Forms of Business Organisations

1. DRUG STOREAND BUSINESS MANAGEMENT
D PHARM 2ND YEAR
PART-1: COMMERCE
TOPIC-2: FORMS OF BUSINESS ORGANISATIONS
Diksha Choudhary (Assistant Professor)
M Pharm (Pharmaceutical Chemistry)
Abhilashi University, Mandi

2. BUSINESS
A/c to Wheeler a business undertaking is “a concern, company, or
enterprise which buys and sells, is owned by one person or a group of
persons and is managed under a specific set of operating policies.”
Characteristics of business organisation:
 Earn profits
 Sale of goods or services for money or money’s worth
 Carry on the business activities continuously and regularly
 Social responsibilities to provide the goods and services
 Exposed to risk of natural calamities, labour problems, bad debits,
changes in policies, demand, styles and fashions, etc

3. FORMS OF BUSINESS ORGANISATIONS
A. Private enterprises
i. Sole proprietorship
ii. Joint Hindu family firm
iii. Partnership firm
iv. Joint stock company
v. Co-operative societies
B. State enterprises or public enterprises
i. Departmental organisation
ii. Public corporation
iii. Government company

4. A. PRIVATE ENTERPRISES
i. Sole proprietorship
A/c to S.R. Davar, “The sole trade is a person who carries on business of his own i.e.
without the assistance of a partner. He brings in his own capital and uses all his
labour.”
 Simplest and oldest form of business organisation
 Who has aptitude for business and is able to arrange the finance can start the sole
proprietorship organisation
Advantages:
1. Simple and easy to start
2. Start with meager finance from personal resources or borrowed from friends and
relatives
3. Capital can be increased or decreased
4. Owner has complete control of the business
5. Secrecy of the business can be maintained
Disadvantages:
1. Business cannot be expand due to limited finance resources
2. Limited to small business only
3. Limited scope for expansion due to limited capital and manpower

5. CONT…
ii. Joint Hindu family firm:
 Inherited property by hindu from his father, grandfather and great-grandfather
known as ancestral property
 Son, grandfather and great-grandson become joint owner by family birth
 Inheritance interest called coparcenary interest
 Coparcenars look after their business it becomes the joint hindu family
business
 Firm is known as joint hindu family firm
Advantages:
1. Business remains stable
2. Family member can be absorbed/employed
3. Well organised and controlled
4. Secrecy of the business maintained
5. Profit divided with family members only
Disadvantages:
1. Quarrels may start on the division of
property
2. Relatively limited financial resources

6. CONT…
iii. Partnership firm:
 A/c to Indian Partnership Act, 1932 “relation between persons who have agreed to
share the profits of a business carried on by all or any of them acting for all.”
 A/c to Indian Contract Act, “relationship which exists between persons, who have
agreed to combine their property, labour or skill in some business and to share the
profits thereof between them.”
 A/c to Section 11 of the Companies Act, 1956 up to maximum 20 persons can join
together to share any profit made by the firm.
Advantages:
1. Easy to form a partnership firm
2. Firm may or not get itself registered with registrar A/c to Partnership Act, 1932
3. Partners may pool their resources to collect enough funds for smooth running of
the business
4. Appropriate and qualified partner
5. Risks are shared by all the partners in case of looses

7. CONT…
Disadvantages:
1. Large scale business may not be possible to run
2. Do not last for a long time
3. No partner can transfer his capital or interest to outsiders
4. Do not have much faith in partnership firms
5. Liabilities of the partners are unlimited
Kinds of partners:
a) Active or working partner
b) Sleeping or inactive partner
c) Nominal partner
d) Partner in profits only
e) Secret partner
f) Partner by estoppel
g) Partner by holding out
h) Minor as a partner

8. CONT…..
a) Active or working partner:
 Active part in the management as well as in the day to day functioning of the
business
 Contributes capital to the firm
b) Sleeping or inactive partner:
 Do not take any active part in the business
 Contributes the capital to the firm
 Share the profits and losses of the firm
c) Nominal partner:
 Neither contributes capital nor takes active part
 Only leads his name and reputation for the benefit of the firm
 Does not share the profits
d) Partner in profits only:
 Who contributes money with the idea of getting share in profits only
 Does not share the losses

9. CONT….
e) Secret partner:
 Who does not want to be known as partner of the firm to the outsiders
 In reality he is a partner
f) Partner by estoppel:
 Neither contributed any capital to firm nor takes part in the management
 Behaves or talks to the outsiders
g) Partner by holding out:
 In written or spoken words when person declared as a partner of firm
 Concerned person does not deny or contradict the partnership relationship
h) Minor as a partner:
 Person below the age to 18 years is considered as minor
 A/c to law a minor is not competent to contract
 Cannot become a partner

10. CONT…
Kinds of partnership:
A. General partnership
B. Limited partnership
A) General partnership:
 Liabilities are unlimited
 Authority to participate in the management
B) Limited partnership:
Features of are:
a) Two types of partners i.e. general and limited or special partners
 Liability of general partners is unlimited
 Liability of limited or special partners is limited
b) One partner should be a general partner and other may be limited or special
c) Invest money in the firm

11. CONT….
iv) Joint stock company:
 Comes into existence
 No. of persons who are unknown to each other join together to contribute and invest
 Known as share holders
 A/c to Justice Lindley, “an association of many persons who contribute money or
money’s worth to a common stock and employ it for a common purpose”
 Common stock so contributed is denoted in money and capital
 Persons who contribute it or to whom it belongs are members
 Shares are always transferable
 More or less restricted
Advantages:
1) Huge amount of capital can be collected
2) Invested in setting up large scale industries
3) Economies in purchase, management, distribution and selling etc
4) Free to invest in any number of shares

12. CONT…..
Disadvantages:
1) Formalities are required
2) Directors and managers are salaried persons
3) Misuse the capital collected from the shareholders
4) Bogus companies are floated to cheat the investors of their hard earned money
v) Co-operative Societies:
 Registered under Co-operative Societies Act are called “Co-operative Societies”
 A/c to Dr. H.N. Kurzen, “Co-operatives is self help as well as mutual help”
 Capital of co-operative society is collected by its members through purchase of shares
These societies include:
a) Co-operative credit societies
b) Consumer’s co-operative stores
c) Industrial co-operatives or producer’s co-operatives
d) Marketing co-operatives
e) Co-operative farming societies
f) Co-operative housing societies

13. CONT….
Advantages:
1. Easy to form co-operative societies
2. Provide service to its members
3. Products available at reasonable rates
4. Enjoy the benefit of continuous existence
Disadvantages:
1. Shortage of capital
2. Not in the position to invest in large scale
3. Risky business
4. Recurring losses due to inefficiency, misuse of funds

14. PUBLIC/ STATE ENTERPRISES
 Also known as state enterprises
 Owned and controlled by the central government, state government or local
government
 Financed by the government
 Capital is invested by the government
 Invest in those areas where the investments are very high and chances of
earning the profits are not certain
 Rate of return is not adequate
 It include water, electricity, transport, post and telegraph, bank, life Insurance
corporation of India