A firm is an ownership organization

which combines the factors of production

(men, material and machines) in a plant
for the purpose of producing goods or
services and selling them at profit.
The type of ownership selected depends
upon the following factors :

 Size and nature of the business to be started.

 Technical Difficulties.
 Market Competition and scope of the articles in
the market.
 Capital required to start the business and means
to collect the funds.
 Limitations and restrictions put forth by the
Government in connection with grant of loans,
foreign exchange and such other things.
 Types of
Owners
hip

Co-operative
Private Public Sector
Sector
Enterprises Enterprises
Enterprises
 Private
Enterprises

Individual Joint Stock

Partnership
Ownership Company

Private Public
Limited Limited
Company Company
 Co-operative
Sector
Enterprises

Producers Housing
Co-operative Co-operative
Society Society

Consumers Credit
Co-operative Co-operative
Society Society
 Public Sector
Enterprises

Government Statutory
Department Corporation

Statutory Board
Government
Or
Company
Commission
 Individual Ownership

In this type the individual entrepreneur

supplies the entire capital. He organizes and
manages the business himself and takes the
entire risk and so it is called one man business.
Legal Liability :

His legal liability covers all his possessions.

The credit can collect his personal property.
 Applications :

 For small scale business requiring small capital

which can be spared by one man.
 Where the risk covered is not too heavy.
 Where management by one man is possible.
 Where local market is available.
 Advantages :

 Simple and Easy.

 Least Legal Formalities.
 Quick Decisions and Prompt Actions.
 Quality Production.
 Better Labour Relationship.
 Personal Attention to Customers.
 Small Capital.
 Maintenance of Secrecy.
 Incentive.
 Flexibility.
 Disadvantages :

 Limited Capital.
 Unlimited Liability.
 Personal Limitations.
 Small Income.
 Cannot Compete with a big business.
 Short Life.
 Division of Labour is not possible.
 No Economies of Large Scale.
 Partnership Organization

According to Indian Partnership Act 1932,

Partnership is defined as, “the relation
between two or more persons who have
agreed to share profit of a business, carried
on by all or any of them acting for all.”
 Formation :

Partnership can be formed either verbally or

by written agreement. The written agreement
is known as “Partnership Deed”.
The Partnership Deed contains :

The terms and conditions relating to the

partnership.
The regulations governing its internal
management.
 The rights and duties of the partners.
The Partnership Deed should have the following
details :

 Name of the firm.

 Nature of business.
 Date of starting partnership.
 Duration of partnership.
 Rate of interest on capital invested.
 Money contributed by each partner.
 Allotment of managerial functions among
partners.
 Share of profit and loses.
 Salary allowed to managing partners.
 The basis for the inclusion of any new partners.
 The amount which can be withdrawn by each
partner.
 The aim of partnership.
 Accounts of the firm and authority.
 Provision for arbitration for settling the disputes
that may arise in future.
 The partners have to prepare a statement
which will have the following particulars :

 Name of the firm.

 Place of business.
 Name and address of partner.
 Date of joining the firm.
 Duration.
 Types of Partners :

 General Partners :
All the partners who participating in the
working of the firm and are responsible to
joint with other partners, for all liabilities,
obligations and defects of the firm are the
general partners.
 Limited Partners :
The liability for debts of the limited partners is
limited to the extend of their contributed capital.

 Active or Managing Partners :

Active partners are those who take active part
in the management and formulation of
policies.
 Sleeping and Silent Partners :
They do not take any active part in the
business. They simply contribute their capital
in the business and get their share in the
profit of the firm.

 Nominal Partners :
They lend their reputed name for the
company’s reputation. They do not invest money
and do not take any active part in the
management.
 Minor Partners :
Minor partners are those whose age is
below 18 years and associated with the business.
Such partners can be allowed only with
the consent of other partners. Their liability is
limited to their investment.
 Advantages :

 Easy Formation.
 More Capital.
 Diverse Talent.
 Less Possibility of Error of Judgment.
 Prompt Decisions.
 Large Economics.
 Personal Factors.
 Divisions of Labour.
 Simple Dissolutions.
 Cautious and Sound Approach.
 Disadvantages :

 Unlimited Liability.
 Short Life.
 Insufficient Capital.
 Disagreement.
 Less Secrecy.
 Non-Transfer of Partnership.
 No direct relation between efforts and rewards.
 Lack of Public Confidence.
 Distinction between Individual
Ownership and Partnership

Parameter Individual Partnership

Ownership
Membership : Individual Owner Minimum 2
Maximum 50
Formation : No agreement is An agreement is
required required
Capital : Limited Capital Large Capital
Registration : Not Necessary Necessary

Risk : Individual Owner Risk spread

bear risk among partners
Profit : Owner enjoys the Profit is shared
profit among partners
Management : Owner manage It is shared by
the business partners
Secrecy : Owner maintains Partners may
the secret reveal secrets
Decisions : Owner must take Partners can
decisions take decisions
Suitability : Small scale Small and
business Medium scale
Division of Not possible Possible
labour :
 Joint Stock Company

Joint Stock Companies are formed

registered under the Indian and Companies
1956. Act,

The joint stock company is a legal business

owned by the shareholders having limited liability
and managed by an elected “Board of Directors”.
The shares are transferable.
Characteristics of Joint Stock Company :


A company is created by registering or
incorporating an association of persons under
the Company Act.
 It has a separate legal existence as distinct
from its members.
 Artificial personality enabling it to exercise
certain legal powers.
 Perpetual life and a very stable existence.
 It has a common seal on which its name is
engraved and this seal acts as its signature.
 There is a complete separation of ownership
from management.
 Liability of shareholders is limited.
 Lower tax liability.
 Easy transferability of shares.
 There is a wide distribution of risk of loss.
 Large membership.
 Statutory regulations as provided in the Indian
Company’s Act, 1956.
Formation of Joint Stock Company :

The entrepreneurs (promoters) of the

company prepare the following documents :

 Memorandum of Association.
 Articles of Association.
A List of persons who have consented to be the
Directors of the Company.
 A declaration by an advocate to the effect that
all the requirements of the Act have been
fulfilled.
 Name and address of promoters.
The memorandum of association contains :

 The name of the Company.

 Its aim and objectives.
 The location of head office.
 The amount of share capital.
 The kind and value of each share.
 A declaration that the liability is limited.
Articles of Association contains :

Rules and regulations governing the internal

management of the company.
 Rights of shareholders.
 Duties of shareholders.
 Powers of Directors.
 Regulations regarding rights to vote.
 Issue of capital.
Raising Finance :

Funds can be taken from banks and finance

corporations etc. in the form of loans, or
by selling shares and debentures.
Managing the Business :

The shareholders elect the directors to

manage the business on their behalf. The
board of directors only lays down the general
policy and discusses major issues.

The day-to-day business is carried on by the

salaried manager or the Managing Director.
 Organization Structure :

Share holders
Board of Directors
Auditor Executive Committee Bankers

General Manager
Sales Purchase Accounting Production
deptt. deptt. deptt. deptt.
 Types of Joint Stock Company :

 Private Limited Company

 Public Limited Company
Private Limited Company :

It can be formed by two or more members. The

maximum number of members is limited to
50. The company is registered under
the Indian Company’s Act, 1956.

It enjoys a separate legal status, continuity of

life, benefits of limited liability. Large capital
raising power, business secrecy to
certain extend.
Public Limited Company :

The membership is open to general public.

The minimum number of persons is seven and no
upper limit.

It is subjected to greater control and

supervision of the government which protect
the interest of the shareholders and the
members of the public.
 Advantages :

 Economies of Large Scale.

 Limited Liability.
 Huge Capital.
 Share Transferable.
 Economies Administration.
 Democratic.
 Permanent Existence.
 Legal Control.
 Risk spread out.
 Mobilization of Scarce saving.
 Accelerated economic growth of the country is
possible through industrialization.
 It creates huge employment possibilities.
 Disadvantages :

 Dishonest directors may exploit the

shareholders.
 Large Complexities.
 It is democratic in theory only.
 Delay in Decisions.
 Favourisms.
 Difficult labour relations.
 Lack of initiative and personal interest.
 Concentration of economic power and wealth in

a few minutes.
 Misuse of internal information.
 Comparison between Private and
Public Limited Companies

Particulars Private Limited Public Limited

Membership : Open to Private Open to general

members. public.
Limits to Minimum 2 Minimum 7
membership : Maximum 50 Maximum no
limit
Election of Not required Required
Directors :
Resale of Not possible Possible
shares :
Audit of No legal Legal provision
Accounts : provision
Minimum Start with any Need minimum
capital : amount capital
Name : End with “Private End with only
Limited” “Limited”
Number of Minimum 2 Minimum 3
Directors :
Legal control : Less More strict

Remuneration Less 11% of net

of Directors : profits
Distinction between Partnership and
Joint Stock Company

Partnership Joint Stock Company

Liability of members is Liability is limited to the

limited. value of shares.
Minimum number of Minimum number of
partners is 2, maximum shareholders is 2,
is 20. maximum is 50.
It has no separate legal It has a legal existence.
entity.
Limited Capital. Large amount of capital
is needed.
Managed by the Managed by the elected
partners. board of directors.
Shares are not Shares are transferable.
transferable.
It has short life. It has permanent
existence.
It has simple legal It has large legal
procedures. procedures.
Smooth and efficient Smooth and efficient
management is difficult. management is easy.
It is governed by It is governed by Indian
Partnership Act,1932. Companies Act, 1956.
Definitions :

A simple definition can be stated as,

“A co-operative society is a voluntary

association of economically weak
persons who work for achievement of
their common economic objectives on
the basis of equality and mutual service.”
 The International Labour Organization
stated it as :

“A Co-operative organization is an
association of who have voluntarily
joinedpersons
together to achieve a common economic
end through the formation of a democratically
controlled organization, making equitable
contributions to the capital required and
accepting a fair share of risks and benefits of the
undertaking”.
 Mr. N. Barrow defined Co-operative Society
as :

“A voluntary organization of
persons with unrestricted
Consisting of and
funds.membership wagecollectively
earners own
and small
producers, united on democratic basis for the
establishment of enterprises under joint
management for the purpose of improving their
household or business economy”.
 Co-operative spirit is the heart and
backbone of a co-operative society.

“Each shall work for all and all for each” is

the motto of co-operation.

Its main object is to promote self help

and mutual assistance among men of
moderate means and income, having needs and
interest in common.
The five pillars of a co-operative organization are :


Mutual Trust.

Mutual Supervision.

Self-reliance.

Spontaneity.
 Equality.
 Distinctive Features / Characteristics :

 It is a voluntary organization.
 There is no limit to its members.
 The management is based on democratic lines
of equality.
 Its objective is to promote self-help and mutual
assistance.
  Service has primary importance and self-
interest has secondary importance.

Unity of joint action is the basis for co-
operation.
The members come together to fulfill their
common interest.
A co-operative society has to be
registered under separate legislation.
 Aim and Objectives :

 To purchase and supply raw-materials, tools

and equipment to members.
 To secure contracts and execute them with the
help of members.
 To market the finished goods of members.
 To purchase machinery for giving on hire to
members.
 To borrow funds from members and non-
members.
 To grant loans and advances to members on
the security of raw-materials and finished
goods.
 To secure materials and social progress of all
members.

To safeguard the interest of the poorer sections
against exploitation by the capitalists.
 Types of Co-operative Societies :

 Producers Co-operative Society.

 Consumers Co-operative Society.
 Housing Co-operative Society.
 Credit Co-operative Society.
 Producers Co-operative Society :

In this form, the workers wish to be their

own masters. They elect their own managers.
They are their own employees.

The profit goes to the actual workers. There

are no strikes and lock-outs.
Examples :

 Agricultural Industries.
 Cottage Industries.
Shortcomings :

 Inadequate capital.
 Inefficient management.
 Lack of discipline.
 Consumers Co-operative Society :

The consumers living in a particular area

combine together. Each contributes a small
capital.

A store is opened in which articles of

common use are stocked and sold at reasonable
prices. Such stores are found in colleges and
schools.
 Advantages :

 Much capital is not needed.

 The management is simple and honorary.
 There is legal control and inspection.
 Disadvantages :

 They offer very little selection for consumers.

 The honorary office bearers do not take much
pains, they are sometimes dishonest.
 Housing Co-operative Society :

These are formed for the purpose of getting

plots or constructing house for the
needy persons. Government provides great
facilities for this purpose.
 Credit Co-operative Society :

Its object is to finance the poor

cultivators by providing loans at low rate of
interest for the development of land,
purchase of agricultural machinery, fertilizers
etc.
 Advantages :

 It protects the interest of the weaker section of

the community as under :
• Provide better methods and tools of
production to small manufacturers and
craftsmen.
• Help the farmers in farming and marketing
their products efficiently.
• Provide financial assistance at moderate rate
of interest.
• Opening of super bazaar types of stores
gives relief to the weaker section of the
society.
 Elimination of middlemen.
 Services motive.
 Democratic nature.
 Sense of co-operation.
 Socially neglected class.
 Disadvantages :

 Lack of Co-ordination.
 Chances of undue advantages.
 Favourism.
 Limited Capital.
 Inefficient Management.
 Political influence.
 Distinction between Co-operative
and Joint Stock Company

Parameters Co-operative Joint Stock

Society Company
Formation : Under Co-op. Under
Society Act. Companies Act.
Limits to Minimum 10 Minimum 2 for
membership : Private Ltd. and
7 for Public
Ltd.
Fundamental Spirit of Spirit of
Principles : Co-operation. competition.
Promote self- No need for unity
help and mutual of purpose.
assistance.
Unity of purpose. Large number of
shareholders.
Community
interest.
Socialist bias.
Membership : Local or regional Wide spread
territory. membership
Capital : Limited. Large capital.

Transfer of Shares are not Shares are

shares : transferable. transferable.
Liability : Limited. Limited.
Distribution of Maximum No limit on
profit : dividends on dividend.
shares 12 p.c.
Not profit motive. Profit motive.

Privileges : Special No special

privileges. privileges.
Management : Democratic with Democratic with
equal voting unequal voting
rights. rights.
Contact : Good contact. No such contact.

Life : Short. Permanent

existence.
Distinction between Private Sector
and Public Sector

Private Sector Public Sector

Profit motive is of primary Profit motive is of

importance. secondary importance.
Owned and managed by Owned and managed by
individuals. Central or State Govt.
Limited capital. Large capital.

Limited Capital. Large amount of capital

is needed.
It causes concentration Equitable distribution of
of wealth. wealth and income.
Face competition in the Absence of competition.
market.
It dominates in the It dominates in the
production of consumer production of producer
goods. goods.
Chances of exploitation Protect people from
of general public. exploitation.
It does not undertake It undertakes risky
risky ventures. ventures.
It leads to unbalanced It encourages industrial
growth of industries. growth of under-
developed regions.
Wastage of material and Wastage of material and
labour is minimum. labour is maximum.
 It has to play a key role to accomplish quick
industrialization and rising standard of living of
the people through developing key and
basic industries.
 Objectives :

 Equitable distribution of wealth and income.

 Balanced economic development through
dispersal of industrial location.
 Adequate employment opportunities.
 Speedy agricultural and industrial development
without the growth of monopolies.
 Self-sufficient of the nation in modern technology.
 Government Undertaking :

Its also called State Ownership. It is the

business organization which is owned,
managed and run by the government.

The social benefit is of primary

importance while profit motive is given a
secondary consideration.
 Advantages :

 Profits go to the Govt. and are utilized for the

benefit of the society.
 Purity of supply is guaranteed.
 Govt. has ample funds and can borrow more, if
needed, in the money market at low rates.
 The best talent is attracted towards Govt.
service.
 Govt. can afford to wait long for an enterprise to
yield profit.
 Consumer’s interests are properly safeguarded.
 Govt. enterprise is subjected to greater control.
 Disadvantages :

 Govt. officer behaves like a big boss and a

respectable citizen receives no courtesy.
 Govt. servants do not work hard because here
promotion is by seniority and not by merit.
 Frequent transfers of Govt. servants are
harmful
to the success of the enterprise.
 The Govt. business is all routine and there is
little initiative. So economic progress is slow.
 There are no shareholders to question the
directors in the annual meeting.
 Public Corporation :

It’s a body created by a Law of

Parliament with its powers, duties and liabilities
defined in the written law.

Public corporations try to combine the

public interest of the Govt. body and
the autonomous management of the public sector.
 Characteristics :

 It is created by the separate act passed by the

Parliament or State Legislative Assembly.
 It is owned by the Govt.
 It is managed by the board of directors
nominated by the Govt.
 It enjoys complete internal autonomy and is free
from political control.
 It enjoys financial freedom and can raise
financial resources independently.
 The employees of the public corporation are not
treated as the Civil servants of the Govt.
 Its primary objective is to serve the public
interest.
 Disadvantages :

 It is suitable only for the management of very

big enterprises.
 It needs special legislation.
 It is a rigid form of organization as any change
in its constitution will require amendment of the
special act.
 The autonomy of the corporations are only on
papers.
 Public corporations possess monopoly.