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Forms of business organisations

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Forms of business organisations

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Forms of business organisations

  1. 1. FORMS OF BUSINESS ORGANISATIONS By BADM Dept.
  2. 2. WHAT IS A BUSINESS ORGANISATION? The term "business organization" refers to how a business is structured. It refers to a commercial or industrial enterprise and the people who constitute it.
  3. 3. WHAT IS THE RIGHT FORM OF OWNERSHIP ? • There really is not one right form of ownership. • The correct form depends of the type of company, the goals of the owners, and the plans of what the company may become. • Factors such as tax considerations, liability exposure, capital requirements and structure and ownership control all play a role is determining which form is correct for a business.
  4. 4. Types of Ownership Private Enterprises Co-operative Sector Enterprises Public Sector Enterprises
  5. 5. TYPES OF BUSINESS ORGANISATIONS • Private Sector • Sole Proprietorship • Joint Hindu Family Business • Partnership Firm • Joint Stock Company 1) Private Limited 2) Public Limited • Company • Co-operative Society
  6. 6. TYPES OF BUSINESS ORGANISATIONS • Public Sector • Departmental Organization • Corporations • Government Company
  7. 7. Choosing a Form of Business Organization The choice of the form of business is governed by several interrelated and interdependent factors :- • The nature of business is the most important factor • Scale of operations i.e. volume of business ( large, medium, small) and size of the market area (local, national, international)
  8. 8. • The degree of control desired by the owner(s) • Amount of capital required for the establishment and operation of a business • The volume of risks and liabilities as well as the willingness of the owners to bear it • Comparative tax liability
  9. 9. • Choice of Suitable form of ownership – A Crucial Decision • The form of ownership determines the - • Division of Profits • Extent of liability • Extent of Risk • Division of Power • Control of Owner
  10. 10. SOLE PROPRIETERSHIP When the ownership and management of a business are in control of one individual the form of business is called sole proprietorship.
  11. 11. SOLE PROPRIETERSHIP • The most common form of business organization. • Owned by one person, who performs most roles and owns everything • Very few legal requirements for setting it up. • Owner gets all profits, takes all the losses → called unlimited liability • Easiest and least expensive to set up • Easiest for tax purposes → income recorded under personal income
  12. 12. CHARACTERISTICS • Oldest form of business organization • The business enterprise is owned by one single individual (i.e. both profit and risk belong to him) • Owner is the Manager • Owner is the only source of Capital • The proprietor and business enterprise are same in the eyes of the law.
  13. 13. CHARACTERISTICS • Liability of sole proprietor is unlimited • Sole proprietorship business is free from many legal formalities subjected to the general law of the land • Proprietor makes all decisions pertaining to the business • Limited scope of operations.
  14. 14. ADVANTAGES OF SOLE PROPREITORSHIP • Ease in formation • Discretion in start and dissolution • Flexibility • Free from legal Formality • Independence of proprietor • Quick decesions
  15. 15. ADVANTAGES OF SOLE PROPREITORSHIP • Facilitate Coordination • Personal contacts with customers • Secrecy • Perfect Control • Economy in operation • Ease to borrow funds • Direct relation between effort and rewards • Successors benefited by inherited business • Social advantage
  16. 16. DISADVANTAGES OF SOLE PROPREITORSHIP • Limited managerial capacity • Hasty decisions • Secrecy causes suspicion • Owner has unlimited liability • Limited financial resources
  17. 17. DISADVANTAGES OF SOLE PROPREITORSHIP • Loss in absence • Difficulty in attracting and retaining good employees • High morality rate • Lack of stability • Unfit for medium and large businesses
  18. 18. Is the sole proprietorship the best form of business ownership ? • To understand this statement we can divide it into following two parts:- • One man control is the best • It is the best provided certain conditions are satisfied.
  19. 19. One man control is the best • Ease in formation • Discretion in start and end • Flexibility • Free from legal formalities • Quick decisions • Facilitate coordination • Personal contacts with customers • Secrecy • Perfect control
  20. 20. One man control is the best • Economy of operation • Easy to borrow funds • Direct relation between efforts and reward • Successors benefited by inherited business • Social advantages
  21. 21. Provided certain conditions are satisfied • It mean sole proprietorship business suffers from many limitations or demerits. These are- • Limited managerial capacity • Hasty decisions • Secrecy causes suspicion • Unlimited liability • Limited financial resources • Loss in absence • Lack of stability • Unfit for medium and large business
  22. 22. JOINT HINDU FAMILY BUSINESS • A Hindu Undivided Family (HUF) or Joint Hindu Family (JHF) consist of all persons who lineally descended from a common ancestor and includes their wives and unmarried daughters (Hindu Law). • When a joint Hindu family carries on a business, it is called a joint Hindu family firm. • The members of such firm are not called partners, but known as coparceners.
  23. 23. JOINT HINDU FAMILY BUSINESS • Comes into existence as per the Hindu Inheritance Act of India • This form of business found only in India • All members of the Hindu Undivided Family(HUF) own the business jointly • The affairs of the business are managed by head of the family called “Karta”. All other members are called “Coparceners”
  24. 24. • Membership is restricted only to members of the Joint family. No outsider can become the member • Karta has unlimited liability while all other members have limited liability • The share of each member keeps on fluctuating • Business continues to exist upon the death of any member or Karta.
  25. 25. ADVANTAGES OF HUFs • Every coparcener has an assured share in profits • The business has continued existence • Decision making is quick as the powers are with the Karta • No corporate tax • People use it mostly for tax benefits these days
  26. 26. DISADVANTAGES OF HUFs • Absolute power in the hands of Karta. • Instability • Limited Resources can be raised • Scope for conflict
  27. 27. PARTNERSHIP FIRM A Partnership consists of two or more individuals in business together
  28. 28. Meaning of Partnership • A partnership is an association of two or more persons who agree to carry on business for earning and sharing profit among them. • According to Indian Partnership Act, “Partnership is 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.”
  29. 29. CHARACTERISITCS OF PARTNERSHIP • Minimum 2 number of partners and maximum 20 partners. All of must be competent to contract. • The relation between the partners is created in the form of a contract. Written contract is called “Partnership Deed.” • The firm means partners, the partners mean the firm • The profit is divided in any as ratio as agreed • No partner can sell/transfer his interest in the firm to anyone without the consent of other partners
  30. 30. CHARACTERISITCS OF PARTNERSHIP • The relation of partnership arises from a valid agreement. • The liability of partners is unlimited. • To constitute a partnership, there must be a relation of mutual agency between the partners. • The relation of partnership is founded upon mutual trust and confidence. Therefore, every partner is bound to be faithful to each other. • A firm does not have separate legal existence from its partners. Firm is not a person in the eye of law. • The registration of partnership is not compulsory in India.
  31. 31. Test of Partnership • There must be an agreement between two or more persons. • There must be a business of partnership. • The partners must have agreed to share the profits of the business. • The business must be carried on by all or any one
  32. 32. ADVANTAGES OF PARTNERSHIP • Easy Formation • Larger Resources • Greater Management Talent • Flexibility of Operation • Prompt Decision • Balanced decisions • Sharing Of Risk and liability • Personal care and supervision of business
  33. 33. ADVANTAGES OF PARTNERSHIP • Secrecy • Direct relation between work and reward • More possibility of growth and expansion • Protection of minority interest • Easy dissolution
  34. 34. DISADVANTAGES OF PARTNERSHIPS • Unlimited Liability • Limited resources • Limited managerial skill • Fear of Dispute • Instability • Non- transferability of interest • Lack of public interest • Risk of mutual agency relations
  35. 35. Partnership Deed • When the contract of partnership is made in writing, it takes the form of a document. Thus, the document which contains the terms of contracts of partnership is called the deed of partnership. • It must contain all the important terms of partnership agreed by the partners.
  36. 36. Contents of deed • Name of the firm • Name of the partners • Nature and place of business • Date of commencement of partnership • Duration of the partnership/ firm. • Capital employed or to be employed by each partner. • Profit and loss sharing ratio • Interest on capital • Limit of drawing and interest on it • Interest on loans by and to partners • Salary or commission, if payable, to the partners
  37. 37. Company • According to companies act 1956, “Company” means a company formed and registered under this act or an existing company formed and registered under any of the previous companies law. • According to Prof. Haney, “ A company is an artificial person created by law, having separate entity with a perpetual succession and common seal.”
  38. 38. CHARACTERISITCS OF COMPANY • Registered voluntary association/ body corporate • Members/ Subscriber • Artificial person • Separate legal entity • Perpetual succession • Common seal • Limited liability
  39. 39. CHARACTERISITCS OF COMPANY • Share Capital • Transferable shares • Separate property • Capacity to sue and be sued • Management team • Governance by majority • Nationality • Not a citizen and has no fundamental rights
  40. 40. ADVANTAGES OF COMPANY • Limited Liability • Huge financial resources • Perpetual existence or stability • Transferability of shares • Sound management • Diffusion of risk • Economy in operation
  41. 41. ADVANTAGES OF COMPANY • Democratic management • Scope of expansion and growth • Public confidence • Encourages capitalization • Social advantages
  42. 42. DISADVANTAGES OF COMPANY • Difficulty in formation • Regulation and Control • Oligarchy of directors • Neglect of minority interests • Lack of Secrecy
  43. 43. DISADVANTAGES OF COMPANY • Delay in decisions • Lack of motivations • Tax Burden • Difficulty in winding up • Insider trading
  44. 44. MEANING OF A CORPORATION • The term ‘Co-operation’ has been derived by adding a prefix ‘Co’ with the word ‘operation’. ‘Co’ means together and ‘operation’ means work. Therefore the literal meaning of the term co- operation is to work together. • Co-operation means working together for a common good of all.
  45. 45. CO-OPERATIVE SOCIETY It is a voluntary association of people or business to achieve a an economic goal with a social perspective
  46. 46. DEFINITION OF A CORPORATION • A Co-operative society or organization is one which has been voluntarily formed by some persons for the promotion of their common economic interest. • According to the Indian Co-operative Societies Act, 1912, A Co-operative society is “a society which has its object as the promotion of economic interests of its members in accordance with co- operative principles.”
  47. 47. CHARACTERISTICS OF A CO-OPERATIVE ORGANIZATION • Voluntary organization • Must be registered • Separate legal entity and artificial person • Liability is limited • Perpetual existence • Every member has to buy at least one share • Non-transferable shares
  48. 48. CHARACTERISTICS OF A CO-OPERATIVE ORGANIZATION • Each member of a co-operative society has a right to one vote • Managed on Democrative principles • Certain proportion of profit is of co-operative society is distributed among its member • Works for promotion of economic interest of its member • Primary object is to serve its members • Based on principles equality, justice and mutual benefit
  49. 49. CO-OPERATIVE PRINCIPLES • Principle of voluntary and open membership • Principle of democratic member control • Principle of member’s economic participation • Principle of autonomy and independence • Principle of education, training and information • Principle of co-operation among co-operatives • Principle of concern for community
  50. 50. ADVANTAGES OF A CO-OPERATIVE ORGANISATION • Organisational Advantages • Easy formation • Small amount of investment • Equal voting rights • Democratic management • Stability • Easy to wind up
  51. 51. ADVANTAGES OF A CO-OPERATIVE ORGANISATION • Economic Advantages • Economic management • Tax advantages • Ploughing back the profits • Government aid • Equitable distribution of profits • Limited liability
  52. 52. ADVANTAGES OF A CO-OPERATIVE ORGANISATION • Social Advantages • Spirit of mutual help and brotherhood • Uplift standard of living of weaker sections of society • Promotes equal distribution of income and wealth in the society • Relief from exploitation • decentralisation of economic power • Changes in society by peaceful means • Promotes maximum social welfare
  53. 53. Public Enterprises • Public enterprises (PE) refers to an enterprise which is owned and controlled by the Government or public authority. • A public enterprise refers to an industrial, commercial or service enterprise which is owned and controlled by the Government or by public authority/ Government organisation for providing goods and services to the public.
  54. 54. CHARECTERISTICS OF PUBLIC ENTERPRISES • Owned by the government or any public organisation • Managed, controlled and operated by the Government • Carry on activities of production of goods or services • Run in different form of organisation (departmental organisation, public corporation, Government Company, Boards, Trusts etc.)
  55. 55. CHARECTERISTICS OF PUBLIC ENTERPRISES • Established with some special objectives (economic objectives, social objectives, political objectives etc.) • Service motive is prime motive • PE accountable to the public • Subject to audit rules of the Government • Required to prepare annual return of working & place the same before the Lok Sabha. • Monopoly position in certain economic activities such as railways, mining, petro-products etc
  56. 56. ROLE & IMPORTANCE OF PUBLIC ENTERPRISES • Infrastructure Development • Strong Industrial Base • Planned Development • Balanced regional development • Employment • Promotes capital formation or investment • Export promotion
  57. 57. ROLE & IMPORTANCE OF PUBLIC ENTERPRISES • Import Substitution • Contribution to the GDP • Contribution to Exchequer • Research and Development • Help reduce disparities of income and wealth/ concentration of economic power • Protection of consumer interests
  58. 58. Forms of Organization Departmental organisations Government Company Public Corporations
  59. 59. Departmental Organisation • Departmental form of organisation is the oldest form of organising public enterprises. • Under this form of organisation, an enterprise is put under the control of a department. • Such department is headed by the concerned minister. • For example- Railway is a public enterprises which is under the control of Railway department and is headed by Railway Minister.
  60. 60. Public/ Statutory Organisation • A public or statutory corporation is a body corporate incorporated under a special Act or State Legislature. • According to Morrison, “In public corporation, we are seeking a combination of public ownership, public accountability and business management for public ends.”
  61. 61. Government Company • According to the Companies Act 1956, a Government company means any company in which not less than fifty-one per cent of the paid-up share capital is held by the following- a) By the central Government b) By any State Government or Governments c) Partly by the Central Government and Partly by one or more State Governments • A Government company is one in which not less than 51% of the paid-up capital is held by the Central or/ and State government.
  62. 62. Joint Sector • A Joint Sector Enterprise is one which is established in the partnership of the public sector and the private sector. • It is refers to a form partnership between the Government and private sector. • According to M. Adhikari, “Joint sector is a form of partnership between the public sector and the private sector or between the government and business.”
  63. 63. Characteristics of a Joint sector Enterprise • Public & Private sector partnership • Both entrepreneur contribute to the capital • Managed & controlled by a Board of Directors • Day to day operations of the enterprise are conducted by the managing director • Not accountable to the public
  64. 64. Characteristics of a Joint sector Enterprise • Organised in company form of organisation • Both public enterprises and private enterprises may be converted into joint sector enterprises • Whenever a big business house or a foreign enterpreneur wants to participate in a joint sector enterprise, prior permission of the central government is essential • Effective voice in the management and operations
  65. 65. AMUL • Amul is an Indian dairy cooperative, based at Anand in the state of Gujarat, India.[2] The word amul (अमूल) is derived from theSanskrit word Anand Milk Utpadan Limited , meaning rare, valuable .[3] The co-operative was initially referred to as Anand Milk Federation Union Limited hence the name AMUL. • Formed in 1946, it is a brand managed by a cooperative body, the Gujarat Co-operative Milk Marketing Federation Ltd. (GCMMF), which today is jointly owned by 3.6 million milk producers in Gujarat.[4] • Amul spurred India's White Revolution, which made the country the world's largest producer of milk and milk products.[5] In the process Amul became the largest food brand in India and has ventured into markets overseas. • Dr. Verghese Kurien, founder-chairman of the GCMMF for more than 30 years (1973–2006), is credited with the success of Amul.
  66. 66. Role & Importance of Joint sector enterprises • Integration of public and private sector • Board-based entrepreneurship • Social control over industry • Promotion of socio-economic objectives • Acceleration of industrial growth • Curbing concentration of economic power • Helps develop entrepreneurship • Promotion of mixed economy
  67. 67. Problems/ Demerits of Joint sector enterprises • Problem due to capital contribution ratio • Problem of management and operation • Many formalities • Difference of opinion among the directors • Selection of project
  68. 68. Problems/ Demerits of Joint sector Enterprises • Difficulty in choosing private entrepreneur • Change in the board • Conflict on objectives • Delay in completion of the project • Under utilisation of capacity
  69. 69. 2. PUBLIC COMPANY • Stocks are held by a large number of people • Minimum 7 shareholders and no limit for maximum • Can be listed on stock exchange and can go public • Have to follow many laws with regards to the board composition and AGM.
  70. 70. TWO TYPES OF CORPORATIONS 1. PRIVATE COMPANY • Closely held by a few people • Minimum 2 and maximum 50 shareholders • Stocks cannot be traded on exchanges and private equity cannot be raised • Less regulations as compared to Public Companies
  71. 71. CHARECTERISTICS OF CO-OPERATIVE • Voluntary association • Minimum membership requirement is 10 and there is no maximum limit • Registration of Co-operative is must under the “Co-operative Societies Act” is a must. After the registration it enjoys certain privileges of a Joint Stock Company
  72. 72. ADVANTAGES OF CO-OPERATIVE • Easy Formation • Limited Liability • Stability • Democratic Management • State Assistance
  73. 73. DISADVANTAGES OF A CO-OPERATIVE • Possibility of conflict • Long decision making process • Not enough capital
  74. 74. JOINT STOCK COMPANY A joint stock company is a voluntary association of people who contribute money to carry on business

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