TYPES OF INDUSTRY OWNERSHIP

The enterprises ownership are as follows:

Sole Proprietorship
Partnership firm
Joint stock company
Private limited company
Public limited company
Cooperative society
Public Sector enterprise
State Government Owned
Central Government Owned

SOLE PROPRIETORSHIP

Meaning: Sole proprietorship may be defined as a form of business organization in which an

individual invest his own capital, uses his own skill and intelligence in management of its affairs and
solely responsible for the results of its operation
According to Wheeler the sole proprietorship is that form of business organization which is owned
and controlled by a single individual. He receives all the profits and bears all the risks in the success
or failure of the enterprise . The sole proprietor is not only the exclusive owner but also sole founder
and controller too.

Salient features:

Single ownership.
One man control and management.
Unlimited risk.
Undivided risk.
No separate legal entity of the firm.
Minimum government regulations.

Advantages:

Easy and simple formation.

Direct motivation and incentive to work
Flexibility in operations.
Smooth management.
Prompt and quick decisions .
Business secrecy .
Personal touch.
Independent control.
Minimum government regulations.
Development of social values.

Limitations:

Limited financial resources.

Unlimited liability.
Limited managerial ability.
Lack of specialization.
Uncertain life of business.
Limited opportunities.
Limited scope for expansion.

PARTNERSHIP FIRM
A form of Business Organization.
Partnership is a combination of two or more persons Investing capital, & other skills & experience to
conduct a lawful business.
These partners form a business firm & agree to share profits & loss of the business.
Section 4 of the Indian Partnership Act of 1932 defines Partnership as 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.
The persons who form the partnership are called partners individually & a firm collectively.The name in
which their business carries on is called the firms name.
Features:

An agreement between two or more members

The agreement between partners is to carry on some lawful business
The partners agree to share the profits and losses in an agreed ratio
The business may be carried on by all or any of the partners acting for all
The liability of the firm is unlimited and each partner is individually and collectively liable to the
creditors of the firm
No partner can transfer his proprietary interest to any other person without the unanimous consent of
the other partners.
Partnership is based on mutual trust and confidence among the partners.

Advantages:

Easy formation
Large financial resources
Specialization
Effective management and control
Flexibility of operations
Protection of minority interest
Diffusion of risks
Capacity for survival
Better human and public relations
Business secrecy

Limitations:

Uncertainty of existence
Unlimited liability
Lack of harmony
Non-transferability of interest
Divided authority

Risk of implied authority

Lack of institution confidence

LIMITED LIABILITY PARTNERSHIP (LLP)

According to the Limited Liability Partnership act 2008, an LLP is a body corporate formed and incorporated
under this act. It is a legal entity separate from that of its members.
Features:

An LLP must be register under LLP Act 2008.

It is body corporate having a separate entity of its own..
It has perpetual succession.
Any individual or a body corporate can be partner in an LLP.
Every LLP must have two Partners.
There must be at least two designated partners and one of them must be a resident India.
An LLP must maintain proper books of accounts as per the double entry system.

Merits:

An LLP enjoys stability as changes in partners do not affect its existence.

The liability of an LLP is limited.
A body corporate and a foreigner can be partners in an LLP
An LLP can raise, large amount of fund as there is no restriction on the number of members and risk
involved is limited.

Demerits:

Time and money are involved in the formation and registration of an LLP
There is less flexibility of operations because an LLP has to comply with certain legal formalities
There is lack of business secrecy as an LLP has to file the prescribed documents with the registrar. Its
accounts are open to the public for inspection.

JOINT STOCK COMPANY

A joint- stock company is a business entity which is owned by shareholders.

Each shareholder owns the portion of the company in proportion to his/her ownership of the
companys shares.

This allows for the unequal ownership of a business.

Shareholders are able to transfer their shares to others without any effects to the continued existence
of the company.

Features:

An artificial person

Legal formation

Voluntary Organization

Separate legal entity

Perpetual succession

Limit to liability

Large capital

Large scale operation

Transferability of shares

Common seal

Advantages:

Huge resources

Limited liability

Transferability of shares

Stability of existence

Efficient Management

Scope of Expansion

Economies of large scale production

Public confidence

Social benefits

Diffused risk

Tax benefits

LIMITATIONS

Difficulty in formation

Oligarchic management

Delay in decision making

Separation of ownership and management

Lack of secrecy

Speculation in shares

Fraudulent management

Concentration of economic power

Excessive govt. regulation

Evils of factory system

PRIVATE AND PUBLIC COMPANY

PRIVATE COMPANY: It is a company which by its article of association:

a. Restricts the rights of its member to transfer shares, if any;
b. Limits the number of its members to 50, excluding members who are or were in the employment of
the company; &
c. Prohibits any in invitation to the public to subscribe for any shares in, or debenture of the company.
Characteristics features of private company

Capital
Number of Members
Clause Regarding prospectus Issues
Provision of Share Transferability
No and consent of directors
With Reference to the commencement of business

PUBLIC COMPANY : a public company means a company which is not a private company. In other words,
a public company is one whicha. Lays down no restrictions on the transfer of its shares;
b. Does not limit the max number of its members; &
c. Can invite public for subscribing to its shares & debentures.

Characteristics:

State ownership
Government Control
Service Motive
State Financing
Bureaucratic Management
Public Accountability

Exemption and privileges of private company

For forming a private company only 2 members are required.

A private company is required to have only 2 directors.

Such a company is not required to file prospectus or a statement in lieu of prospectus with the
register of the companies.

It can commence its business immediately after incorporation.

A private company is not required to maintain an index of its membership

Point of distinction
Minimum paid up
capital
Number of
members

Number of
directors
Article of
association

Prospectus

Private company
1Lakh

Public company
5 Lakhs

Minimum 2
Maximum 50

minimum- 7
Maximum no limit

Minimum 2

Minimum 3

Must prepare its own article of

association

May adopt table A as given in the

companies act

Transfer of shares

Need not issue and file the

prospectus
Restriction on transfer of shares

Must issue and file a prospectus or a

statement in lieu of prospectus
No restriction on transfer of shares

Share warrants

Cannot issue share warrants

Can issue share warrants per bearer

Managerial
remuneration

No restriction on directors
remuneration

Qualification shares

Directors of private company

need not sign an undertaking to
acquire
No obligation to call meeting
of the members

Total annual remuneration must not

exceed 11 % of the net profit . In case
insufficiency of the profits , the
maximum limit is rs 50000 per annum
Directors of public company are
required to sign an undertaking to
acquire
Is under an obligation to call meeting
of the members and file statutory
report with Registrar of company.

Statutory Meeting

Quorum

Two members to be present

Five members to be present.

Managerial
remuneration

No restriction on directors
remuneration

Total annual remuneration must not

exceed 11 % of the net profit . In case
insufficiency of the profits , the
maximum limit is rs 50000 per annum

COMPARATIVE EVALUATION OF DIFFERENT FORMS OF BUSINESS OWNERSHIP

BASIC
COMPARISON
1.Formation

SOLE
PROPRIETORSHI
P
Easiest,

PARTNERSHIP

PRIVATE
COMPANY

Easy,

Difficult ,

PUBLIC
LIMITED
COMPANY
Very difficult,

no legal formalities.

some legal
formalities.
Compulsory

several legal
formalities.
Compulsory

2.Registration

Not necessary

only an agreement
required
Optional

3.Membership

One man show

single membership

Minimum: 2
Maximum: 10

Minimum: 2
Maximum: 50

Minimum: 7
Maximum: no limit

4.Legal status

No separate legal
existence

N o separate legal
existence

Separate legal
entity

Separate legal
entity

5.Liability of
members

Unlimited, full risk

Unlimited, joint
and several risk
shared

limited

Limited

6.Financial capacity
& suitability

Limited capital
suitable for small
business

Pooling of capital ,
suitable for medium
size

Large capital
suitable for
medium scale
business

Very large capital

suitable for large
scale operation

7.Sharing of profits

All to the owner

As per agreement

On the basis of
shares held

On the basis of
shares held

8. Management &
control

Quick decision, no
specialization,
management &
ownership lie in the
same hands
Perfect secrecy,
No audit or reports

Unanimous
decision , limited
specialization,
management lies
where ownership is
Secrets limited to
partners, no audit or
reports compulsory

Board decisions,
greater
specialization,
ownership and
control go together
Secrets shared by
members, audit and
reports compulsory

Board decision ,
specialization ,
divorce between
ownership and
management
Secrets shared with
public audit, and
reports compulsory

Practically none,
full flexibility of
operations

Very little,
sufficient flexibility

Considerable,
limited flexibility,
privileges and
exemptions

Excessive, no
flexibility

9.Business secrecy

10.State regulation
& flexibility

11.Transferability of
interest

All will

With mutual
consent

Restricted as
Articles of
Association

Freely Transferable

12.Tax burden

Low at small level

of income,
progressive rate

Low at small level

of income,
progressive rate

Low at medium
level of income,
flat, double taxation

Low at high level

of income, flat,
double taxation

13.Stability or
continuity

Unstable, life fully

dependent on the
owner

Less stable, may be

dissolved by death,
insolvency etc. of a
partner.

Perpetual existence

Perpetual existence

14.Winding up

At will

At will

Under the Act

Under the Act

15.Governing Act

General Law

The Partnership Act

1932

The Companies Act

1956

The Companies Act

1956

What is One Person Company (OPC)?

The concept of One Person Company [OPC] is a new vehicle/form of business, introduced by The
Companies Act, 2013 [No.18 of 2013], thereby enabling Entrepreneur(s) carrying on the business in
the Sole-Proprietor form of business to enter into a Corporate Framework.
One Person Company is a hybrid of Sole-Proprietor and Company form of business, and has been
provided with concessional/relaxed requirements under the Act.

Features of One Person Company (OPC)

1. Only One Shareholder:
Only a natural person, who is an Indian citizen and resident in India shall be eligible to incorporate a
One Person Company. Explanation: The term "Resident in India" means a person who has stayed in
India for a period of not less than 182 days during the immediately preceding one calendar year.
2. Nominee for the Shareholder:
The Shareholder shall nominate another person who shall become the shareholders in case of
death/incapacity of the original shareholder. Such nominee shall give his/her consent and such
consent for being appointed as the Nominee for the sole Shareholder. Only a natural person, who is
an Indian citizen and resident in India shall be a nominee for the sole member of a One Person
Company.
3. Director:

Must have a minimum of One Director, the Sole Shareholder can himself be the Sole Director. The
Company may have a maximum number of 15 directors.
Terms and Restrictions of OPC
1. A person shall not be eligible to incorporate more than a One Person Company or become
nominee in more than one such company.
2. Minor cannot shall become member or nominee of the One Person Company or can hold
share with beneficial interest.
3. An OPC cannot be incorporated or converted into a company under Section 8 of the Act.
[Company not for Profit].
4. An OPC cannot carry out Non-Banking Financial Investment activities including investment
in securities of any body corporate.
5. An OPC cannot convert voluntarily into any kind of company unless two years have expired
from the date of incorporation of One Person Company, except threshold limit (paid up share
capital) is increased beyond Rs.50 Lakhs or its average annual turnover during the relevant
period exceeds Rs.2 Crores i.e., if the Paid-up capital of the Company crosses Rs.50 Lakhs or
the average annual turnover during the relevant period exceeds Rs.2 Crores, then the OPC has
to invariably file forms with the ROC for conversion in to a Private or Public Company, with
in a period of Six Months on breaching the above threshold limits.
.

One Person
Company ( OPC)

Limited Liability
Partnership

Sole Proprietorship

(LLP)

Just a single director

Human capital
needed at time
of registration

A minimum of two As the name suggests a

needed to start an

directors are

OPC. At a later date

needed in order to as sole proprietor of a

up to 15 directors may register an LLP.

regarded as a
separate entity owned
by one person.

Monetary

directors and 2

single person can register shareholders are

company.

be added.

Ownership

Company
A minimum of 2

and shareholder is

The business is

Private Limited

needed in order to
register a private
limited company.

The business is
regarded are a
separate entity,
but has several
different owners.

A minimum capital of No financial

The business is
The business and owner

considered to be a

are viewed as a single

separate entity, the

entity in the eyes of the

affairs of which are

law.

governed by several
directors.

No financial assets need to A minimum capital of

capital needed Rs.1,00,000 is

assets need to be be declared in order to

Rs.1,00,000 is

at time of

needed to start an

declared in order register a Sole

needed to register a

registration

OPC.

to register an LLP. Proprietorship.

Pvt. Ltd. Company.

No board meeting or

At least 1 board

AGMs are needed if

there is a single
Compliances

director. If the
company has 2 or
more directors, bi

meeting every quarter

There are no
compulsory
compliances.

There are no compulsory

compliances.

every 6 months for

are mandatory.

mandatory.
A limited liability

protection

General Meeting)
closing of accounts

annual meetings are

Liability

and 1 AGM (Annual

Unlimited liability clause

clause protects the

As the name

owners assets.

suggests a limited accountable for any loss or A limited liability

(Owner is not liable to liability clause

makes the owner

debt suffered by the

clear business debts which protects the business, since they are
against his/her
personal finances.)

owners assets.

both deemed one entity in

the eyes of the law.

clause protects the

owners assets.