Business Organisation

FORMS OF
BUSINESS
ORGANISATIONS
WHAT IS A BUSINESS
ORGANISATION?
The term "business organization"

refers to how a business is
structured.
It refers to a commercial or
TYPES OF BUSINESS
ORGANISATIONS
Sole Proprietorship
Joint Hindu Family Business
Partnership Firm
Joint Stock Company
1.) Private Limited
2.) Public Limited
Co-operative Society
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)
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
FORMS OF ORGANISATION
SOLE PROPRIETERSHIP
When the ownership and management of
a business are in control of one individual
the form of business is called sole
proprietorship.
CHARACTERISTICS
One man ownership &
control
Unlimited liability
Enjoyment of entire profit
Small Capital contribution
Life of business depends
upon the life of the
soletrader
Simple to commence and
simple to close without any
legal formalities.
ADVANTAGE
S OF
SOLE
PROPRIETOR
SHIP
Easy formation
Better Control (Prompt decision
making and Flexibility in
Operations)
Retention of business secrets
Ownership of all profits
Direct contact with customers
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
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
Coparceners
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
Business continues to
exist upon the death of
any member or Karta.
A Coparcener will have a
share in the coparcenaries
property after the death
of the coparcener.
ADVANTAGES OF HUFs
Every coparcener 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
DISADVANTAGES OF
HUFs
Absolute power in the
hands of Karta.
Instability
Limited Resources can
be raised
Scope for conflict
PARTNERSHIP FIRM
The relation between persons who
have agreed to share the profits of a
business carried on by all or any of
them acting for all
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
ADVANTAGES OF
PARTNERSHIP
Easy Formation
Larger Resources
Sharing Of Risk
Better Management
and Flexibility of
Operation
Agency Relationship
Joint & Several
liability/ Unlimited
DISADVANTAGES OF
PARTNERSHIPS
Unlimited
Liability
Limited Life
Difficult to raise
capital
Chances of
Dispute
KINDS OF PARTNERS
Active Partner take part in business activities
Sleeping Partner only contributes capital and
not take part in business activities
Nominal Partner lends his name to the
business
Partners in profit only Shares only profit
Partner by Estoppel not a real partner by his
behavior makes outsiders to believe as a partner
Minor as a partner person not completed
18yrs of age.
JOINT STOCK COMPANY
A company is an incorporated
association; it is an artificial
person created by law, having a
separate entity, with a perpetual
succession and a common seal
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
ADVANTAGES OF A
CORPORATION
Limited liability of the
shareholders/promoter
Can easily raise capital
Have unlimited life
Common Seal is valid for all
transactions
Ease of transfer of ownership
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
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
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
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
CO-OPERATIVE SOCIETY
It is a
voluntary
association
of people or
business to
achieve a an
economic
goal with a
social
perspective
CHARACTERISTICS OF CO-
OPERATIVE
Voluntary association
Minimum membership requirement
is 25 and there is no maximum
limit
Registration of Co-operative is
must under the Indian Co-
operative Societies Act, 1912 is a
must. After the registration it
enjoys certain privileges of a Joint
Stock Company
Each for all and all for each
One vote for one member
Cash transactions only permitted
ADVANTAGES OF CO-
OPERATIVE
Easy Formation
Limited Liability
Stability
Democratic
Management
State Assistance
Unlimited
membership
Tax Concession
DISADVANTAGES OF A CO-
OPERATIVE
Possibility of
conflict
Long decision
making
process
Not enough
capital
MULTINATIONAL
COMPANY
A multinational
company is a
company
carrying on
business in two
or more
countries
CHARACTERISTICS OF
MNC
A multinational
company is operated in
more than one country
simultaneously.
It is generally very
large in size.
Its purpose is to reduce
transport costs and to
make use of raw
materials, labour,
capital and market of
foreign countries.
DEPARTMENTAL
ORGANISATION
Department form of
organization of managing
state enterprises is the
oldest form of
organization.
This is considered as a
department attached to
the ministry of a
government.
The minister of the
department is the ultimate
in-charge of the enterprise
Ex: Railways, Post and
Telegraph, etc
PUBLIC CORPORATION
A public corporation is
an autonomous body
corporate created by a
special statute of a
state or central
government.
The statute defines its
objectives, powers and
functions.
The main object of the
corporation is to serve
the public.
Ex: Reserve Bank of
India and Life Insurance
Corporation, etc
GOVERNMENT COMPANY
Government Company is
also established under the
Companies Act of 1956.
It is a company in which not
less than 51% of paid up
share capital is held by the
central government or by
one or more state
governments or jointly by
the central and state
governments.
Ex: Hindustan Steel Ltd,
Bharath Heavy Electricals
Ltd, etc
BOARD ORGANISATION
Management is carried by
government nominated board.
It has its own rules and regulations.
Ex: Tamilnadu Electricity Board and
Tamilnadu Housing Board, etc

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