1. FORMS OF BUSINESS
ORGANISATIONS

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. Business !!!!! What it is?
• Activities connected with the production or
purchase and sale of goods or services with the
objective of earning profit are called Business
activities.
• Mining, manufacturing, trade, transportation,
insurance, banking are business activities.
• Thus business may be defined as an economic
activity involving regular production or purchase
and distribution of goods and services with the
objective of earning profits.

4. Human activities involve
efforts under taken
•
to satisfy human needs,
•
to earn one’s livelihood,
•
to derive mental satisfaction.

5. Economic activities are undertaken by
people to earn one’s living and for
production of wealth
• Non-economic activities are social activities
which people undertake to derive personal
satisfaction.

6. Nature and characteristics of Business
• Business is an economic activity.
• It includes the activities of production or
purchase and distribution.
• It deals in goods and services.
• It implies regularity of transactions.
• It aims at earning profits through the
satisfaction of human wants.
• It involves risk; it is not certain that adequate
profit will be earned.
• It creates utilities.

7. Significance of Business in Modern
Society
•
•
•
•
•
•
Improvement in standard of living
Proper utilization of resources
Better quality & large variety of goods
Creates utilities
Employment opportunities
Workers' welfare

8. TYPES OF BUSINESS
ORGANISATIONS
•
•
•
•
Sole Proprietorship
Joint Hindu Family Business
Partnership Firm
Joint Stock Company
1.) Private Limited
2.) Public Limited
• Co-operative Society

9. Characteristics of an ideal form of
organization
•
•
•
•
Ease of formation
Adequacy of Capital
Limit of Liability
Direct relationship between Ownership,
Control and Management
• Continuity and Stability
• Flexibility of Operations

10. Choosing a Form of Business Organisation
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)

11. • 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

12. SOLE PROPRIETERSHIP
When the ownership and management of a business are
in control of one individual the form of business is called
sole proprietorship.

13. CHARACTERISTICS
• 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.

14. ADVANTAGES
OF
SOLE
PROPREITORSHIP
• Easy formation
• Better Control (Prompt decision making and
Flexibility in Operations)
• Subject to fewer regulations
• Not subject to corporate income tax
• Ownership of all profits

15. DISADVANTAGES OF SOLE
PROPREITORSHIP
• Owner has unlimited
liability
• Difficult to raise
capital
• Business has a limited
life
• Difficult to do
business beyond a
certain size

16. 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
“Co-parceners”

17. • 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.

18. ADVANTAGES OF HUFs
• Every co-parsener 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

19. DISADVANTAGES OF HUFs
• Absolute power in the hands
of Karta.
• Instability
• Limited Resources can be
raised
• Scope for conflict

20. PARTNERSHIP FIRM
A Partnership consists of two or more
individuals in business together

21. CHARACTERISITCS OF PARTNERSHIP
• Minimum 2 number of partners and maximum 20
partners
• 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

22. ADVANTAGES OF PARTNERSHIP
•
•
•
•
Easy Formation
Larger Resources
Sharing Of Risk
Better Management and
Flexibility of Operation
• No corporate income tax
• Subject to fewer regulations
as compared to companies

23. DISADVANTAGES OF PARTNERSHIPS
•
•
•
•
Unlimited Liability
Limited Life
Difficult to raise capital
Chances of Dispute

24. JOINT STOCK COMPANY
A joint stock company is a voluntary
association of people who contribute
money to carry on business

25. CHARACTERISTICS OF A CORPORATION
• It is considered as a separate legal entity
• It comes into formation after all formalities under
the Indian Companies Act 1956 are completed
• Management and ownership is completely
separate
• Capital is raised through shares which are
transferable

26. ADVANTAGES OF A CORPORATION
• Limited liability of the
shareholders/promoter
• Can easily raise capital
• Have unlimited life
• Ease of transfer of ownership

27. DISADVANTAGES OF A CORPORATION
• Formation is not easy
• Excessive Government Regulation
• Subject to Corporate Tax and Dividend
Tax (Double Taxation)
• Delay in Policy
Decisions
• Control by a Group

28. 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

29. 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.

30. CO-OPERATIVE SOCIETY
It is a voluntary
association of
people or
business to
achieve a an
economic goal
with a social
perspective

31. 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

32. ADVANTAGES OF CO-OPERATIVE
•
•
•
•
Easy Formation
Limited Liability
Stability
Democratic
Management
• State Assistance

33. DISADVANTAGES OF A CO-OPERATIVE
• Possibility of
conflict
• Long decision
making process
• Not enough capital

34. Not For Profit Businesses
• Many charity-based business organisations are run
as ‘not for profit’ operations
• They typically receive donations
or funds from groups or government
• Any financial surplus is ploughed back into the
business
• The organisation does not aim
to generate profits

35. Conclusion
• These forms refer to such aspects as
ownership, risk bearing, control and
distribution of profit.
• Any one of the above mentioned forms may
be adopted for establishing a business
• usually one form is more suitable than other
for a particular enterprise.
• The choice will depend on various factors like
the nature of business, objective, capital
required, scale of operations, control, legal
requirements and so on.

36. FORMATION OF COMPANIES

37. FORMATION OF COMPANY
> Definition.
> Stages in formation.
 DOCUMENTS OF COMPANIES
> Memorandum of Association (MoA)
> Article of Association (AoA)
> Prospectus of Association

38. What do you mean by Formation of a
Company?
A Company comes into existence when a group of
people come together with a view of forming an association
to exploit the business opportunities by bringing together;
men, material, money and management

39. STAGES OF FORMATION OF A COMPANY
 Promotion Stage
 Selection of Name
 Incorporation (Registration Stage).
 Raising the Share Capital Stage.

40. 1. PROMOTION STAGE INCLUDES
 Discovery of Business opportunities.
 Detailed Investigation.
 Assembling necessary requirements.
 Financing of proposition.

41. 2.SELECTING COMPANY NAME
To be identified for legal and business purpose (i.e.
“Ltd” or “Pvt Ltd” ). The name should not be similar to
the existing.

42. 3.INCORPORATION STAGE
 A company is said to be incorporated when it fulfill the
formalities of registration and obtain “CERTIFICATE OF
INCORPORATION” by submitting the MoA, AoA and written
consent of all the directors.
 A public to commence business, should raise the required
capital and obtain the
“CERTIFICATE OF
COMMENCEMENT
OF BUSINESS”

43. Example for :
CERTIFICATE OF INCORPORTATION of VISWASGOLD INFRASTRUCTURES

44. Example for :
CERTIFICATE OF
COMMENCEMENT OF
BUSINESS of VISWASGOLD INFRASTRUCTURES

45. 4. RAISING OF SHARE CAPITAL
Entering onto an agreement with underwriters.
Applying to the stock exchange for listing of
shares.
Issue of prospectus inviting public to subscribe.
Allotting shares.

46. PROMOTERS OF A COMPANY
A promoter is one “ who undertakes to form a
company with reference to a given object and to
set it going who takes the necessary steps to accomplish that
purpose”.
Liability of promoters: Liable to
hand over any secret profit and
any personal interest in dealings.
Liable to untrue statement in the
prospectus.
Remuneration to promoters: If personal skills are involved
in promotion

47. DOCUMENTS OF COMPANIES
 Memorandum of Association(MoA)
 Article of Association (AoA)
 Prospectus of Association

48. THE MEMORANDUM OF ASSOCIATION(MoA):

The MoA is a document which contains the Fundamental
Rules regarding the constitution and activities of the
company.
 It is the charter of the company defines its
raison d’etre ( reason for existence).
 It lays down the area of operation of the company.
 It also regulates the External Affairs of the company.

49. CONTENT OF MoA : Sec 13
 THE NAME CLAUSE.
 THE REGISTER OFFICE CLAUSE.
 THE OBJECT CLAUSE.
 THE CAPITAL CLAUSE.
 THE LIABILITY CLAUSE.
 THE ASSOCIATION CLAUSE.
NOTE : The MoA must be signed by at least seven
subscribers in the case of Public Company and
two in the case of Private company.

50. ARTICLE OF ASSOCIATION(AOA):
 The AoA contains regulations regarding all matter
concerning the internal affairs of the company
 AoA should be printed, divided into paragraphs and
serially numbered.
 Alteration of AoA is done by passing a special
resolution.

51. CONTENT OF AoA:
 Division of share
 Procedure of holding and conducting the meetings.
 Voting rights of members and rules regarding methods of
voting
 Matters relating to appointment, powers duties,
qualification and remuneration of directors.
 Methods to increase or decrease capital.
 Rules regarding common seal of the
company.

52.  Terms of appointment ,remuneration,
delegation of authority
 Rules relating to issue of share capital.
 Declaration of dividend and rules regarding its
payment.
 Rules relating to accounts, audit charging of
depreciation and creation of reserves etc.
 Methods of securing loans.
Procedure of winding up of a company.

53. PROSPECTUS :
Prospectus means any document described or issued
as a prospectus inviting deposits from public or inviting
offer from public for the subscription or purchase of any
shares , or debentures of the company.
“CERTIFICATE OF LIEU OF PROSPECTUS” is issued by a
public company,
where the company doesn’t
invite public subscription.

54. CONTENT OF PROSPECTUS:
 Date of issue of prospectus.
 Name and register office of the company.
 Consent of Central Govt. for the present
issue/compliance with the with the SEBI guidelines.
 Voting rights ,dividend ,expenses on issue etc.
 Name of the stock exchange.
 Punishment for fictitious application.
 Refund of issue if 90% min. subscription not received.
 Names and addresses of leading managers.

55.  Issue of allotment letter or refund within 10 weeks with
interest.
 Date of opening and closing of issues.
 Credit rating from CRISIL (CREDIT RATING
INFORMATION SERVICES OF INDIA LIMITED)
 Terms of Underwriting & Risk Factors.
 Capital Structure of the company
 Terms and particulars of the issue.
 Restriction on transfer and transmission of
shares.

56. Relative Position of U.S. Proprietorships,
Partnerships, & Corporations
Figure 3-1
A. Proprietorships
are the most
numerous.
B. Corporations
produce the most
revenue.
C. Proprietorships
appear more
profitable.
7%
5%
20%
15%
7%
13%
72%
88%
73%
Distribution by
total number
Distribution by
revenues
Partnerships
Corporations
Distribution by
profits
Proprietorships

57. Comparison of Proprietorships, Partnerships, &
Corporations in Selected Industries
Table 3-1
•Industry
•Services
•Trade
•Construction
•Finance
•Manufacturing
82%
70%
77%
43%
57%
3%
4%
3%
32%
5%
•Percentage of firms in the industry
continued
15%
26%
20%
25%
38%

58. Comparison of Proprietorships, Partnerships, &
Corporations in Selected Industries (cont’d)
Table 3-1
•Industry
•Services
•Trade
•Construction
•Finance
•Manufacturing
14%
5%
12%
2%
>1%
14%
6%
6%
10%
4%
•Percentage of industry’s business receipts
72%
89%
82%
88%
96%

59. Choosing a Form of
Ownership

60. Choosing a Form of
Ownership
• There is no one “best” form of ownership.
• The best form of ownership depends on an
entrepreneur’s particular situation.
• The key to choosing a form of ownership is
understanding how each form’s
characteristics affect an entrepreneur’s
specific business and personal
circumstances.

61. Factors to Consider
•
•
•
•
•
•
•
•
Tax considerations
Liability exposure
Start-up capital requirements
Control
Managerial ability
Business goals
Management succession plans
Cost of formation

62. Liability Features of the Basic Forms of Ownership
Sole Proprietorship
Claims of Sole Proprietor’s Creditors
Sole Proprietor’s Personal Assets

63. Liability Features of the Basic Forms of Ownership
Partnership
Claims of Partnership’s Creditors
General
Partner’s
Personal
Assets
Partnership’s Assets
General
Partner’s
Personal
Assets

64. Liability Features of the Basic Forms of Ownership
Limited Partnership
Claims of Partnership’s Creditors
Partnership’s Assets
General
Partner’s
Personal
Assets
Limited
Partner’s
Personal
Assets

65. Liability Features of the Basic Forms of Ownership
Corporation
Claims of Corporation’s Creditors
Corporation’s Assets
Shareholder’s
Personal Assets
Shareholder’s
Personal Assets

67. Bibliography
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[Accessed 07 March 2014].
Nagpal, A., 2013. slideshare. [Online]
Available at: http://www.slideshare.net/aadityanagpal/forms-of-business-organisations-27056960
[Accessed 07 March 2014].
Patil, N., 2012. slideshare. [Online]
Available at: http://www.slideshare.net/Nitin6992/formation-of-companies
[Accessed 07 March 2014].
Shah, S., 2012. slideshare. [Online]
Available at: http://www.slideshare.net/bachajee007/sme-chapter-3
[Accessed 07 March 2014].
winfrey, t., 2010. slideshare. [Online]
Available at: http://www.slideshare.net/tomwinfrey/chapter-3-5008973
[Accessed 07 March 2014].