Types of Business

TYPES OF BUSINESS
ORGANIZATION
R.Arun Kumar, AP/Mech, RIT

Business Organization:
 A business is an enterprise which distributes or provides

services where other members of the community need and are
able and willing to pay for it.

Purpose of Business Organization:
 People need to work together to accomplish goals.
 Goals are too large, too complex, too expensive to be achieved
without cooperation.
 By working together, people can produce more & better goods

and services.
Types of Business Organization:
 A business organization is classified in to two types.

1. Individualistic institutions
2. Government institutions

1. Sole Proprietorship:
 ‘A sole proprietorship is a form of legal organization in which the

owner maintains sole and complete control over the
business and is personally liable for business debts’.

 Unlimited liability of proprietor.
 The person who contributes capital and manages the business is

called as sole proprietor.
Characteristics:
 One man ownership
 Unlimited liability

 Enjoyment of entire profit
 No separate legal entity
 Simplicity
 Self employment
 Secrecy
Advantages:
 Low start-up costs.
 Freedom from most regulations.

 Owner has direct control.
 All profits go to owner.
 Easy to exit business.
 Hence efforts and rewards are directly related.
 Owner’s interest and care directly affects the profit of the

business.
Disadvantages:
 Unlimited liability – Owner is entirely responsible for all the
liabilities.
Death or illness endangers business


 Total responsibility
 More difficult to raise finance for business
 Growth limited to personal energies
 Personal affairs easily mixed or confused
2. Partnership:
 A partnership is a form of legal organization in which two or

more business owners share the management, profit and risk
of the business.

2. Partnership:
Characteristics:
 Agreement
 Lawful business

 Sharing of profits
 Contractual relations
 Common management
 Multiplicity of business
(10 for bank and 20 for other)

2. Partnership:
Advantages:
 Ease of formation
 Group talent
Wide resources


 Easier access to finance

 Sharing of Risk
 No corporate income tax
2. Partnership:
Disadvantages:
 Unlimited personal liability
 Divided authority and decisions
Potential for conflict


 Continuity of transfer of ownership.

 Lack of harmony
 Difficult to get rid of bad partner
 Death, withdrawal, or bankruptcy of one partner
2. Partnership:
Types of partners:
 Active Partners – Authorize to manage the business.
 Sleeping or Dormant Partners – Just an investor.
Nominal Partners – Only lend his name for uplifting the image.


 Partners by estoppels – Behaviour makes other to believe as a partner.

 Secret partner – Name not disclosed to outsiders.
 Minor as a partner – Less than 18.
3. Companies:
 An association of many persons who contribute money / wealth

to a common stock and employ it in some trade and also shares
the profit and loss.

3. Companies:
Advantages:
 Limited liability
 More stable

 Easy expansion
 Democratic setup
 Large finance
Disadvantages:
 More legal formalities
 Delayed decision
 Difficult to maintain secrets.

3. Companies:
Types of companies:
 Private Limited companies – Minimum paid up capital.
 Limited companies – Large scale involving huge amount of

capital.
Private Limited Company:
 A private company is a small concern registered under

Companies Act 1956.

 For a company to be private limited it must satisfy the features:
1. Minimum paid up capital is INR 1,00,000.
2. Minimum number of members is 2 and maximum is 50

excluding the past employees.
3. Restricts to transfer the shares.
4. Prohibits public participation.

Advantages:
 Can be incorporated with just two persons.
 Facilitates easy formation and easy functioning.

 No need to file with a registrar to act as a director.
Disadvantages:
 Can’t expect democracy.
 Exempted from conduction statutory meeting.
 Can work with only two directors.

Limited Company:
 A public company is a large concern registered under

Companies Act 1956.

Limited Company: (Private and Public enterprise)
 For a company to be private limited it must satisfy the features:
1. Minimum paid up capital is INR 5,00,000.
2. Minimum number of members is 7 and maximum is

unlimited.
3. No restriction to transfer the shares.
4. Encourages public participation and capital is collected from

public.
5. Must have three directors.
6. Should send the financial statement to the members and

registrar.
Private enterprise:
Public enterprise:
Cooperative organization:
 Voluntary association of persons for the mutual benefits and

aims are accomplished through self help and collective effort.
 One for all and all for one.

 Every state government has appointed a registrar of

cooperative societies for registering, controlling and supervising.
Types of cooperative societies:

 Producer’s cooperative societies.
 Consumer’s cooperative societies.
 Farmer’s cooperative societies.
 Cooperative marketing societies.
 Cooperative credit societies.

Advantages:
 Easy to form
 No obstruction for membership
Limited liability


 Surplus shared by the members
Disadvantages:
 Lack of secrecy
 Cash trading
 Excessive government interference
 Absence of motivation
 Disputes and differences
Public Corporation:
 Autonomous corporate body created by a special act of

state/central government.
 It acts as a statutory body to serve the general public.

Public Corporation:
Advantages:
 Financed by government.
 Internal autonomy.

 Free from government interference.
 Serves and protects public welfare.
Disadvantages:
 Misuse of power.
 Lack of interest.
 Inefficient operation.

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TYPES OF BUSINESS

R.Arun Kumar, AP/Mech, RIT

 A business is an enterprise which distributes or provides

R.Arun Kumar, AP/Mech, RIT

R.Arun Kumar, AP/Mech, RIT

 A business organization is classified in to two types.

R.Arun Kumar, AP/Mech, RIT

 ‘A sole proprietorship is a form of legal organization in which the

R.Arun Kumar, AP/Mech, RIT

 The person who contributes capital and manages the business is

 One man ownership

R.Arun Kumar, AP/Mech, RIT

 No separate legal entity

 Low start-up costs.

 Freedom from most regulations.

R.Arun Kumar, AP/Mech, RIT

 All profits go to owner.

 Easy to exit business.

 Hence efforts and rewards are directly related.

 Owner’s interest and care directly affects the profit of the

R.Arun Kumar, AP/Mech, RIT

 A partnership is a form of legal organization in which two or

R.Arun Kumar, AP/Mech, RIT

R.Arun Kumar, AP/Mech, RIT

(10 for bank and 20 for other)

R.Arun Kumar, AP/Mech, RIT

 Easier access to finance

R.Arun Kumar, AP/Mech, RIT

 Continuity of transfer of ownership.

R.Arun Kumar, AP/Mech, RIT

 Partners by estoppels – Behaviour makes other to believe as a partner.

 An association of many persons who contribute money / wealth

R.Arun Kumar, AP/Mech, RIT

R.Arun Kumar, AP/Mech, RIT

 More legal formalities

 Difficult to maintain secrets.

 Private Limited companies – Minimum paid up capital.

 Limited companies – Large scale involving huge amount of

R.Arun Kumar, AP/Mech, RIT

 A private company is a small concern registered under

R.Arun Kumar, AP/Mech, RIT

 For a company to be private limited it must satisfy the features:

1. Minimum paid up capital is INR 1,00,000.

2. Minimum number of members is 2 and maximum is 50

R.Arun Kumar, AP/Mech, RIT

3. Restricts to transfer the shares.

4. Prohibits public participation.

 Can be incorporated with just two persons.

 Facilitates easy formation and easy functioning.

R.Arun Kumar, AP/Mech, RIT

 Can’t expect democracy.

 Exempted from conduction statutory meeting.

 Can work with only two directors.

 A public company is a large concern registered under

R.Arun Kumar, AP/Mech, RIT

 For a company to be private limited it must satisfy the features:

1. Minimum paid up capital is INR 5,00,000.

2. Minimum number of members is 7 and maximum is

R.Arun Kumar, AP/Mech, RIT

3. No restriction to transfer the shares.

4. Encourages public participation and capital is collected from

5. Must have three directors.