Business Organisations: An Overview
Introduction to Business Organisation
A business organisation is an entity created with the intention of conducting @ business. These
organisations are operated on legal systems that control contracts, exchanges of goods and
services, ownership rights, and incorporation
Managing and planning various activities is a concer of the business organisation system. In
order to generate goods and services, resources like labour, equipment, capital, and money
must be accumulated and coordinated. The business organisation works to manage and
rogulate all of these production factors
Forms of Business Organisations
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Sole
Proprietorship
Hindu Undi
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Forms of
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Partnership Co-operative
Society
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Forms of Business Organisation
41. Sole Proprietorship
A sole proprietorship is @ form of business in which one individual is in charge of the entire
business. The owner of a firm controls every aspect of how it is run and is responsible for all
financial obligations and debts.
A sole proprietorship is the least expensive option and relatively simple to set up. It is not
governed by a separate law and can easily be formed with only the proper licensing required to
operate a business and the registration of the business name.
Merits of Sole Proprietorship
The benefits of being a sole proprietor are numerous. The following are a few of the significant
ones:
+ A sole proprietor has a great deal of freedom in doing business. This results in quick and
Inexpensive decision-making
+A sole proprietorship can be easily formed or closed, as there are only a few legal
requirements.
* The capital requirement to set up a sole proprietorship is generally low and least among
all forms of business.
Demerits of Sole Proprietorship
Despite its many benefits, the sole proprietorship business structure has limitations. The
following aro some significant domorits of a sole propriotorship business structureteam uv
+The resources of a sole proprietor are limited to his savings and the money he can
borrow from others. The lack of resources Is one of the key causes of the business's
typically limited size and lack of significant growth
+A significant demerit of the sole proprietorship is the unlimited liability of the sole
proprietor. In the event of business failure, the owner has to bear a heavy financial
burden,
2. Partnership
A partnership is when two or more people work together to conduct a business. Each partner
contributes their fair share of money, assets, labour, and experience and expects to earn
money from the firm.
There are different types of partnership firms, including general partnership, limited partnership,
LLP partnership, and limited liability partnership (LLP) firms
This form of organisation is governed by the Partnership Act, of 1932. A partnership deed is
drafted by the partners to establish a partnership firm. This deed contains information like the
profit sharing ratio, capital contribution by each partner, the purpose of the partnership, etc. The
number of people is limited to a maximum of 10 for banking businesses and 20 for other
businesses.
Merits of Partnership
The following are some merits of partnership firms:team uv
+ One of the major advantages of a partnership firm is increased resources. A prospective
partner will bring not only more capital but also expertise and connection, which can help
the business.
+ Compared to sole proprietorship, the decisions taken by the partners would be more
balanced
+ Tho legal obligations for forming a partnership are minimal, and the process of
registration is relatively easy.
+All of the partners in a partnership firm share the risks associated with running the
business. As a result, each individual has less stress, anxiety, and pressure.
Demerits of Partnership
Some of the drawbacks of a partnership firm are:
* Conflicts could arise because the partnership is operated by a group of people with
shared decision-making authority. Disagreements between partners may result from
different perspectives on some problems.
* Another drawback of this form of business is the unlimited liability of partners. The liability
of partners is joint and several, i.c., if one or more partners are unable to pay their part of
the debt, the others are liable to repay the full amount.
3. Joint Stock Company
A company is an organisation of people created for the purpose of conducting business
activities and has a logal existence separate from that of its members. The statute governing
this form of organisation is the Companies Act, 2013.
A company is an artificial person with a separate legal entity and perpetual succession. The
company is managed by a Board of Directors and management, whereas shareholders are the
owner of the company.
Merits of Joint Stock Company
Some major advantages of a joint stock company are:team uv
+ Unlike other differont forms of ownership, the liability of owners (shareholders) is limited
to the extent of shares held by them
+ The perpetual existence of the company allows it to take on long-term projects and also
serves as a strong incentive for creditors and investors to engage in the company.
* The company’s large operation would lead to the realisation of economies in purchasing,
management, distribution, or selling. The consumer would receive things at a lower cost
thanks to these economies.
* A significant number of people belong to a company. The company's members share the
business risk in different ways. Small investors are encouraged to invest as a result
Demerits of Joint Stock Company
Some major disadvantages of a joint stock company are:
* There are numerous legal formalities and processes necessary for the formation of a
company which results in incurring huge costs and time
+ Ina company structure, salaried employees or executives who have no personal stake in
the business are responsible for day-to-day operations. This could result in inefficiencies
and lower employee motivation.
* Statutory limitations on meetings, voting, audits, and other internal operations of the firm
apply. Therefore, due to complex legal requirements, starting and maintaining a business
Would prove to be difficult and burdensome.
4. Joint Hindu Family Business
Itis also known as the Hindu Undivided Family (HUF) business. A business that is owned and
managed by the Hindu undivided family is referred to as a Joint Hindu Family business. Birth in
a particular family serves as the prerequisite for membership in the business.
The family head, known as Karta, is the oldest member and is in charge of the company. All
Members have an equal ownership interest in an ancestor's property and are known as co-
parcenersteam uv
Merits of Joint Hindu Family Business
The following are some benefits of a joint Hindu family business:
+ Karta has ultimate control over all decisions. As no one can restrict his right to make a
decision, this prevents disputes amongst members. Moreover, quick and flexible
decision-making results from this.
* The business won't be impacted by Karta's death because the next eldest member will
step into the role. As a result, operations are not stopped, and business continuity is not
in danger.
Demerits of Joint Hindu Family Business
The following are demerits of a joint Hindu family business:
* Karta’s dominance may seem unreasonable to other members and may cause conflict
among members.
* Disputes over ancestral property are common in this form of organisation
5. Cooperative Society
A cooperative society is a group of people who get together voluntarily for the benefit of their
fellow members. They are motivated by the need to defend their financial interests against
potential exploitation at the hands of intermediaries who are driven by the desire to make
bigger profits
A cooperative society should be registered under the Cooperative Societies Act
1912
Merits of Cooperative Society
The following are some merits of a joint Hindu family businessteam uv
+ The cooperative society is governed by the ‘one man, one vote’ premise. Each member
has an equal right to vote, regardless of how much capital they have contributed
*The cooperative society is often supported by the government through low taxes,
subsidies, and loan interest rates.
*In a cooperative society, each member's liability is limited to the amount of their capital
contribution.
Demerits of Cooperative Society
The following are some demerits of a joint Hindu family business
* Due to their inability to afford to pay experienced managers high salaries, cooperative
societies struggle to attract and retain them:
+ Cooperative societies are subject to a number of laws and regulations on the auditing of
finances, the submission of accounts, etc. in exchange for the benefits provided by the
government, which may negatively affect the operations.
Factors Affecting the Choice of Form of Business OrganisationVedaniti,
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Factors Affecting the Choice of Form of Business
Itis clear from analysing different forms of organisation that each kind has its own benefits and
limitations. Therefore, it becomes crucial to keep a few fundamental factors in mind while
selecting an acceptable form of organisation. Following are some factors that can help in
deciding the form of organisationteam uv
ze and Nature of the Business: Determining the nature and size are important
factors. For instance, a manufacturing business producing large quantities of goods
would be unsuitable for a sole proprietorship form
+ Continuity of Business: How the life of the business is affected by its owner is another
factor in determining the form of organisation. A sole proprietorship and partnership are
affected by the death of its owners but that is not the case for other forms.
* Statutory Obligations: A company has to deal with many statutory obligations, whereas
other forms of organisation havo rolativoly fewer statutory obligations
* Liability: Whether liability is a limited liability or unlimited, also affects the choice of form
of business.
+ Capital Requirement: Forms of business such as a company have a relatively huge
capital requirement, in comparison to other forms of organisation
Case Study
Dinesh Sarabhai runs a business producing food items, including sweets and namkeen.
He lives in a joint family and has a massive proportion of inherited wealth. This business
is run by all the 18 members of the family. His father, Akash is the eldest male family
member, so he heads the business. Since Akash makes all of the major decisions, he is
liable to all of its creditors. Dinesh’s son Ashok was born a few months ago and he is
also a member of the business.
1. Identify the form of business Dinesh is working under and explain any two features of
this form of business.
Ans: Dinesh Sarabhai is involved in a Hindu undivided family business. Following are the
features of Hindu undivided family business:
* Control and Management - Karta oversees and manages all the major operations of a
Hindu undivided family business.
+ Membership by Birth - The way to became a member of the family business is through
birth. A child is considered a member of the family business from the moment they are
born. No agreement or consent is necessary for membership
Summaryteam uv
* A business organisation is an entity created with the intention of conducting commercial
transactions such as selling and buying. These operate in accordance with an
established structure
*It seeks to establish positive working relationships between personnel, tasks, and other
resources so that they can cooperate to accomplish shared objectives.
+ Forms of business organisation are different organisational structures that vary in terms
of ownership and management.
+ Sole proprietorship, partnership, joint Hindu family business, cooperative society, and
joint stock company are some major forms of business.UeamUVEOnIne
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