Types of Business Organization, Meaning of Business Organization, Characteristics of Business Organization Forms of Business Organization Sole Proprietorship Meaning of Sole Proprietorship Features of Sole Proprietorship Merits of Sole Proprietorship Demerits of Sole Proprietorship Hindu Undivided Family Meaning of Hindu Undivided Family Features of Hindu Undivided Family Merits of Hindu Undivided Family Demerits of Hindu Undivided Family Partnership Meaning of Partnership Features of Partnership Merits of Partnership Demerits of Partnership Types of Partners Company Meaning of Company Features of Company Merits of Company Demerits of Company Types of Companies Limited Liability Partnership (LLP) Meaning of LLP Features of LLP Merits of LLP Demerits of LLP Co-operatives Meaning of Co-operatives Types of Co-operatives Features of Co-operatives, Merits of Co-operatives Demerits of Co-operatives Multi-National Corporations Meaning of Multi-National Corporations Features of Multi-National Corporations Merits of Multi-National Corporations Demerits of Multi-National Corporations

1. T Y P E S O F
B U S I N E S S O R G A N I Z A T I O N S

2. Business
Business is an economic activity which is related with continuous and
regular production and distribution of goods and services for satisfying
human wants.
People engage in different activities which are known as economic
activities.
In ancient times, people had limited wants to satisfy. In modern times
however, we need a large variety of goods and services to satisfy our needs
and to raise our standard of living.
On one hand the supply of goods and services has led to various activities.
On the other hand, activities of different types are undertaken by people
to earn sufficiently to fulfil their increasing wants.
Thus we find large numbers of people engaged in business, industry, and
profession. Such economic and business activities satisfy various needs and
demands for goods and services.

3. Business
• Stephenson defines business as, “The regular production or
purchase and sale of goods undertaken with an objective of earning
profit and acquiring wealth through the satisfaction of human
wants.”
• “Business refers to a form of activity conducted with an objective of
earning profits for the benefit of those on whose behalf the activity
is conducted.”
• Lewis Henry defines business as, “Human activity directed towards
producing or acquiring wealth through buying and selling of goods.”
• Thus, the term business means continuous production and
distribution of goods and services with the aim of earning profits
under uncertain market conditions.

4. Business Organization
Business organization is an entity formed for the purpose of carrying
on commercial enterprise. Such an organization is predicated on
systems of law governing contract and exchange, property rights, and
incorporation.
Business Organization has a set of goals and objectives to be
achieved. Hence, a business organization should be structured in the
most effective and efficient way to fully
utilize its resources – capital, human
resources, knowledge in products and
services, and both external and internal
information – to achieve strategic goals.

5. Characteristics of Business Organization
Specialization
Optimum Utilization of Resources
Better Administration
Effective Communication
Change Management
Increase Productivity and Job Satisfaction
Cordial Industrial Relations

6. Choosing the Form of Business Organization
The choice of the form of business is governed by several interrelated
and interdependent factors
❖Nature of business
❖Scale of operations i.e. volume of business (large, medium, small)
and size of the market area (local, national, international)
❖Degree of control desired by the owner
❖Amount of capital required for the establishment and operation of a
business
❖Volume of risks and liabilities as well as the willingness of the
owners to bear it
❖Comparative tax liability

7. Forms of Business Organization
Business
Organization
Sole
Proprietorship
Hindu
Undivided
Family
Partnership
Company
Limited
Liability
Partnership
Co-
operatives
Multi-
National
Corporations

8. SOLE PROPRIETORSHIP
As the name suggests, ‘sole’ means ‘only one’ and ‘proprietorship’ implies
‘ownership’. Hence, a sole proprietorship is a form of business organization,
wherein a single person owns, manages and controls, all the business activities
and the individual who operates the business is called as a sole proprietor or, a
sole trader.
A type of business unit where one person is solely responsible for providing the
capital and bearing the risk of the enterprise, and for the management of the
business. It is -
• Easy to set up and requires less cost
• Suitable for small businesses setup.
• No Separation of Ownership and Management
• Owner faces unlimited liability (Creditors can take personal assets of the owner
if the business does not pay debts)
• Less Legal Formalities
• One-man Control

9. SOLE PROPRIETORSHIP
(Ref: https://businessjargons.com/sole-proprietorship.html)

10. Merits of Sole Proprietorship
• Easy formation and winding up
• Prompt decision making
• Fewer regulations
• Not subject to corporate income tax
• Ownership of all profits
• Direct motivation
• Flexibility in operations
• Maintenance of business secrets
• Personal touch

11. Demerits of Sole Proprietorship
• Owner has unlimited liability
• Difficult to raise capital
• Limited resources.
• Lack of continuity - Business may have a limited life
• Not suitable for large scale operations.
• Limited managerial expertise

12. HINDU UNDIVIDED FAMILY (HUF)
(Ref: https://www.orowealth.com/insights/blog/hindu-undivided-family-meaning-and-benefits/)

13. HINDU UNDIVIDED FAMILY (HUF)
HUF came 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 MINOR
• Membership is restricted only to members of the Joint family.
• The affairs of the business are managed by head of the family called
“Karta”. All other members are called “Co-parceners”
• Karta has unlimited liability while all other members have limited
liability
• Business continues to exist upon the death of any member or Karta.

14. HINDU UNDIVIDED FAMILY (HUF)
• There are two systems of the HUF, namely
✓Dayabhaga System: Here both male and female members will be co-
parceners in the Hindu Undivided Family
✓Mitakashara System: Here only the male family members are
admitted into the HUF, the female members have no share.
But the government of India has amended the Hindu Succession Act
to make sure both male and female members have equal rights on
ancestral properties.

15. Features of HUF
• Formation: To begin a Hindu Undivided Family there must be a
minimum of two related family members. There must be some
assets, business or ancestral property that they have inherited or
will eventually inherit. The formation of a HUF does not require any
documentation and admission of new members is by birth.
• Liability: The liability of all the various co-parceners is only up to
their share of the property or business. So they have limited liability.
But the Karta being the head of the HUF has unlimited liability.
• Control: The entire control of the entity lies with the Karta. He may
choose to confer with the co-parceners about various decisions, but
his decision can be independent. His actions will be final and also
legally binding.

16. Features of HUF
• Continuity: The HUF can be continued perpetually. At the death of
the Karta, the next eldest member will become the Karta. However,
keep in mind a Hindu Undivided Family can be dissolved if all
members mutually agree.
• Minority: Since the members are eligible to be co-parceners by the
virtue of their birth into the family, minor members will be a part of
the HUF.

17. Merits of HUF
• Every co-parsener has an assured share in profits
• Business has continued existence
• Decision making is quick as the powers are with the Karta
• No corporate tax so some people may use it for tax benefits

18. Demerits of HUF
• Absolute power in the hands of Karta.
• Instability
• Limited Resources can be raised
• Scope for conflict

19. PARTNERSHIP
(Ref.: https://www.vectorstock.com/royalty-free-vector/deal-partnership-agreement-business-vector-13448954)

20. PARTNERSHIP
A partnership is a business owned by two or more persons who contribute
resources into the entity. The partners divide the profits of the business
among themselves.
• Two or More Persons: To form a partnership firm atleast two persons are
required. The maximum limit on the number of persons is ten for banking
business and 20 for other businesses. If the number exceeds the above
limit, the partnership becomes illegal and the relationship among them
cannot be called partnership. However, the Central Government has
prescribed maximum number of partners in a firm to be 50 vide Rule 10
of the Companies (Miscellaneous) Rules,2014. Thus, in effect, a
partnership firm cannot have more than 50 members.
• Contractual Relationship: Partnership is created by an agreement among
the persons who have agreed to join hands. Such persons must be
competent to contract, thus, minors, lunatics and insolvent persons are
not eligible to become partners.

21. PARTNERSHIP
• Sharing Profits and Business as per the agreement.
• Existence of Lawful Business: Any agreement to indulge in smuggling,
black marketing etc. cannot be called partnership business in the eyes of
law.
• Principal-Agent Relationship: There must be an agency relationship
between the partners. Every partner is the principal as well as the agent
of the firm. When a partner deals with other parties he/she acts as an
agent of other partners, and at the same time the other partners become
the principal.
• Unlimited Liability: The partners of the firm have unlimited liability. They
are jointly as well as individually liable for the debts and obligations of
the firms. If the assets of the firm are insufficient to meet the firm’s
liabilities, the personal properties of the partners can also be utilized.

22. Types of Partners

23. Merits of Partnership
• Easy to Form
• Availability of Larger Resources
• Better Decisions
• Flexibility
• Sharing of Risks
• Benefits of Specialization
• Protection of Interest
• Secrecy
• Better Management and Flexibility of Operation
• Subject to fewer regulations as compared to companies

24. Demerits of Partnership
• Unlimited liability
• Instability
• Limited capital
• Non-transferability of share
• Possibility of conflicts
• Chances of disputes

25. COMPANY
A company is a voluntary organization of many persons who
contribute money or money’s worth to common stock and employs it
in some trade or business and who share the profit or loss arising,
therefore.
• Incorporated Association
• Artificial Person
• Separate Legal Entity
• Limited Liability
• Separate Property
• Transferability of Shares
• The company may sue and be sued in its name.

26. Merits of Company
• Large Financial Resources.
• Professional Management.
• Large-scale Production.
• Contribution to Society.
• Research and Development

27. Demerits of Company
• Difficult to form.
• Excessive government control.
• Delay in policy decisions.
• The concentration of economic power and wealth in a few hands.

28. LIMITED LIABILITY PARTNERSHIP (LLP)
A Limited Liability Partnership (LLP) is a body corporate, founded
under the Limited Liability Partnership Act, 2008. It is the hybrid form
of a company and partnership.
Being a corporate entity, the incoming and outgoing of the partners
do not affect the LLP (perpetual succession)
• Limited liability means that they can only recover money from
existing assets of business. They cannot claim personal assets of
shareholders to recover amounts owed by company
• An LLC may elect to be taxed as a sole proprietorship, a partnership,
or a corporation.
• Memorandum of Association - describes what company has been
formed to do

29. LIMITED LIABILITY PARTNERSHIP (LLP)
• Articles of Association - internal rules covering:
✓What directors can do
✓Voting rights of shareholders
• Limited liability means that investors can only lose money they have
invested.
• Encourages people to finance company

30. LIMITED LIABILITY PARTNERSHIP (LLP)
(Ref.: https://businessjargons.com/limited-liability-partnership.html)

31. Merits of LLP
• Single Taxation - Credits and deductions are divided by the
percentage of individual interest each partner has in the company.
• Limited Liability - The LLP structure protects individual limited
partners from personal liability for negligent acts of other partners
or employees not under their direct control. In addition, individual
partners are not personally responsible for company debts or other
obligations.
• Flexibility - LLPs provide the partners flexibility in business
ownership. Partners have the ability to decide how they will
individually contribute to business operations, both financially and
physically.

32. Demerits of LLP
• Duration - The business life of a LLP is unstable because the
partnership can be dissolved by agreement of the partners or upon
the death or withdrawal of a partner. A limited liability partnership
agreement can prevent dissolution if a partner dies or withdraws.
• Limitation of Formation - Unlike general partnerships, limited
liability partnerships are not recognized as legal business structures
in every state.
• Partner Control - If an LLP is formed without a limited liability
partnership agreement, individual partners are not obliged to
consult with other participants in certain business agreements.

33. CO-OPERATIVES
Cooperative Society is defined as “a society,
which has its objectives for the promotion of
economic interests of its members in
accordance with cooperative principles.”
A cooperative is a business organization owned
by a group of individuals and is operated for
their mutual benefit. The persons making up
the group are called members.
Some examples of cooperatives are water and electricity (utility)
cooperatives, cooperative banking, credit unions, and housing
cooperatives.

34. Characteristics of Co-operatives
• Voluntary Association: Members join the cooperative society
voluntarily i.e. by their own choice.
• Open Membership: The membership is open to all those having a
common economic interest. Any person can become a member
irrespective of his/her caste, creed, religion, colour, sex etc.
• Number of Members: A minimum of 10 members are required to
form a cooperative society. In case of multi-state cooperative
societies the minimum number of members should be 50 from each
state in case the members are individuals. The Cooperative Society
Act does not specify the maximum number of members for any
cooperative society. However, after the formation of the society, the
member may specify the maximum member of members.

35. Characteristics of Co-operatives
• Registration of the Society: In India, cooperative societies are
registered under the Cooperative Societies Act 1912 or under the
State Cooperative Societies Act. The Multi-state Cooperative
Societies are registered under the Multi-state Cooperative Societies
Act 2002. Once registered, the society becomes a separate legal
entity and attains certain characteristics:
✓ The society enjoys perpetual succession
✓ It has its own common seal
✓ It can enter into agreements with others
✓ It can sue others in a court of law
✓ It can own properties in its name

36. Characteristics of Co-operatives
• State Control: Since registration of cooperative societies is
compulsory, every cooperative society comes under the control and
supervision of the government.
• Capital: The capital of the cooperative society is contributed by its
members or loan from State and Central Government.
• Democratic Set Up: Every member has a right to take part in the
management of the society. However, the society elects a managing
committee for its effective management.
• Service Motive: The primary objective of all cooperative societies is
to provide services to its members

37. Merits of Co-operatives
• Easy to form
• Limited liability
• Open membership
• State assistance
• Stable life
• Tax concessions
• Democratic management

38. Demerits of Co-operatives
• Limited Capital
• Lack of Managerial Expertise
• Less Motivation
• Lack of Interest
• Dependence on Government

39. MULTI-NATIONAL CORPORATIONS
A multinational company is one which is incorporated in one country
(called the home country); but whose operations extend beyond the home
country and which carries on business in other countries (called the host
countries) in addition to the home country.
Examples: Britannia Industries Ltd., Nestle India Ltd., Siemens Ltd.,
Hindustan Unilever Ltd., Maruti Suzuki India Ltd. ...
• Huge assets and turnover
• International operations through a network of branches
• Economic power (through mergers and acquisitions)
• Advanced and sophisticated technology
• Professional management
• Aggressive Advertising and Marketing

40. Merits of MNCs
• Employment generation
• Optimum utilization of resources
• Automatic inflow of foreign capital
• Improvement in balance of payment position
• Managerial and technical development
• Improved standard of living
• End of local monopolies

41. Demerits of MNCs
• Risk for domestic Industries
• Repatriation of profits (sending profits to the home country)
• No benefit to poor people
• Careless exploitation of natural resources of the host country
• MNCs are powerful economic entities. They may indulge in dirty
strategies to drive off local competitors.
• MNCs invest in most profitable sectors; and disregard the national
goals and priorities of the host country
• Initially MNCs help the Government of the host country, in a number
of ways; and then gradually start interfering in the political affairs of
the host country.

42. Thank You
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