited Growth
Attracting Capital
• This form of business happens “automatically” when a
person does business of his or her own and does not have
some other type of business org.

4. Partnerships
The Other Common Law Form of Business
Advantages
Still Simple
Single Taxation
Disadvantages
Unlimited Liability*
Growth Potential
Attracting CapitalPeople Resources
The Uniform Partnership Act (UPA) – adopted in most states

5. Partnerships- Basic Concepts
Partners in a business are like spouses, they
depend greatly upon each other, must cooperate,
can create liability for each other, and often end
up with irreconcilable differences
• Forming a partnership- no formality required!!!
• Characteristics of partnership – no limited liability
• Rights and duties of partners – lots of default stuff if not
specified in a partnership agreement
• Ending (Termination) of a partnership
• Managing a partnership
- but also no double taxation

6. Corporations
Advantages
Limited Liability
Growth
Disadvantages
Double Taxation
Complexity
People Resources
A statutory form of business, heavily regulated and
complex in creation and operation
Securities Laws (Federal and State)
Laws Governing Corporations
Antitrust Law (Federal and State)
Tax Laws (Federal and State)
Corporate Law (Federal and State)

7. Corporations- Basic Concepts
• A statutory immortal being.
• Shareholders/ Directors/ Officers/ Employees
• “Exists” in one particular state
• Shareholders vote and elect Directors
• Directors are called the “Board of Directors” and
must meet regularly, vote to approve or disapprove
actions and must have meeting minutes
• Officers execute the orders of the Board

8. Limited Liability Company (LLC)
Advantages
Limited Liability
Flexibility
Disadvantages
People Resources
A very new creation that merges the basic sought
after benefits of Limited Liability and Single Taxation
with little administrative complexity
Ease of Creation
Growth (perhaps)
Legal UncertaintySingle Taxation

9. LLC- Basic Concepts
• Owners are called “Members”
• Usually created by filing “Articles of
Organization” with state.
• Many states allow single owner LLC’s
• Often an “operating agreement” is created
between members to govern their
relationship, obligations and rights.

10. Sole
Proprietorship
Partnership
LLC
Corporation

11. Private Company
• A company which has a min. paid-up capital of
Rs.100,000 and by its Articles –
• (a) restricts the right to transfer its shares;
• (b) limits the number of its members to fifty;
• (c) prohibits any invitation to subscribe for any shares
in, or debentures of the company; and
• (d) prohibits any invitation or acceptance of deposits
from public. [Sec 3(1)(iii)]
• Must necessarily have its own Articles of Association.
• Should have at least two directors.
• The word 'Private Limited' must be added at the end of
its name.

12. Public Company
• A Public Company means a company which -
is not a Private Company;
• has a minimum paid-up capital of Rs 5 lakhs or
such higher capital as may be prescribed;
• is a private company which is a subsidiary of a
company which is not a private company. [S. 3 (1)
(iv)]
• It consists of not less than seven members and
three directors.

13. Government Company
• A Government Company means any company in
which not less than 51 per cent of the paid-up share
capital is held by
• (a) the Central Government, or
• (b) any State Government or Governments, or
• (c) partly by the Central Government and partly by
one or more State Governments.
• A subsidiary of a Government company is also
called a Government company.

14. Foreign Companies
• Incorporated in a country outside India and has a place
of business in India.
• Every foreign company shall, within 30 days, file with
RoC the following documents:
• A certified copy of the Charter, Statutes, Memorandum
and Articles of the company in English.
• The full address of the registered or principal office of
the company.
• A list of the directors and secretary of the company.
• The names and addresses of any person/s resident in
India, authorised to accept notices.