Forms of Business Organisation

PRIVATE, PUBLIC AND GLOBAL ENTERPRISES

➢ The Private Enterprises are owned and controlled by individuals or group of individuals.
➢ The Public Enterprises are owned and controlled by the government (Central Govt., or
State Govt., or Jointly by both).
➢ The Global Enterprises operate in more than one country.

India has opted for a mixed economy where both private and government enterprises are
allowed to operate.

Private enterprises come under private sector and public enterprises come under public
sector (government sector).

The various forms of organisations under private sector are Sole Proprietorship,
Partnership, Joint Hindu Family, Cooperative and Company.

The various forms of organisations under public sector are Departmental Undertaking,
Statutory Corporation, and Government Company.

Sole Proprietorship:

✓ The sole proprietorship is the simplest business form under which one can operate a
business.
✓ The sole proprietorship is not a legal entity.
✓ It simply refers to a person who owns the business and is personally responsible for
its debts.

According to L.H. Haney, “The individual proprietorship is the form of business organisation
at the head of which stands an individual as one who is responsible, who directs its
operations and who alone runs the risk of failure.”

William R. Basset said in his book “The Organisation of Modern Business says that”:

“The one-man control is the best in the world if that one man is big enough to manage
everything. But a business must be small indeed to permit one man actually to know and
to supervise everything. The danger is always present that he thinks he knows when really
he does not know and naturally there is no permanency in this kind of management if the
one man is away or ill, the business stops and of course when he dies, business vanishes
or has to be re-built.”

Features of Sole Proprietorship

➢ Single Owner – owned by an individual.

➢ Lack of Legal Formalities - no separate law to govern.
➢ Liability - unlimited.
➢ Risk - only risk bearer.
➢ Profit - does not have to share profits.
➢ No Separate entity - the business and the owner are one and the same.
➢ Continuity - entirely dependent on owner.

Merits:

Quick decision making: Decision making is prompt because there is no need to consult
others.

Confidentiality of information: A sole trader is not bound by law to publish the

information related to business operations.

Direct incentive: A sole proprietor is the sole recipient of all the profits.

Sense of accomplishment: There is a personal satisfaction involved in working for

oneself.

Ease of formation and closure: There is no separate law that governs sole
proprietorship; hence, it is easy to start and close the business as per the wish of the
owner.

Limitations:

Limited resources: Resources of a sole proprietor are limited to his personal savings and
borrowings.

Limited life of a business concern: The death, insanity, imprisonment, physical ailment
or bankruptcy of a proprietor affects the business and can lead to its closure.

Unlimited liability: The owner has unlimited liability. If the business fails, the creditors
can recover their dues from the personal assets of the proprietor.

Limited managerial ability: The owner has to assume the responsibility of varied
managerial tasks such as purchasing, selling, financing, etc. It is rare to find an individual
who excels in all these areas.

Joint Hindu Family:

✓ A Joint Hindu Family business is a family concern with operates under the provision of
the Hindu succession, Act 1956.
✓ In Joint Hindu Family business, authority of controlling the business lies in the hands
of the 'Karta'.
✓ The Joint Hindu Family Business is a distinct form of organisation peculiar to India.
✓ The membership in this form of business organisation can be acquired only by birth or
by marriage to a male person who is already a member of Joint Hindu Family.
✓ The business of the Joint Hindu Family is controlled and managed by one person who
is called ‘Karta’ or ‘Manager’.
✓ The Karta or manager works in consultation with other members of the family but
ultimately he has a final say.
✓ The liability of Karta is unlimited while the liability of other members is limited to their
shares in the business.
➢ The Hindu Succession (Amendment) Act, 2005 (39 of 2005) was enacted to remove
gender discriminatory provisions in the Hindu Succession Act, 1956.
➢ Under the amendment, the daughter of a coparcener shall by birth become a
coparcener in her own right in the same manner as the son.
➢ The eldest member (male or female) of ‘Joint Hindu Family’ shall become Karta.
➢ Married daughter has equal rights in property of a Joint Hindu Family.

“When two or more families agree to live and work together, throw their
resources and labour with joint stock and share profits and the losses together,
then this family is known as composite family.”

There are two schools of Hindu Law-

1. Dayabhag

2. Mitakshara

Dayabhaga:

✓ Prevalent in Bengal and Assam.

✓ The Dāyabhāga is a Hindu law treatise written by Jīmūtavāhana which primarily
focuses on inheritance procedure.
✓ The Dāyabhāga was the strongest authority in Modern British Indian courts in
the Bengal region of India.
✓ This has changed due to the passage of the Hindu Succession Act of 1956 and
subsequent revisions to the act.
✓ Many scholars believe that the Mitākṣarā represents the orthodox doctrine of Hindu
law, while the Dāyabhāga represents the reformed version.

Mitakshara:
 ✓ Prevalent in the rest of the-country.
✓ According to Mitakshara law, there is a son’s right by birth in the property of joint
family.
✓ It means, when a son is born in family, he acquires an interest in the property,
jointly held by the family.
✓ “Mitakshara” is derived from the name of a commentary written by Vijnaneswara,
on the Yajnavalkya Smriti.

Advantages of Joint Hindu Family Business:

➢ Easy to Start
➢ Efficient Management
➢ Secrecy
➢ Prompt Decision
➢ Economy
➢ Natural Love between Member
➢ Freedom regarding Selection of Business

Disadvantages of Joint Hindu Family Business:

➢ Limited Membership
➢ Limited Sources of Capital
➢ Limited Managerial Skill
➢ Unlimited Liability
➢ Misuse of Power

Partnership:

✓ Partnership is the relation between persons who have agreed to share the profits
of a business carried on by all or any of them acting or all.
✓ In India, it is governed by the Indian Partnership Act, 1932.
✓ The Act, came into force on 1st October 1932.
✓ Section 464 of the Companies Act, 2013 empowers the Central Government to
prescribe maximum number of partners in a firm but the number of partners so
prescribed cannot be more than 100.
✓ The Central Government has prescribed maximum number of partners in a firm to
be 50 vide Rule 10 of the Companies (Miscellaneous) Rules,2014.
✓ Thus, in effect, a partnership firm cannot have more than 50 members
Who can enter into a partnership?

INDIVIDUAL:

➢ An individual, who is competent to contract, can become a partner in the

partnership firm.

FIRM:

➢ A partnership firm is not a person and therefore a firm cannot enter into
partnership.
➢ But a partner of the partnership firm can enter into partnership with other
persons.
➢ He can share the profits of the said firm with his other co-partners of the parent
firm.

HINDU UNDIVIDED FAMILY:

➢ An individual can be a partner in his individual capacity as well as in a

representative capacity as Karta of the Hindu undivided family.

COMPANY:

➢ A company is a juristic person and therefore can become a partner in a

partnership firm, if it is authorized to do so by its objects.

TRUSTEES:

➢ Trustees of trusts can enter into partnership, unless their constitution or objects
forbid it.

Features:

➢ Comes into existence through a legal agreement.

➢ Partners of a firm have unlimited liability.
➢ Partners bear the risks involved in running a business as a team.
➢ Decisions are generally taken with mutual consent.
➢ Lack of continuity of business since the death, retirement, insolvency or insanity of
any partner can bring an end to the business.
➢ Minimum number of partners is two and maximum number can be 50.
➢ Carried on by all or any one of the partners acting for all.

Merits:
 ➢ Ease of formation and closure
➢ Balanced decision making
➢ More funds
➢ Sharing of risks
➢ Secrecy

Limitations:

➢ Unlimited liability
➢ Limited resources
➢ Possibility of conflicts
➢ Lack of continuity
➢ Lack of public confidence

Types of Partners:

Active partner:

➢ Contributes capital, participates in the management and shares profits and losses,
➢ Liable to an unlimited extent to the creditors of the firm,
➢ Take part in carrying out business of the firm on behalf of other Partners.

Sleeping or dormant partner:

➢ Do not take part in the day-to-day activities

➢ Contributes capital to the firm and shares its profits and losses
➢ Has unlimited liability.

Secret partner:

➢ A secret partner is one whose association with the firm is unknown to the general
public.
➢ In all other aspects he is like the other partners.
➢ He contributes to the capital of the firm, takes part in the management, shares its
profits and losses.
➢ He has unlimited liability towards the creditors.

Nominal partner:

➢ A nominal partner allows the use of his name by a firm.

➢ He does not contribute to capital.
 ➢ He does not take active part in managing the firm, does not share its profit or
losses.
➢ But he is liable, to the third parties, for the repayments of the firm’s debts.

Partner by estoppel:

➢ A person is considered a partner by estoppel if, through his own initiative, conduct
or behaviour, he gives an impression to others that he is a partner of the firm.
➢ Such partners are held liable for the debts of the firm because in the eyes of the
third party they are considered partners

Partner by holding out:

➢ A partner by ‘holding out’ is a person who though is not a partner in a firm but
knowingly allows himself to be represented as a partner in a firm.
➢ Such a person becomes liable to outside creditors for repayment of any debts which
have been extended to the firm on the basis of such representation.
➢ In case he is not really a partner and wants to save himself from such a liability,
he should immediately issue a denial, clarifying his position that he is not a partner
in the firm.

Minor as a Partner:

➢ A minor cannot become a partner in any firm, as he is incompetent to enter into a

valid contract with others.
➢ However, a minor can be admitted to the benefits of a partnership firm with the
mutual consent of all other partners.
➢ His liability will be limited to the extent of the capital contributed by him in the firm.
➢ He will not be eligible to take an active part in the management of the firm.
➢ He can inspect the accounts of the firm.
➢ The status of a minor changes when he attains majority.
➢ On attaining majority, the minor has to decide whether he would like to become a
partner in the firm.
➢ He has to give a public notice of his decision within six months of attaining majority.
➢ If he fails to do so, within the stipulated time, he will be treated as a full-fledged
partner and will become liable to the debts of the firm, in the same way as other
active partners are.

Types of Partnership on the basis of duration:

Partnership at will:

➢ This type of partnership exists at the will of the partners.

 ➢ It can be terminated when any partner gives a notice of withdrawal.

Particular partnership:

➢ Particular Partnership is formed for the accomplishment of a particular project or

for a particular time duration.
➢ It dissolves automatically when the purpose for which it was formed is fulfilled or
when the time duration expires.

Types of Partnership on the basis of liability:

General Partnership:

➢ In general partnership, the liability of partners is unlimited and joint.

➢ The partners enjoy the right to participate in the management of the firm and their
acts are binding on each other as well as on the firm.
➢ Registration of the firm is optional.
➢ The existence of the firm is affected by the death, lunacy, insolvency or retirement
of the partners.

Limited Liability Partnership (LLP):

➢ In limited partnership, the liability of at least one partner is unlimited whereas the
rest may have limited liability.
➢ Such a partnership does not get terminated with the death, lunacy or insolvency of
the limited partners.
➢ The limited partners do not enjoy the right of management and their acts do not
bind the firm or the other partners.
➢ Registration of such partnership is compulsory.
➢ This hybrid organization is governed under the Limited Liability Partnership Act,
2008 and not under Partnership Act.

Partnership Deed: Partnership deed is the written document containing terms and
conditions of partnership.

Contents of Deed:

➢ Name of firm
➢ Nature of business and location of business
➢ Duration of business
➢ Investment made by each partner
➢ Distribution of profits and losses
➢ Duties and obligations of the partners
 ➢ Salaries and withdrawals of the partners
➢ Terms governing admission, retirement and expulsion of a partner
➢ Interest on capital and interest on drawings
➢ Procedure for dissolution of the firm
➢ Preparation of accounts and their auditing
➢ Method of solving disputes

COOPERATIVE ORGANISATION

✓ The cooperative society is a voluntary association of persons, who join together with
the motive of welfare of the members.
✓ The cooperative society is compulsorily required to be registered under the Cooperative
Societies Act 1912.
✓ At least ten adult persons required to form a society.
✓ The capital of a society is raised from its members.
✓ The society acquires a distinct legal identity after its registration.

FEATURES
➢ Voluntary membership.
➢ Legal status distinct from its members.
➢ Limited liability.
➢ Control in the hands of an elected managing committee.
➢ Motive is mutual help and welfare.

MERITS
✓ Equality in voting status: The principle of ‘one man one vote’ governs the cooperative
society.
✓ Limited liability: The liability of members of a cooperative society is limited to the extent
of their capital contribution.
✓ Stable existence: Death, bankruptcy or insanity of the members do not affect continuity
of a cooperative society.
✓ Economy in operations: The members generally offer honorary services to the
society. The customers or producers themselves are members of the society, and hence
the risk of bad debts is lower.
✓ Support from government: The cooperative society exemplifies the idea of democracy
and hence finds support from the Government in the form of low taxes, subsidies, and
low interest rates on loans.
✓ Ease of formation: The cooperative society can be started with a minimum of ten
members. The registration procedure is simple involving a few legal formalities. Its
formation is governed by the provisions of Cooperative Societies Act 1912.

LIMITATIONS
Limited resources: Resources of a cooperative society consists of capital contributions
of the members with limited means.
Inefficiency in management: The members who offer honorary services on a voluntary
basis are generally not professionally equipped to handle the management functions
effectively.
Lack of secrecy: As a result of open discussions in the meetings of members as well as
disclosure obligations as per the Societies Act, it is difficult to maintain secrecy.
Government control: In return of the privileges offered by the government, cooperative
societies have to comply with several rules and regulations related to auditing of accounts,
submission of accounts, etc.
Differences of opinion: Internal quarrels arising as a result of contrary viewpoints may
lead to difficulties in decision making.

TYPES OF COOPERATIVE SOCIETIES

CONSUMER COOPERATIVE SOCIETIES
✓ Formed to protect the interests of consumers.
✓ The members comprise of consumers desirous of obtaining good quality products at
reasonable prices.
✓ The society aims at eliminating middlemen to achieve economy in operations.
✓ It purchases goods in bulk directly from the wholesalers and sells goods to the
members.
✓ Profits are distributed on the basis of either their capital contributions to the society or
purchases made by individual members.
PRODUCER COOPERATIVE SOCIETIES
✓ These societies are set up to protect the interest of small producers.
✓ The members comprise of producers desirous of procuring inputs for production of
goods to meet the demands of consumers.
✓ The society aims to fight against the big capitalists and enhance the bargaining power
of the small producers.
✓ It supplies raw materials, equipment and other inputs to the members and also buys
their output for sale.
✓ Profits among the members are generally distributed on the basis of their contributions
to the total pool of goods produced or sold by the society.

MARKETING COOPERATIVE SOCIETIES

✓ Such societies are established to help small producers in selling their products.
✓ The members consist of producers who wish to obtain reasonable prices for their
output.
✓ The society aims to eliminate middlemen and improve competitive position of its
members by securing a favourable market for the products.
✓ It pools the output of individual members and performs marketing functions like
transportation, warehousing, packaging, etc., to sell the output at the best possible
price.
✓ Profits are distributed according to each member’s contribution to the pool of output.

FARMERS COOPERATIVE SOCIETIES

✓ These societies are established to protect the interests of farmers by providing better
inputs at a reasonable cost.
✓ The members comprise farmers who wish to jointly take up farming activities.
✓ The aim is to gain the benefits of large-scale farming and increase the productivity.
✓ Such societies provide better quality seeds, fertilizers, machinery and other modern
techniques for use in the cultivation of crops.
✓ This helps not only in improving the yield and returns to the farmers, but also solves
the problems associated with the farming on fragmented land holdings.

CREDIT COOPERATIVE SOCIETIES

✓ Credit cooperative societies are established for providing easy credit on reasonable
terms to the members.
✓ The members comprise of persons who seek financial help in the form of loans.
✓ The aim of such societies is to protect the members from the exploitation of lenders
who charge high rates of interest on loans.
✓ Such societies provide loans to members out of the amounts collected as capital and
deposits from the members and charge low rates of interest.

HOUSING COOPERATIVE SOCIETIES

✓ Cooperative housing societies are established to help people with limited income to
construct houses at reasonable costs.
✓ The members of these societies consist of people who are desirous of procuring
residential accommodation at lower costs.
✓ The aim is to solve the housing problems of the members by constructing houses and
giving the option of paying in instalments.
✓ These societies construct flats or provide plots to members on which the members
themselves can construct the houses as per their choice.

Company

Any association of person, carrying business and registered under the Companies
Act, is called a Company.

Public Company:

A public company means a company which

(a) is not a private company;
(b) is a company which is not a subsidiary of a private company.

Private Company:

A private company is one which by its articles of association:

(a) Restricts the right to transfer its shares;
(b) must have at least 2 members, except in case of one-person company;
(c) Limits the number of its members to 200 (excluding its employees);

One Person Company (OPC):

➢ The Companies Act, 2013, brought into the One Person Company (OPC) concept in
India.
➢ JJ Irani Expert Committee recommended the formation of OPC in the year 2005.
➢ One Person Company is a company with only one person as a member.

Characteristics:

➢ Only a natural person who is an Indian citizen and resident in India can incorporate
a One Person Company.
➢ No person can incorporate more than 1 OPC.
➢ A minor cannot become a member or nominee of the OPC.
➢ OPC cannot carry out Non-Banking Financial Investment activities including
investment in securities of anybody corporates.

Joint Stock Company and its formation:

✓ A joint-stock company is a business entity in which shares are held by shareholders.
✓ The Companies Act, 2013 is divided into 29 chapters containing 470 sections as
against 658 Sections in the Companies Act, 1956 and has 7 schedules.
✓ The Act has replaced The Companies Act, 1956 after receiving the assent of the
President of India on 29 August 2013.
✓ The Act came into force on 12 September 2013.

Features of the Companies Act 2013:

✓ Class action suits for Shareholders: The Companies Act 2013 has introduced new
concept of class action suits with a view of making shareholders and other
stakeholders, more informed and knowledgeable about their rights.
✓ More power for Shareholders: The Companies Act 2013 provides for approvals from
shareholders on various significant transactions.
✓ Women empowerment: The Companies Act 2013 stipulates appointment of at least
one-woman Director on the Board (for certain class of companies).
✓ Corporate Social Responsibility: The Companies Act 2013 stipulates certain class
of Companies to spend a certain amount of money every year on activities/initiatives
reflecting Corporate Social Responsibility.
✓ National Company Law Tribunal: The Companies Act 2013 introduced National
Company Law Tribunal and the National Company Law Appellate Tribunal to
replace the Company Law Board and Board for Industrial and Financial
Reconstruction. They would relieve the Courts of their burden while simultaneously
providing specialized justice.
✓ Fast Track Mergers: The Companies Act 2013 proposes a fast track and simplified
procedure for mergers and amalgamations of certain class of companies such as
holding and subsidiary, and small companies after obtaining approval of the Indian
government.
✓ Cross Border Mergers: The Companies Act 2013 permits cross border mergers, both
ways; a foreign company merging with an India Company and vice versa but
with prior permission of RBI.
✓ Prohibition on insider trading: The Companies Act 2013 prohibits directors and
key managerial personnel from purchasing call and put options of shares of the
company, if such person is reasonably expected to have access to price-sensitive
information.
✓ Increase in number of Shareholders: The Companies Act 2013 increased the
number of maximum shareholders in a private company from 50 to 200.
✓ One Person Company: It may have only one director and one shareholder. The
Companies Act 1956 requires minimum two shareholders and two directors in case of
a private company.
✓ Electronic Mode: E-Governance for various company processes like maintenance and
inspection of documents in electronic form, option of keeping of books of accounts in
electronic form, financial statements to be placed on company’s website, etc.
✓ Indian Resident as Director: Every company shall have at least one director who
has stayed in India for a total period of not less than 182 days in the previous calendar
year.
✓ Independent Directors: At least one-third of the Board as independent directors.
No independent director shall hold office for more than two consecutive terms of
five years.
✓ Serving Notice of Board Meeting: At least seven days’ notice to call a board
meeting. The notice may be sent by electronic means to every director at his
address registered with the company.

Features of a Joint Stock Company

➢ Artificial Legal Person

➢ Separate Legal Entity
➢ Incorporation
➢ Perpetual Succession
➢ Limited Liability
➢ Common Seal
➢ Transferability of Shares

Formation of a Company

The process of company formation can be divided into four stages as given below.

1. Promotion of a Company
2. Incorporation/Registration of a Company
3. Capital Subscription
4. Commencement of the Business.

Promotion of a Company:

The process of promotion begins with the conceiving of an idea and ends with the
establishment of the business enterprise and commencement of its business.

Promoter in a Company
 ✓ The person who is concerned with the promotion of business enterprise is known as
the Promoter.
✓ He conceives the idea of starting a business and takes all the measures required for
bringing the enterprise into existence.
✓ The promoters find out the ways to collect money, investigate business ideas,
arrange for finance, assemble resources and establishe an enterprise.
✓ The company law has not given any legal status to promoters.
✓ He stands in a fiduciary position.

As per section 69, a promoter means a person

(a) Who has been named as such in a prospectus or is identified by the company
in the annual return referred to in section 92; or
(b) Who has control over the affairs of the company, directly or indirectly whether
as a shareholder, director or otherwise; or
(c) In accordance with whose advice, directions or instructions the Board of
Directors of the company is accustomed to act. However, it is provided that nothing
in this sub-clause shall apply to a person who is acting merely in a professional
capacity.

Functions of a Promoter:

➢ Identification of business opportunity

➢ Feasibility studies: Technical feasibility, Financial feasibility, Economic feasibility.
➢ Name approval
➢ Fixing up Signatories to the Memorandum of Association: (usually they become the
first directors of the company)
➢ Appointment of professionals: (mercantile bankers, auditors etc.)
➢ Preparation of necessary documents: (Memorandum of Association, Articles of
Association and Consent of Directors)

Position of Promoters:

➢ Promoters are neither the agents nor the trustees of the company.
➢ They are personally liable for all the contracts which are entered by them, for the
company before its incorporation, in case the same are not ratified by the company
later on.
➢ Promoters have a fiduciary position with the company, which they must not misuse.
➢ They can make a profit only if it is disclosed but must not make any secret profits.
 ➢ In the event of a non-disclosure, the company can rescind the contract and recover
the purchase price paid to the promoters.
➢ It can also claim damages for the loss suffered due to the non-disclosure of material
information.
➢ Promoters are not legally entitled to claim the expenses incurred in the promotion
of the company.
➢ However, the company may choose to reimburse them for the pre-incorporation
expenses.
➢ The company may also remunerate the promoters for their efforts by paying a lump
sum amount or a commission on the purchase price of property purchased through
them or on the shares sold.
➢ The company may also allot them shares or debentures or give them an option to
purchase the securities at a future date.

Registration/Incorporation of a Company:

➢ After completing all formalities, promoters make an application for the

incorporation of the company.
➢ The application is to be filed with the Registrar of Companies of the state of the
registered office of the company.
➢ When the Registrar is satisfied, about the completion of formalities, a Certificate of
Incorporation is issued to the company, which signify the birth of the company.
➢ The certificate of incorporation is called the birth certificate of the company.
A company is legally born on the date printed on the Certificate of Incorporation.
➢ It becomes a legal entity with perpetual succession on such date.

Procedure of Registration

✓ In order to get the company registered, the important documents required to be

filed with the Registrar of Companies are as follows.

Documents Required to be Submitted:

Memorandum of Association: It is to be signed by a minimum of 7 persons for a

public company and by 2 in case of a private company. It must be properly stamped.
It contains different clauses - Name clause, Registered office clause, Object clause,
Liability clause, Capital clause and Association clause.
Articles of Association: This document is signed by all those persons who have signed
the Memorandum of Association. It contains rules regarding internal management of a
company

List of Directors: A list of directors with their names, address and occupation is to be
prepared and filed with the Registrar of Companies.

Written consent of the Directors: A written consent of the directors that they have
agreed to act as directors has to be filed with the Registrar along with a written undertaking
to the effect that they will take qualification shares and will pay for them.

Agreement: Any agreement with any individual for appointment as Company’s Managing
Director or a whole time Director or Manager.

Address of the Registered Office: It is also customary to file the notice of the address
of the company’s registered office at the time of incorporation. It is to be given within 30
days after the date of incorporation.

Statutory Declaration:

✓ A statutory declaration by any advocate of the Supreme Court or of a High

Court, or a practicing chartered accountant in India, who engages in the
Company formation or by a person indicated in the articles as director,
managing director, Secretary or manager of the company, mentioning that the
requisites of the Act and the rules there under have been complied with.
✓ It is to be filed with the Registrar of Companies.
✓ When the required documents have been filed with the Registrar along with the
prescribed fee, the Registrar scrutinizes the documents.
✓ If the Registrar is satisfied, the name of the company is entered in the register.
✓ Then the Registrar issues a certificate known as Certificate of Incorporation.

Receipt of Payment of fee: Receipt of necessary fees paid for the registration of the
company.

Capital Subscription:

✓ A private company or a public company not having share capital can commence
business immediately after receipt of Certificate of Incorporation.
✓ A public company having share capital is allowed to raise its funds from the public
by issuing shares and debentures.
 ✓ But before that it has to issue a prospectus for the public to subscribe to the capital
of the company and undergo various other formalities.

Certificate of Commencement of Business:

✓ A public company can commence its business only after getting the ‘certificate of
commencement of business‘.
✓ After the company gets the certificate of incorporation, a public company issues a
prospectus for inviting the public to subscribe to its share capital. It fixes the
minimum subscription.
✓ Then it is required to sell the minimum number of shares mentioned in the
prospectus.
✓ After completing the sale of the required number of shares, a certificate is sent to
the Registrar along with a letter from the bank stating that all the money is received.
✓ The Registrar then scrutinizes the documents. If he is satisfied, he issues a
certificate known as ‘Certificate of Commencement of Business’.
✓ This is the conclusive evidence for the Commencement of Business.

CHOICE OF FORM OF BUSINESS ORGANISATION:

➢ Cost and ease in setting up the Organisation.

➢ Liability.
➢ Continuity.
➢ Management ability.
➢ Capital considerations.
➢ Degree of control.
➢ Nature of business.