Scribd Logo
Upload

Welcome to Scribd!

  • Forms of Business Organizations

    Uploaded by

    Munu Paudyal Don
    101 views68 pages
    class 11

    Original Title

    Forms of business organizations

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document
    class 11

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    Download as pdf
    101 views68 pages

    Forms of Business Organizations

    Uploaded by

    Munu Paudyal Don
    class 11

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    Download as pdf
    of 68
    FORMS OF BUSINESS ORGANISATIONS 2.1 Forms of Business Organisations: Sole Proprietorship 2.2 Partnership Organisation 2.3 Joint Hindu Family Business 2.4 Cooperative Societies/Cooperative Organisation 2.5 Company Organisation ‘" 2.6 Formation of a Company: Various Stages 2.7 Choice of Form of Business Organisations Learning ®bjectives Atte ‘through this UNIT, you would be acquainted with: = rms of Business Organisation: Sole Proprietorship @ Meaning of Forms of Business Organisations Forms of Business Organisations M ling, Features, Merits and Limitations of Sole Proprietorship hip Organisation Meaning and Features of Partnership ‘© ‘Types, Merits and Limitations of Partnership Distinction between Partnership and Sole Proprietorship ‘Types of Partners ® Minor as a Partner ‘mation/Registration of Partnership Hindu Family Business Meaning of Joint Hindu Family hoo! of Hindu Law atures, Merits and Limitations of Joint Hindu Family|Business ocd IIe “Indeed from the association standpoint, the various formsiof business organisation are as such children whose father is Economie Expediency and whose mother is the | | Law." — LH. Haney was the most popular form of business organisation, civilisation and the corresponding increase in the human on a large scale. This large scale of business has resulted capital, management, responsibility, etc. Similarly, government The solution of all these proB the businesses of public interest forms of business organisation. @ Meaning of Forms of Busine: isation The forms of business organisation are related with ownership and owne concept which determines the authority and responsibility of the owners Mig responsibility ofthe owners keep on changing along with the changing form #8 the formsipf busiliess organisation are those legal forms aecohag fal form of business organisation is ee observation is important: “The form (through this ex In reality nised and run. Hencey the le In this context this ol rence and the other pi business is « of business organisation. mines ts external eX organisation deter oa Scanned with CamSc Harryg of Fliypiniese Crgareatinl Business Organisation tleneription shows that there can be Hany Ly pen GE Tiel news corgparrinntionive cnr He ip Some businens in manayed hy a single individual, sare busines ie rnenvyed sple collectively in the form at Dartiierstlp, while wore tiisinvews te rien in thie fern Be companies, Not only this, some husiness is run in the private sector while the ep Rector and ave managed hy the qovernment, and stil wom are Pity if He following slingram claritien she differen forms of the business organisation 1 of Business Organisation | Sector ctr | Jom ber Incorporated nets tora Joint Biook Sat Deearnana ae) Coan Coonarave [he Wiaatas description of the above-mentioned forms of business organisation is given SOLE PROPRIETORSHIP/SOLE TRADE is the oldest form of business or rganisation, All the present-day forms of business the developed forms of this system. This is popular not only in India, but in fies also. With the passage of time human needs inc eased, civilivation developed of business organisation also underw nt a change, Gradually, the individu: into collective efforts which came to be knowr partnership, company, ete ide, because of its merits and specialties, is still regarded as the beat form of sation, Sole Proprietorship is that form of business which is establi al, He invests the necessary capital, manages and If by using his ingenuity and is himself responsible oss. Such a businessman is called sole tracer and known as sole (rade, It is important to understand frade does not mean that a single individual dircets all of business and cannot take the help of other persons of business organisation only points towards his lence, a sole trader can take the help of other persons Sole Trade he Scanned with CamS 3 but the final responsibility lies on the sole tracer alone: Th y capital In the sole trade the capital is invested by one individus| Jee can be 4 partner in the capital bue there is no bar in getting thr orm of loan from other people, i | ip a single n has title to and operates the ‘Sole Propr ip’ t es sin his own name,” Itrefers to that form of business organisatior (2) According to James L, Lundy, "Thesole proprietorship which is owned by 2 single individual, Who \- é 4 | solely responsible for its mana! allt anc aa typeof business owned by one person.” | recoives al the profits and losses, . ‘of Sole Proprietorship The following are the major features of the (1) Individual Ownership: ‘The first importan owned by one individual, which means that he is resources of business. * the owner performs the functions of management (2) Sole Management: In the sole trade, pore aii iles inerease in the size and volume of business he can appoint managers: It's important to note that he alone is responsible for the actions of the managers. 3 (3) Unlimited Liability: The liability of the sole trader can be more than the capital invested. It means that in case of heavy loss if it is not possible to make payment with the help of the assets of the business, not only the domestic ‘assets of the sole trader can be utilised for this purpose but he can be declared bankrupt and held personally responsible. (4) Freedom in Selection of Business: A sole trader can select any trade as per his will. The (election of trade from among the many other forms can be made with the suggestions of many people. Inuthis way in the absence of any pressure from other people he can select any business as per his wish and can make any change in it in future if need be. (6) Secrecy? There is another speciality of a sole trade which is not found in anyother form ‘of business organisation, ier sécrecy. The information about all the important matters foncerning the business rests only with the owner and no outside party can take any undue advantage out of it. (6) No Separate Legal Entity of the Business: In this form ‘of business organisation business and the businessman are not considered separately, which means that the business has no hhat of the businessman./All the assets and liabilities of separate existence or entity from the business are that of the businessman. Hence, he alone will be responsible for all the le activities, and not the trade itself. The profit and loss of the sole wa sole proprietorship: in characteristic of the sole wradé is that it is the sole owner of all the assets and Unlimited Liability? It refers that if the business gets into difficulty and cannot pay. its debts, the ‘owner of the business is held personally liable for those debts. de are related tothe owner. He enjoys (7) Undivided Risk: all the gains and bearsall the losses. écial trades which require (8) Suitable for Some Special Form of Business: There are some spt individual attention and service, and can only be started as sole trade. For example. agriculture, the job of stitching, sweet making, bakery, beauty parlour, etc. require greater individual services. Scanned with CamSc Foes of Business Orgarea the merits of sole tn ole tracle A sole trader runs i ing quick decisions: led for the Fb success of Busitiess. Xpanding the size of his business, this thought nd the competitors will not 4 i Hp ny. eee motivation for doing the is fact he devotes himself wholehear “ely to TPO ia nally Me gee = ntrol: The sole trader has a complete control rade control over the business because he is Rea tater of ything; All the employees are under his control and less in his work. In this way good work is possible at less cost # It is very easy to establish sole trade because there is no need to observe malities to start it, This business can be started without getting it registered siness is to be started where there is government control, it may require @ int such a business. For example, it is necessary to get a licence to open a P. Sole Proprietorship urces of Capitali{In the sole trade the wader himself is the financial source ital) and the sources of taking loan are limited)A single individual generally oth these sources so that he can expand his trade and enjoy the benefits of ence: There is a continuous uncertainty in running a sole trade. If because stances or ines the trader has wo remain away frou the place of busines ugg fer to leave the business under the care of his employees or has to close the fhe-can select ent for sorie time. As a regult of this, the customers get dissatisfied and start things from other shopkeepers. If the owner dies the business has to be closed. Liability: The greatest disadvantage ofthe sole rade isthe unlimited liability rent in it, The sole trader has to face the entire nes form ‘individual risk that is inhe! emacs 4 + ifunfortunately the business fails he loses everything and so much so that fentake any things are also sold. The unlimited lability i the greatest hurdle in the way of the sole trade. tion business vement: Inthesole trade, all the activities like sales purchase, production, siness has no q P etc, have to be performed by the trader himself and, generally no liabilities of vid © perform alll these activities successfully. He has B ual can be $0 capa aso orsevanxd as a result of this his decisions get other problems a c pecause of limited financial resources the appointment of this form of business organisation remains ep ehe any managerial and ced. On the other hand, xr on salary cannot be made. Hence, : He enjoys ve 1 , ‘of the advantage of managerial services. ich requir a : r example ; : i ire greate! Si: . ire gt Serine sige take Scanned with CamSc ue Hale jrruprrietarabip raters to that form of busineas organtontion vaikel in le walely ropronvelbte for Ka inanayernient anid receives all the profite anid lowweu " 1 (1) Individiial ownerahiip, (i) Sole management fied liability, IV) Prewilosn tn welortion af businens, (v) Necraey, (vi) No separate loyal entity of the ‘nuativens, (vil) Undivieed rink, (vil) Suitable for wore special for cf busalnewe, © Mevity of Hote Proprieturahipy (1) Cuilik decision, (i) Benefit of secrecy. iN) Direct motivation (iv) Personal eantval, (¥) Hiay formation, © Liltattons of Bole Peoprietorelsipy (1) Limited eourcon of capital, (i) Unotable existence, (il) Unlienited ‘ability, () Unbalanced manayernent, | 2.2 Partnership Organisation I has generally been observed that whenever some ew system starts, its basis happens to be the timittions of the old system, It is because of the limitations of the sole wade, like lack of capital Hinited managerial capability, etc, that partnership form oF organisation came inte existence, The sole trader entablishen hin trade in the beginning asa single individual, When his businers starts expanding he appoints a manager In order to increase the managerial capability tunel manages his finance by wsking loan, However, when a sole trade enterprise expands beyond Jimits, in that cive management and finance both appear to be insufficient. In this situation. the sole trader tikes his employee or some outsider as a partner, and thus the ownersbip of business does not remain confined to one individual but gets divided among various persons Ini thit way, another form of business organination, 4, partnership organisation is born, ® Meaning of Partnership Partnership means that form of organisation in which two or more than two persons willingly joir handy and agree to ran some lawlil business, They allinvesteapital in tunities, make se of collective managerial ability and shave profit and loss among themmelven, @ Definitions of Partnership Various scholarn live gived the following Business Partnership definitions of partnerships (i) According Drs JsA. Shubin, “fo or more COSY, individuals may form a partnership by making a -2&S—Tool Kites written ov oral agreement thal they will jointly assume Partnership? Shonstbility for the tobuct of tabristness,” It refers to that form of organisation in whict fublagapansibitity for Prat! oases two or more than two persons willingly join | and agreo to run some lawful business. | OCAMNEU WILT Cdl lloc Forms of Business Organisat aa Act, 1932, (Sec. 4), “Partnership is the relation between the te profits of a business carried om by all or any of them acting, for all.” ¢ above definitions it can be said that partnership is a sort of agreement Bre than two persons on the basis of which they divide the profit of some Mbetively « f who agree to run some business jointly are individually d collectively a firm and the name under which they run their busisiess i8 the firm, tnership have been divided into two parts ures. One Person: Partnership needs a minimum of two persons because a single not be his own partner. So if in future the number of partners reduces tnership is automatically dissolved. The number of partners cannot be more the number of partners gets reduced to the minimum two, the partnership illegal. Similarly, if the number of partners increases to more than 59, the is declared illegal. Business: The joining of two or more persons can be called partnership hey agree to run some business. It is very essential that business should be geal Partnership comes into existence only on the basis of agomptract srs. Hence, it is important to have a contract between Uyespartners. g, those people who do not have the capability to enter into a ern itners, For example, minors, mentally unsound persons and persops declared Jaw cannot be taken as partners in a firm. It is true that a mypor can be a partner under Section 30 but his entry will not entitle him to be a full- because he is a partner only in the profits / and Sharing'of Profit] One of the main characteristics of partnership is 10 in business and divide it among the partners. Any enterprise whose purpose is profit cannot legally be partnership, Its important to understand that wo have profits important but to have a share in loss is not necessary, Hence, there can ‘are admitted to the firm simply for sharing the profits. For example, a only shares the profits and not the losses. gent Relationship: This relationship means that just as an owner is responsible entered intolby his agent/s operating within the limits of his/theix authority ‘can bind all the partners with his activities. In this way every partner role of an owner and an agent. features which are not laid down in law are called general characteristics. They lity. In other Liability: In partnership, every partner has ansunlimited lis partner is responsible collectively and individually for all the liabilities of For example, in case of dissolution of partnership firm, if the liabilities of the ‘assets, the creditors have the right to get their loan recovered from any either collectively or individually. nership cannot be separated from jo Separate Individuality: The existence of the part 1d with the firm are also applicable . This means that all the contracts connecte\ ‘partners individually as well as collectively. nost Good Faith: Absolute faith among the Pie js the foundation of any partnership. In the absence of this characteristic there is no __ justification left for partnership. Good faith here sly means that all the partners should give | and not any firm or institution, type of information affecting the firm to e another and, ifnecessary, will consult other partners before taking any decision and give a true account of all the business deals done by any one of them. Restriction on ‘Transfer of Interest: Itis clear that the basis of partnership is mutual faith Hence, no partner can transfer his interest in the firm withouf the approval of all the other partners, All the remaining partners willbe willing to accept the new pariner only when they find him trustworthy. lm Types of Partnership. ‘On the basis of the nature of partnership, it can be categorieses follows: (1) General and Limited Partership: Inthe general partnership the liability of the partners is unlimited, On the other hand, limited partnership has two types of partners: firstly, General/Ordinary Partnership? general partner, and secondly, special partner. It refers to that unincorporated business The general pariners liability isunlimited, while | ne amy aiteaneye “Mele of special partner is limited. There should : ee general partner in the limited partership, which means a partner with Wald Liability. “4 (2) Partnership at Will and Particular Partnership: i od Partnership’ at will can be formed to rin este the buitiness for an indefinite period, while Limited Partnership? 3 Eola partnership can be formed for some |, efers to that Unincorparaten Sustness Geeiaobject and it ends with which has two or more owners, at least one Spe cs i theaaamea a ae or (3) Legal and Illegal Partnership: Although itismot essentialto rship regit 1 get the partnership registered under Indian Partnership Act, 1982 in order tobring it into existence, yet the partnership sationsh Work in aecordance with the provisions of the Act. ‘Those partnerships conling 10 the provisions of the Act are considered legal and are called legal u e contrary, paitnetship becomes illegal or non-statutory in the following conditions: (i) Ifthe purpose of the establishment of partnership is illegal, (i) Ifthe business of partnership is against public policy, (ii) If the number of partners reduces to one or exceeds the maximum limits, and (iv) If the tner from an enemy country. ‘ ‘Only Individual As a Partner? ‘An important characteristié of partnership | is that only an individual can be a partner OCAHNEU WILT Udl IoC eeetbon: There is no need to observe any legal formalities for the establishment of For example, like the sole trade the registration for partnership firm is noc Te is not much expe ‘nse involved in its establishment. Hence, it can be SEP organsation is a group of people with different qualities are taken in i are based on the consultations among all the T¥ business decision happens to be balanced. fers from the demerit of lack of capital but nis drawback. The financial resources pooled by form of enormous capital. = Unlike the sole trade. the entin radual but gets divided among for business with crez: 6) Seer The accounss of parmership firms are not Seah Gee companies Ie this way there is more secrece e Limitations of Partnership re burden in case of loss does not fall on many persons. Hence, this is a useful system Presented before the public as is the case in partnership as compared to companies. ‘em has the following limitations: Partnership, every partner has an unlimited liability. In other "ponsible collectively and individually for all the abilities of

    You might also like