FORMS OF BUSINESS

ORGANISATIONS
 Sole Proprietorship
Joint Hindu Family
Business
Partnership
Co-operative Society
Joint Stock Company
 INTRODUCTION
A business enterprises is an organisation which undertakes business
activities. Here YOU are going to collect awareness about different
type of business organisation in private sector and public sector. They
are ;
Sole proprietorship
Joint Hindu family business
Partnership
Co-operative society
Joint stock company
 SOLE PROPRIETORSHIP
A business organisation owned by a
single person is called sole proprietorship.
It is also known as one man business.
Sole trader is the owner of sole
proprietorship business. He brings capital
for the business. He uses his own skill
and manages the business. Also he get all
the profit and suffers all the losses.
 CHARACTERISTICS OF SOLE PROPRIETORSHIP
Any individual with good financial and
managerial advantage can start this type of
business
Individual ownership
Personal control
Individual risk
Unlimited liability
No legal restrictions
ADVANTAGES OF SOLE PROPRIETORSHIP
Easy formation : no legal formalities for starting
this business, any one can start those who have fund
and managerial stability.
Quick decision : sole trader is the supreme
authority so no necessary to ask any others for taking
decisions.
Efficient management : attention control by the
owner reduces risk and wastes.
 ADVANTAGES OF SOLE PROPRIETORSHIP…….
Business secrecy : a sole trader can easily keep all
his informations related to business safely.
Better personal contacts : it is through the
personal and smooth and cordial relationship with
customers.
Flexibility : the sole trader has no necessary to ask
about the changes in the running of business.
Less expensive management : high salary paid
managers are not necessary for managing Sole
proprietorship.
ADVANTAGES OF SOLE PROPRIETORSHIP…….
Loan Facilities : due to unlimited liability he
will get loans easily.
Continuity : the business is continuing nature like
from the father to the son.
Prevention of concentration of wealth : it
motivates all people to do the business and helps to
reduce the concentration of wealth in few business
peoples / firms.
 DISADVANTAGES OF SOLE PROPRIETORSHIP
Shortage of capital : the fund required for running
the business is brought from his own hand. Banks gives
loans on the basis the financial stability of the
owner.so shortage of capital is the problem.
Risk and unlimited liability : the entire risk and
losses of the business are to be borne by the sole trader.
Lack of management ability : the business runs
on the managerial talents of a single person.
DISADVANTAGES OF SOLE PROPRIETORSHIP……
Weak bargaining powers : sole trader
cannot make a control in the market in front of
large scale business firms.
Absence of large scale buying and
selling : he operates on a small scale basis so
he cannot conduct large scale buying and selling.
 It is one of the oldest forms
of business found in India. It is
owned by the individuals of Hindu
family and it is controlled by the
Mitakshara School of Hindu
Law. The business is managed
by the eldest male member known
as “ Karta ”. The liability of
Karta is unlimited.
FEATURES OF JOINT HINDU FAMILY BUSINESS
It is created on the basis of Hindu Law and not out of a
contract.
Only male members of Hindu family can become members.
The membership is obtained only through the birth of particular
family conducting business.
Business undertaken for the benefits of members of the family.
The liability of members is limited except of Karta
The capital for the business is from their ancestral properties.
It enjoys greater stability in the running and
continuity of business.
It provides scope for division of labour.
There is no limit for number of members.
Enables to take accurate decisions.
Business secrecy can be maintained easily.
The members have only limited liability.
It enjoys better creditworthiness than the sole
trading concern.
It enjoys flexibility in organisation.
It provides an excellent training ground for the
junior members.
The resources of Joint Hindu Family are limited than joint stock
company.
The management is in the hands of the Karta who may lack skill,
initiative and efficiency.
There is no direct relationship between reward and effort.
Disputes may arise among the members in the case of partition of
property and closing of business.
The liability of members is limited so they take little interest in the
business activities.
 The partnership business tries to reduce the defects of
sole trading and Joint Hindu Family Business. In a
partnership business two or more persons combine their skills,
experience and capital. The persons organising partnership
business are known as partners.
A partnership is defined as “ the relationship
between persons who have agreed to share profits of a
business carried on by all or any one of them acting for
all ”.
Relation between two or more : minimum members required for
starting this business is 2, maximum 10 in banking and 20 in
other business.
Agreement : it starts based on a oral or written agreement. It is
known as Partnership Deed.
Business : the agreement is to do lawful business and cannot form
charitable institution.
Sharing profits : profit or loss share as per agreement.
Business is carried on by all or any of them acting for all.
Unlimited liability : liability of each partner is unlimited.
No separate legal existence : a firm has no separate existence apart
from the partners.
Utmost Good Faith : partners should disclose all material facts and
present true accounts to one another.
Transfer of Interest : no chance to transfer interest of one partner to
another in the firm.
Implied authority : all partners should follow the laws of organisation.
General or Ordinary Partnership : The liability of all partners is
unlimited. On the basis of duration it is divided into two type ;
Particular Partnership : partnerships formed for the completion of a
particular purpose for a fixed period.
Partnership at Will : in this type the duration of the partnership will
not be fixed in advance.
Limited partnership : in limited partnership the liability of the partners
is limited. But this type is not allowed in India.
Active or Working Partner : A partner who will
contribute capital and take active participation in day to day
affairs.
Sleeping or Dormant Partner : the partner who does not
contribute any active participation in business activities.
Nominal Partner or Ostensible Partner : a person who do
not contribute capital towards the organisation but his
reputation will be beneficial to the firm.
Partner by Estoppel : is a person who by his behaviour or
words gives an impression to the third parties that he is a partner.
Partner by Holding Out : a person may be represented as a
partner to the public by others.
Partner in Profit Only : with a special agreement a person may
be admitted to share only profits.
Sub – partner : an outsider appointed by a partner as his agent
with a share in the profits.
 Section 30 of the Indian Partnership Act
, allows a minor to be admitted as partner . the
liability of a minor partner is limited. He has the
following rights ;
He has the right to share the profits and
properties of the firm.
He can check the accounts of the firm.
He can sue the partners for the payment of his
share of profits.
 It is the written agreement by partners. It may be oral or
written. It is also known as Articles of Partnership. It may
contains the following ;
Name of the firm, address and name of partners.
The term and duration of partnership and its objectives.
The amount of capital contributed.
Profit sharing ratio.
The amount which can be withdrawn by each partner.
Management of the business
Amount of salary paid to partners.
The right and duties of partners.
Preparation of accounts of the firm.
Arrangement for audit
Rate of interest on the capitals.
Details of division of work among
Method of valuation of Goodwill on Admission,
retirement an death of a partner.
Provisions regarding admission , death and retirement
of a partner.
Settlement of disputes.
Any other important matters.
Easy of Formation : formation of partnership is easy.
Larger resources : helps to collect more amount of capital
through different partners.
Efficient Management : through skilled and experienced two
or more persons management of the firm is effective.
Division of labour : division of work is possible between
partners.
Prompt and balanced decisions : for taking decisions all are
meeting at a time.
Greater Interest : equality in sharing of profit or loss makes
them greater interested.
More Credit Facilities : it can obtain more credit facilities
from money lenders, financial institutions etc.
Flexibility : easy to change according to the conditions of the
society.
Protection of minority interest : each partners get
opportunity for expressing their views.
Simple Dissolution : it is easy to dissolve partnership
Maintenance of Business secrets : no necessary to
publish their accounts.
 Less Controls : govt. control over partnership is very
low.
 It is an organisation
which is working on the
basic objective of service
than profit. They function
under the principle of
mutual help.
Voluntary Association : every individual is free to join or not to join in co-
operative society.
Association of persons : individuals join co-operatives as human beings and
not as capitalists.
Unrestricted Membership : any one who is major can become member of co-
operative society.
Equal Voting Rights : one member one vote is the principle of co-operative
society and not one share one vote.
Democratic Management : Each for all and all for each is the principle of
management in a co-operative society.
Service is the Motto : A co-operative is formed to give maximum service
to its members.
Limited Distribution of Surplus : only limited portion of profit is given
to the members.
Cash Trading : business in co-operative society is done on cash own
basis.
Corporate Status and State Control : co-operative society in India are
registered under co-operative society Act 1912. On registration it become a
body corporate enjoying separate legal entity.
Liability : liability of a co-operative society is generally limited
 Easy of Formation
Perpetual succession : not affected by the death or
insolvency of members.
Democratic management : one man one vote helps for
democratic management
Mobilisation of Savings : Small savings are
mobilised for constructive purposes.
 Economy of operation : expense for working co-operative
society is minimum
Saves Members From Exploitation : By giving loans at
reasonable interest rate , by providing consumer goods at fair
prices.
State Assistance : exempted from tax, stamp duty and
registration fees, etc
Social Importance : co-operative society render services
without profit motive.
Inadequate Capital : non availability of capital for large scale operations.
Inefficient Management : they have no financial stability to appoint
specialists.
Lack of business secrecy : there will periodical discussions in general body
about all facts.
Lack of Motivation : remuneration is very low
Excessive State Control : excessive state control affects successful
functioning of co-operatives.
Internal Conflict : local politics adversely affects the smooth functioning of
co- operatives .
@ Co-operative Credit Societies : it gives short term finance at reasonable
interest . there are four types of credit societies ;
@ Rural Banks : provides loans at lower rate to buy seeds, fertilisers,
agricultural implements ,etc.
@ Urban banks : formed in district towns for providing facilities to small
traders and artisans.
@ Employees Credit Societies : formed by employees in govt., semi govt.
,banks, etc. to meet financial problems.
@ Wage Earner’s Societies : formed by workers in and around town areas.
@ Co-operative Marketing Societies : these are formed for helping
farmers, artisans, and small producers for marketing their
products .
@ Co-operative Farming Societies : formed by farmers for
maximise production and secure benefits of large scale cultivation.
@ Consumers Co-operative Societies : formed by low and middle
income groups , to ensure supply of consumer goods at fair
prices.
@ Producer co-operative societies : organised by small scale
producers and craftsmen that helps them conduct small scale
business.
@ Co-operative housing Societies : to solve housing problems. It
includes land societies, finance societies , house building
societies and tenancy co-operative societies.
 A company which is formed and registered under
the Indian Companies Act 1956 is known as Joint
Stock Company. The peoples who contribute capital
for the business is to be considered as members. The
portion of capital to which each member is entitled as
his share , for that he will get dividend as return .the
members are known as Shareholders.
 Incorporated Association : a Joint Stock Company
is registered under the Indian Companies Act 1956.
 Separate Legal Entity : On incorporation Company
will become a Legal person .
 Common Seal : A common seal is used as a signature
of the company.
 Perpetual succession : company is created on the basis
of law, so the law only can put an end to it .
 Limited Liability : liability of shareholders is limited to the
extent of face value of shares held.
 Separation of ownership and management : shareholders are
owners of a company. But the daily activities are controlled by
elected representatives of shareholders known as directors.
 Extensive Membership : in a public company there is no limit for
membership
 Transferability of Shares : shares of a public company are freely
transferable.
 Huge capital : it can collect huge amount of capital for
its working.
 Limited liability : liability of members is usually
limited.
 Transfer of Shares : shares are easily transferable in
the case of public companies.
 Diffused Risk : risk of loss is spread over a large
number of persons.
 Continuity of Existence : it has a legal entity separate from the
persons.
 Organised Intelligence : the process of capital formation is
implemented with organised intelligence which increases
efficiency of directors.
 Tapping Economic Resources : a joint stock company offers vast
scope for turning economic resources to the best use.
 Greater Scope for Expansion : with the increase of earnings and
financial resources and managerial ability helps for the
expansion of the company.
 Democratic Management : the elected members of
shareholders are responsible for all activities.
 Public Confidence : they enjoys greater public confidence than
sole trading and other types of organisations.
 Extensive Membership : Share capital of a company is divided
into a large number of shares of small value with no maximum
limit to the number of members.
 Employment Opportunities : it can provide a large number of
job opportunities.
 Difficulty of formation : the formation of a company is
difficult and costly.
 Inflexibility : the constitution of Joint Stock Company IS
RIGID.
 Impersonality : it difficult to maintain close relation between
the management and employees.
 Fraudulent Management : the company may be used and
managed by inefficient promoters and fraudulent directors.
 Oligarchic Management : actually a company is managed by a
few directors ,they may ignore the interests of shareholders.
 Delay in decision : for making decisions there must be meeting of all
members, that may lead to delay in decision .
 Lack of motivation : company is managed by directors so there is not
as much interest as real owners.
 Excessive Regulation : management has to spend its precious time and
money in complying with the statutory requirements .
 No Secrecy of Business : publication of the progress of the company
will reveal all secrets .
 Social ill effects of large companies : companies faces some social
evils such as monopoly, pollution, exploitation of labours .
 A private company has been define as a company which by its
articles
Limits the number of members to 50.
Restricts the right to transfer its shares.
Prohibits an invitation to public for deposits.
Prohibits an invitation to public to subscribe to its shares and
debentures.
Puts the minimum paid up capital to rupees one lakhs.
It can be formed with 2
members. Two directors are required for
It can commence business after a private company
incorporation. Directors need not retire by
It need not obtain minimum rotation
subscription to allot shares It need not keep an index of its
No necessary to hold members.
statutory meeting. Only 2 members can make the
It can issue any kind of quorum for a meeting.
shares.
 A public company
means a company which is
not a private company. It
can have any number of
members. Its shares are
freely transferable.it has a
minimum paid up capital of
rupees 5 lakhs.
Nature of business running.
Finance required for its running.
Degree of controlling power desire by a person.
Degree of risk involved in a business.
Freedom from govt. regulations.
Duration of the business Venture.