_________________________________________________________________________________________________

FORMS OF BUSINESS ORGANIZATIONS

127
_________________________________________________________________________________________________

128
_________________________________________________________________________________________________

ENTERPRISE OR ENTREPRENEURSHIP
Entrepreneurship is the talent to develop products to processes and to organize production
to make goods and services available. Entrepreneurs are innovators and risk-takers.
Entrepreneurs in business seek to earn profits by satisfying the desires of consumers by
developing better and less costly ways of satisfying those desires. They undertake the
tasks necessary to get the process of production started and make many of the decisions
relating to the use of inputs.

FUNCTIONS OF AN ENTREPRENEUR
1 -----He starts the business and mobilizes the necessary productive resources.
2------He remunerates all the other factors of production.
3------He advertises his products.
4------He disposes his product to wholesalers, commission agents and to other
markets.
5-----He takes risk & uncertainty of his business & is responsible for loss or gains.
6-----He adopts the role of an innovator. He adopts new methods of production, or new
products, new uses of available raw material, new techniques in administration and
financial management and setting up of new forms of business organizations etc.

FORMS OF BUSINESS ORGANIZATIONS

Various forms of business organization are as under: -
1----- Single entrepreneur.
2----- Partnership.
3----- Joint Stock Company
4------Cooperative Society
5------State enterprise
(1)---SINGLE ENTREPRENEUR
The single entrepreneur combines in his person the functions of capital, la bor and
enterprise. He purchases the goods and raw materials, sales his output; hires labor
initiates and takes the whole risk of his business. Generally small business is undertaken
under this type of organization.

ADVANTAGES
1. He works hard to increase his profit and to avoid any loss.
2. There is no wastage of material.
3. He pays full attention to the customers.
4. It is easy to start and windup the business.
5. He can maintain his business secrets.
DISADVANTAGES

1. Due to shortage of capital he cannot expand his business.

2. He cannot look after all aspects of his business properly.
3. In case of heavy losses he becomes bankrupt.

129
_________________________________________________________________________________________________

4. He cannot employ experienced & trained personnel to expand his bus iness.
5. The entire business depends upon one person and in case of sickness or other
problems his business collapses.

Single entrepreneurships are the most common form of business organization, comprising
70% of all firms. Each is owned by a sin gle individual who makes all business decisions,
receives all the profits and has unlimited liability for the firm’s debts (loans

(2)-----PARTNER-SHIP
In this form of business at least two and not more than 20 persons join hands to do the
business after a written agreement about their financial contribution, duties and
responsibilities. Those partners who actively participate in the business are called Active
partners and those who do not actively participate but only provide finances are called
Sleeping partners.

ADVANTAGES
1. Large capital is made available due to more than two business partners.
2. Business runs efficiently as each partner takes up different responsibility
in which he is capable to do his best.
3. Liability of the partners is unlimited; therefore all partners work very to avoid
losses.
4. Loan giving agencies are more safe and secure because in case of loss
Of business, each partner is responsible to pay the debts of the creditors.
5. Business decisions are taken quickly and promptly.

DISADVANTAGES
1. Partnership is dissolved in case of death, bankruptcy or disassociation of any
partner.
2. A very large business cannot be undertaken due to shortage of capital as
compared with the Joint stock Company.
3. In case of loss of business private properties of the partners are sold to make
payment to the lenders.
4. Some times all the partners do not agree on any particular matter of business
hence delay takes place in the business.

In Partnership two or more individuals share the decisions and the profits of the firm.
Each partner has unlimited liability for the debts (loans) of the firm.

JOINT STOCK COMPANY

This form of business is formed to carry on a large business after registration with the
Registrar, Joint Stock Companies. It is of two types, Private Limited Company and Public
limited company. In private company minimum numbers of members is one and
maximum are 20 whereas in public company minimum number is seven and there is no

130
_________________________________________________________________________________________________

maximum limit. The elected Board of Directors carries on management. Each member is
a shareholder of the company. All affairs of the company are discussed in the Annual
general meeting. Capital/finance is arranged by selling the shares. Value of one share is
Rs 10/- each Company can also obtain finance by selling its “debentures” in the market,
on which interest is paid. Shareholders get profit and they suffer losses in case of failure
of the business.

ADVANTAGES
1. Huge capital can be arranged by selling shares. Therefore large-scale
business can easily be undertaken.
2. General public can participate in the business hence it provides an easy
investment opportunity for them.
3. Liability of the shareholders is limited, in case of loss of business, private
properties of shareholders is not sold to pay the debts.
4. It can continue business even when any shareholder does not take interest in it.
His shares are transferred to other individuals. Therefore this organization is
perpetual.
5. The management of the company is economical, efficient and democratic
because all the decisions are taken in shareholders general body meeting.
6. Directors who actually run the business are capable and competent persons who
know how to do the best for running the company affairs and the shareholders
elect them.

DISADVANTAGES
1. Those persons are elected Directors who have majority shareholding though they
may not be competent to carry on the business properly and if they are not
competent enough company and shareholders suffer a lot.
2. The shareholders generally do not take much interest in the company since their
liability is limited and they avoid attending the shareholders meetings.
3. Sometimes directors undertake risky decision by which company and
shareholders suffer a lot.
4. The shareholders take interest in their profit only and the welfare of the
employees is neglected.
5. Directors who are generally large share holders and know the inside affairs of the
business, they sale out their shares when they think that the company may run
into losses whereas small share holders who do not know the inside affairs of the
business suffer a lot.

Joint stock companies are responsible for the largest share of business revenues. The
owners are called shareholders. They share in the firm’s profits but normally have little
responsibility for the firm’s day-to-day operations. They enjoy limited liability for the
debts of the firm.

131
_________________________________________________________________________________________________

COOPERATIVE SOCIETY
In this form of business, workers contribute finance and they themselves run small
business on cooperative basis and share profit of business.

ADVANTAGES
1. Business is run on the democratic basis and the majority takes the decision.
2. There is no class conflict in it because the workers are themselves owners.
3. They work cooperatively and exert much to increase their profit.
4. The workers get wages of their work and at the end, profit of the business.

DISADVANTAGES
1. Workers are poor people they cannot provide much finance to expand their
business.
2. Workers are uneducated therefore proper administration is not possible.
3. They cannot borrow funds from banks due to lack of securities.

STATE ENTERPRISES
In this form of organization, the Government undertakes business/services, finance is
provided by it and the profit also goes to the Govt.

ADVANTAGES
1. Since Govt. runs this business therefore there is no problem of finance.
2. Huge business units such as steel mills, electricity projects can easily be set up.
3. Profits are used for the welfare of general public.
4. People have more confidence in Govt. projects than in private ones therefore
they invest in these projects with confidence.
5. They provide huge employment opportunities to the masses.
6. There is no profiteering in it rather these businesses are set for the welfare of
general public.

DISADVANTAGES
1. In these projects employees do not take much interest and they do not work hard
therefore cost of production increases.
2. Inefficient people are given jobs therefore production and efficiency
reduces a lot.
3. In case of loss to this business, general public suffer because loss is met of
general public’s taxes.
4. Decision do not take place in time, it takes a lot of time for approval of any
policy and action.
5. Lot of money is spent on the payment of pensions and on other fringe benefits of
the employees.

132
_________________________________________________________________________________________________

FORMS OF BUSINESS ORGANIZATION

SINGLE COOPERATIVE STATE

ENTREPRENEUR SOCIETY ENTERPRISE

PARTNERSHIP JOINT STOCK

COMPANY

133