This document discusses different types of business organizations including sole proprietorships, partnerships, and joint stock companies. It provides details on the key characteristics of sole proprietorships and partnerships, such as unlimited liability, ease of formation, and lack of a separate legal identity. Joint stock companies are described as voluntary associations that allow public participation through the purchase of shares and have features like limited liability, transferable shares, and perpetual existence. Challenges of joint stock companies including difficulties in decision making and formation are also outlined.

1. TYPE THE SUBJECT NAME HERE
SUBJECT CODE
IV VII
MG8591
PRINCIPLES OF MANAGEMENT
(Common to CSE & IT)
UNIT NO 1
INTRODUCTION TO MANAGEMENT AND
ORGANIZATIONS
● 1.6 Types of Business Organization-Sole
Proprietorship,Partnetship

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BUSINESS
A business (also called a company, enterprise or firm) is a legally
recognized organization designed to provide goods and/or services to
consumers.

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Types of Business Organization
➢ Sole proprietorship or sole trader
➢ Partnership
➢ Joint Stock company
➢ Private limited company
➢ Public Limited company
➢ Co-operative Organization
➢ Public Enterprises(or) State Enterprises
➢ Public Corporation
➢ Government Company

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Sole Proprietorship/ sole trader
It is a type of business entity which is owned and run by one individual

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CHARACTERISTICS OF SOLE PROPRIETORSHIP
1.One man ownship and control
2.Unlimited liability
3.Enjoyment of entire profit
4.No Separate legal entity
5. Simplicity
6.Self Employment
7.Secrecy
1.One man ownership and control Owned by a single person
2.Unlimited liability Refers to the full legal responsibility that
business owners and partners assume for all
business debts.
3.Enjoyment of entire profit No share in profit
4.No Separate legal entity If a business is a separate legal entity, it
means it has some of the same rights
in law as a person. It is, for example, able to
enter contracts, sue and be sued, and own
property. Sole traders and partnerships
are not separate legal entities from the
owners.
5.Simplicity No complex Relationship handling
6.Self Employment the state of working for oneself as a freelance
or the owner of a business rather than for an
employer.
7.Secrecy No need to disclose plans to any partners

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ADVANTAGES OF A SOLE PROPRIETORSHIP
1. It is easy to form and close the business
2. It is easy for decision making
3. It has full control of business activities
4. It promotes self-employment of individual
5. It has liberal legal formalities to start the business
6. It is easy to expand or reduce the size of the business
7. It is easy to accessibility of consumers.
8. It is easy to maintain healthy relations with employee.

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DISADVANTAGES OF SOLE PROPRIETORSHIPS
1. Limited resources
2. Short life
3. Lack of communication
4. Risk of entire loss
5. Uncertainty

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PARTNERSHIP
A business owned by two or more people

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FEATURES OF PARTNERSHIP
1 Agreement A partnership comes into being through an agreement between
persons who are competent to enter into a contract
2 Multiplicity of person A partnership is an association of two or more persons. In
India there is no upper limit provided under the Partnership
Act.The maximum membership for a trading concern is 20;
while for banking business it is 10.
3 Lawful business The partners can take up only legally blessed activities. Any
illegal activity carried out by partners does not enjoy the legal
sanction.
4 Sharing of profits The partnership agreement must specify the manner of sharing
profits and losses among partners.
5 Contractual relations The contract may be oral or written but, in practice, written
agreement is made because it helps to settle the disputes if
they arise later on.

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FEATURES OF PARTNERSHIP
6 Mutual Agency Every partner is considered to be an agent of the firm as well
as other partners. The business can be carried out jointly run
by one nominated partner on behalf of all.
7 Unlimited Liability In all cases where the assets of the firm are not sufficient to
meet the obligations of creditors of the firm, the private
assets of the partners can also be attached.
8 Registration To form a partnership firm, it is not compulsory to register it.
However, if the partners so decide, it may be registered with
the Registrar of Firms.
9 Common Management Though, partnership business is run by some partners; the
consent of all the partners is necessary for taking important
decisions.
10 Utmost good faith The survival of a partnership firm depends on utmost good
faith and selflessness

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RIGHTS OF PARTNER
Right to express his option Everybody should be freely able to express their opinion
Right of Participation Stipulates that each partner in a business partnership have the right
to take part in the business proceeding. But this right is subject to a
contract to the contrary. However, this right may be waived by a
partner himself.
Right of access to books Every partner in a business partnership can access and inspect any
of the books of the firm as per law. It can be exercised either by the
partner himself or by his authorized agent. The partners cannot
object to inspection of books by the agent of a partner, unless they
have a reasonable ground for believing that the trade secrets might
be leaked out.

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RIGHTS OF PARTNER
Right to share profits Every partner is entitled to have equal share in the profits of the firm.
At the same time, the partners are equally liable to all the losses
sustained by the firm unless otherwise agreed upon as per the
partnership agreement.
Right to get interest on the capital Ordinarily, no interest is payable to the partners. However, if it is
allowed by an express or implied agreement or by the custom of
trade, a partner can charge interest on capital. In such a case also,
interest shall be paid only out of profits.
Right of indemnity The partner of a firm is entitled be indemnified by the firm in the
following circumstances:
Expenses incurred in the ordinary course of business, and
Expenses incurred in an emergency.

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KINDS OF PARTNERS
1 Active Partner A Working Partner is one who contributes capital to
the business and takes active part in its management.
Hence, he is called active partner.
2 Sleeping or dormant partner A Sleeping Partner is one who contributes only capital
to the business, but does not take part in its
management. He is also called dormant partner or
financing partner.
3 Normal partner A Nominal Partner does not contribute capital. Neither
does he take active part in the management. His
contribution in a partnership is limited to allowing the
other partners to make use of his name.
4 Partner in profit only A Nominal Partner does not contribute capital. Neither
does he take active part in the management. His
contribution in a partnership is limited to allowing the
other partners to make use of his name.

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KINDS OF PARTNERS (Contd….)
5 Partner by estoppel Partner by Estoppel is not a partner of the firm but by his
words and conduct he leads the outsiders to believe that
he is also a partner of the firm. Usually this arises, when
the outgoing partner fails to give notice about his
retirement.
6 Sub-partner A Sub-Partner has no direct contact with the firm. He is
only next to a partner.
7 Secret Partner A Secret Partner is actually a partner of the firm. But he
does not hold out to the public as a partner of the firm but
keeps his existence as secret. His liability is also
unlimited.
8 Minor as a partner According to the Partnership Act, a minor may be
admitted to the benefits of a partnership. So while
the minor will not be a partner he will enjoy all the benefits
of a partnership.

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Advantages of a partnership :
1. Easy to form
2. Registration is not compulsory
3. Larger financial resources
4. Greater managerial talent
5. Promptness in decision making
6. The risk of business is shared by more persons
7. More possibility of growth and expansion of the business
8. Close supervision is possible for this business. It reduces wastages.
9. There can be any change in Managerial setup capital and scale of operation.
10. Prediction of minority interests is in this type of business.
11. Easy dissolution

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Disadvantages of a partnership :
1.Unlimited liability increases the dissolution of firm
2.Lack of Harmony among partners
3.Difficulties in expansion and modernization
4.Limitation on transfer of share
5. Limited resources

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➢ Public (Common man ) can participate in the business activities of the
corporate with least amount of investment
➢ Voluntary association of persons recognized by law, having a distinct
name,common seal, formed to carry on business for profit, with capital
divisible into transferable shares, limited liability, corporate body and
perpetual succession
➢ People contribute to the share capital known as shareholders and
employ it for a common purpose
➢ The proportion of capital to which each member is entitled his share
➢ Members may come, members may go but continues for ever and ever
JOINT STOCK COMPANY

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Prospectus :
➢It is a notice , circular, advertisement or any other document inviting offers from public for the subscription
of shares or debentures of the body corporate
➢It contains the name and address of the company which is registered, nature of the business, main
objectives, number and types of shares issued, list of prompters, list of directors, details of bankers, brokers
and auditors and the minimum subscription to be received, opening and closing date of offer etc.
➢Prospectus is not issued for a public limited company, then “Statement in Lieu of Prospectus” but in the
private company, issue of prospectus is prohibited
Why Favored?
➢It is the most favored form of business organization in which, promoters wish to take up large business
ventures with huge capital outlay
➢Mobilize large resources
➢Has separate legal existence
➢Shareholders have limited liability and shares can be transferred

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➢Liquidity of investments in the shares is taken care of by listing the shares of the
company on
stock exchange
➢Facilitates growth and expansion
➢Vast scope to involve professional managers
➢ Inculcates the habit of savings and investments

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Challenges
➢ Ownership, management and control are diversified
➢Decision making is delayed due to rigities in the system, for instance, the general body has to
approve the proposals in annual general body meeting or extraordinary general body meetings ,
strategic decisions can not be taken. The formation of the company is a
long-drawn process
➢ It is very difficult to form and close also
➢ Closing of Joint stock company is called winding up
➢ Joint stock company is mostly criticized to promote monopoly or oligarchy in management as
the controls are vested in the Board of Directors who provide the strategic direction to the
company

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Public and Private Limited Companies :
S.NO. PUBLIC COMPANY PRIVATE COMPANY
Minimum capital is Rs 5,00,000 Minimum capital is Rs. 1,00,000
2. Number of members : minimum 7 and no limit on
maximum number
Number of members : minimum 7
maximum 200
3. Name of the company should end with ‘public
limited’
Name of the company should end with
‘private limited’
4. Issue of securities : issue of shares from public
through prospectus
by way of rights/bonus issue through private
placement
Issue of securities : prohibited from the issue
of prospectus
Raise capital by way of rights issue or bonus
issue through private statement
5. Listing: shares are listed on recognised stock
exchanges
shares of the private company are not listed
6. Quorum: Minimum number of members are required
to conduct proceeding of meetings
Quorum is 5 if members upto 1000
15 if members > 1000 < 5000
30 if members > 5000
Quorum inly two
7. Acceptance of public deposits: Accept public
deposits
Not in private company

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VIDEO LINKS
https://www.youtube.com/watch?v=nsV461YIr6c
https://www.youtube.com/watch?v=BAQ6H6ZmoB0
https://www.youtube.com/watch?v=Dg3zWAhXrkg
https://www.youtube.com/watch?v=aWpsAGCQ840
https://www.youtube.com/watch?v=7CIJwCK2ysk