CHAPTER – 28

Business Ownership
 Single ownership.
 Partnership firms.
 Joint stock company.
 Private limited company.
 Public limited company.
 Co-operative enterprises.
 Public sector enterprises.
 Private sector.
Types of Business Ownership
The enterprise ownerships are:
1) Sole trader / single ownership.
2) Partnership firms.
3) Jt stock companies (a) Private limited companies and (b)
Public limited companies.
4) Co - operative societies (organisations ).
5) Public sector enterprises (a) State government owned and
(b) Central government owned.
Single Ownership Firms
 In this category the title of assets, liabilities are in a single
person’s name. It could be any type of business of
production and / or service the individual (owner) exercises
the rights and privileges in decision making.
 These are normally tiny industries, provision stores,
repairers, services or trading firms where an individual can
manage all management activities himself.
 He will however take the assistance of workers and staff
for getting the work done for the firm. The individual, as
owner, controls the full business activities and responsible
for profit and loss outcome.
Advantages of Single Ownership Firms
 This can be started in small way with lesser capital.
 Organisation will be small and simple. Can be enlarged
later on based on progress.
 Decisions making is centralised, fast and effective.
 Since owner gets all the profits, there will be lot of sincere
and hard work put in.
 It is possible to keep costs, pricing, profit margins secret
and price can be varied any time in competitive market.
 There will be least paper work, formalities and legal
matters.
 This is ideally suited for small workshops, repair centres,
provision stores, canteens, whole- saler, traders and
various types of services.
Disadvantages of Single Ownership Firms
 If there is loss in business, the owner is likely to shift to
some other activity which causes inconvenience to
customers.
 Quite a few sole traders did not maintain proper accounts
and this style of functioning does not help to get bank
loans.
 The businessmen will face unlimited liability for debts and
losses.
 The employees job and job satisfaction entirely depends
upon knowledge and attitude of the owner.
 Present and future of the organisations entirely depends
upon health and longevity of the owner. Hence business is
relatively uncertain in the long run.
Partnership Firms
 Two or more (upto 20 ) people together can form a
partnership firm. Normally 2 to 4 people form a good team
and divide the responsibilities like production (Technical ),
finance, marketing, purchase etc so that each individual is
kept busy and functioning of the organisation is taken care
smoothly based on skills, knowledge and financial capacities
 Sometime one or two partners are sleeping partners who do
not involve in day to day work but participate by investment
and share the profits.
 “Partnership may be defined as the relation between persons
who have agreed to share the profits of a business carried
on by all or any of them for all.”
 It is assumed that all the partners will have mutual trust and
respect
 Opinions and views of partners will be accommodated
Advantages of Partnership Firms
 Pooling of funds will be easier.
 Variety of talents and skills will be readily available.
 Formation of company is easy and there is legal binding to
share profits / losses.
 Income tax burden will be distributed on partners.
 This type is better suited for polyclinics, engineering units,
legal aid firms, and trading firms.
Disadvantages of Partnership Firms
 Management of firm is difficult if more than one person
handles a division or responsibility.
 The difference of opinion and mistrust is likely to hamper
working and progress of the firm.
 If the main partner is sick, injured or disinterested, it
affects the organisation functioning.
 Partners will be very keen and interested if business is
doing well. They will keep away once business is down and
losses increase.
Private Limited Company
The characteristics of private Ltd companies are as under:
 A group of family members or friends form a Pvt. Ltd. company by
pooling the funds. Some partners may be actively involved and
others non-active namely sleeping partners.
 There is no public allotment of shares and debentures. There is also
restriction of partners in transferring the shares to outsiders.
 The company has to be registered with registrar of joint stock
companies by giving name, purposes and members of board of
directors. The number of shareholders to be between 2 and 55.
 The company need not circulate the balance sheet, profit and loss
account amongst its members. Such statements however to be
placed in annual general body meetings.
 Annual auditing to be arranged but need not publish in newspapers.
 Normally private limited companies are closely held by family
members
 These firms are larger versions of partnership firms with more
capital investment and higher turnover.
Public Limited Company
The characteristics of public limited company are as follows:
 The capital is collected from public by way of shares issued at values of Rs
10, 20, 50, 100 on the reputation and prospects of the firms and promoters.
 The minimum share holders is seven and there is no maximum limit for
shareholders.
 The company has to be registered with the registrar of joint stock
companies giving the list and consent of board of directors with
memorandum of association and articles of association.
 A public limited company has to issue a prospectus to the public and allot
shares within 180 days of the issue of prospectus.
 Public shares can be transferred to any body. Normally the shares are
traded at market rates through stock exchanges.
 Annual general body has to be arranged to inform the performance aspects
and financial details to be posted in advance to all the shareholders.
 Directors of the company retire after 3 years’ tenure but can be re-
appointed by share holders in annual general body meetings.
 The managing director is given a fixed share of profit for taking
responsibility to run the company efficiently.
Advantages of Joint Stock Companies
 There is very big scope to pool funds by way of public issue
of shares (in case of limited companies) and from various
directors and shareholders (in case of private limited
companies ).
 Shares are easily tradable and companies working is not
affected by death of any share holders (in Ltd companies).
 Professional services can be obtained to improve and
increase the business activities.
 The losses if any will be divided amongst number of
shareholders
Disadvantages of Joint Stock Companies
 Only large scale shareholders manage the important
decisions and enjoy maximum profits.
 Lots of formalities and procedures are involved in
formations of the company.
 When company grows very big, there is scope for
corruptions at executive levels.
 Since executives change jobs, it is not possible to maintain
trade secrets.
Co-operative Enterprises
Co-operative societies are started basically to avoid exploitations by
middlemen. This type is more prominent for agro-produce, rural
industries, smaller banks and textile units. The co-operative
movements became very popular due to great success of Amul (Amul
Milk Union Ltd) at Gujarat. The characteristics are:
 It has combined features of partnership companies and joint stock
companies.
 Co-operative members are share-holders and share the profits.
 All shareholders are equal and there is no concentration of wealth
and power in few hands. There will be periodic meetings of the
society.
 The office bearers are elected by members in the annual meetings.
 Co-operative societies are managed on minimum profits to help
members get commodities at lesser than market rates.
 Examples of co- operatives are (a) consumer co-operative society,
(b) farmer’s co-operative society, (c) co-operative housing society,
(d) co-operative dairy and (e) co-operative banks etc.
Public Sector Enterprises
 After Independence, the Government of India started five
year plans to give extra momentum to growth of
agricultural and industrial sector. Towards this it was felt
necessary to start basic and strategic industries under
public sector enterprises.
 The areas considered for this are steel, coal, minerals and
metals, petroleum, heavy engineering, chemicals, technical
services.
 The number of public sectors rose from 5 in 1951 to 237 in
1992. Following table shows the growth pattern of public
sectors.
Objectives of Public Sector Enterprises
 To organise rapid economic growth and industrialisation of
the country and create necessary infrastructure for
economic development.
 To create employment opportunities.
 To explore natural resources for the benefit of nation.
 To promote balanced regional development.
 To take care of import substitution and work for export
increase.
 To create industrial atmosphere so that many small
industries grow around big industries.
 To develop industries in those activities where private
entrepreneurs do not evince interest.
 To avoid concentration of economic power with few
business houses.
Merits of Public Sectors
 PSEs have given boost to employment and contributed to
national GDP.
 PSEs like HMT, BHEL, BHPV, HAL, BEL BEML, NALCO etc
have grown very big and are known worldwide, improving
India’s image in global market.
 PSEs have enabled to improve international relations of India
by way of collaborations.
 By taking up huge investment projects and basic metal
industries, it has given a foundation to industrial growth.
 Profits earned by public sectors could be used for other
socio-economic development activities.
 There is equality in employment at PSE and no
discrimination as often seen in private sectors.
 Most of the public sectors have developed their own
colonies, thus providing housing and other welfare facilities.
Demerits of Public Sectors
 The job security of PSE employment has created
inefficiency in working.
 Many of the PSEs are running at loss due to excess
manpower.
 These are run more as socio-economic organisations and
less as profit centres.
 Too much union activity by workers has spoiled discipline
and dedication.
 Delays in decision and supplies is common with PSEs.
 Interference of politicians and bureaucrats is a common
hindrance.
Specialties’ of Private Sector
 More profit oriented and less social service oriented.
 Normally controlled by family members and their care and
concentration of wealth and increasing the wealth.
 Take interest only in saleable (high demand ) and profit
making goods and services.
 Do not take risky and less profitable business activities.
 Enjoy the profits by family members and very little is
pooled back for employee welfare.
 Try to reduce or avoid excise duty and sales tax by opening
small companies in family members’ names and use these
small companies as suppliers and sales agent