Types of business organization

private, public and joint

Business organisations
On the basis of ownership business
organisations are classified as:
 Private sector enterprises,
 Public sector enterprises, and
 Joint sector enterprises.
1. PRIVATE SECTOR ENTERPRISES
 Business enterprises owned by private
individuals, singly or jointly, are known
as private enterprises.
 There is no Government participation in the

ownership of such enterprises.

 All non-incorporate enterprises are included

in it.
Example
 Sole trading concern, Joint Hindu Family
business, Partnership, Joint Stock company,
Cooperative societies, Multinational
companies are the main examples of private
enterprises.
 Types –

◦ Individual ownership or Sole Proprietorship.

◦ Partnerships
◦ Joint Stock Companies
a. Individual Ownership
 such type of business is owned & operated by one
person.
 This is the oldest and simplest form of business

organization.
 The businessman invests capital, employs labor &

machines.
 owner alone enjoys the profits and suffer the losses in

his business.
 he is the supreme authority to decide into different

matters concerning it his business and has unlimited

freedom of action within legal jurisdiction.
 Overall control in single hand helps him in quick

decision efficient administration and working.

 Such organization owner himself is responsible for the

liabilities
Applications
 In small enterprise requiring small capital
which can be spared by one man.
 Where management by one man is possible.
Advantages
 Such individual enterprises can easily be
formed and simple to sun.
 Minimum if legal restrictions.
 Owner’s interest, care & efficiency directly

affect the profit in the business.

 Retain of all profit to the owner.
 Ease of dissolving firm.
 In this system owner himself is in touch with

customers and hence can know their likings.

Disadvantages
 Amount of the capital that can be invested is
limited; therefore, modern factory cannot be
run with this system of organization.
 Owner cannot be the master of all techniques

management, sales, engineering processes

etc, since work suffers.
 Due to unlimited liability owner cannot take

risk to start a big industry.

 Limited opportunity for employee’s because

organization is not permanent.

b. Partnership Organization
 A partnership is an arrangement where
parties, known as partners, agree to
cooperate to advance their mutual interests.
The partners in a partnershipmay be
individuals, businesses, interest-based
organizations, schools, governments or
combinations.
c.  Joint Stock Company
 Limited financial resources & heavy burden of risk involved in
both of the previous forms of organization has led to the
formation of joint stock companies these have limited
dilutives.
 The capital is raised by selling shares of different values.
 Persons who purchase the shares are called shareholder.
 The managing body known as; Board of Directors; is
responsible for policy making important financial & technical
decisions.
 There are two main types of joint stock Companies.
◦ Private limited company
◦ Public limited company
1. Private limited company:
 This type company can be formed by two or more

persons.
 The maximum number of member ship is limited to

50. In this transfer of shares is limited to members

only.
 The government also does not interfere in the working

of the company.
2. Public Limited Company:
 Its is one whose membership is open to genera public.
 The minimum number required to form such company

is seven, but there is no upper limit.

 Such company’s can advertise to offer its share to

genera public through a prospectus.

 These public limited companies are subjected to

greater control & supervision of control.

2. PUBLIC SECTOR ENTERPRISES
 Any enterprise which is established,
managed and controlled by government is
known as public enterprise.
 There are three types of public enterprises.

These are
◦ Departmental undertaking,
◦ Public corporations, and
◦ Government companies.
Departmental Undertakings
 This is the oldest form of public sector
enterprises.
 The departmental undertaking is considered

as one of the departments of government.

 It has no separate existence than the

government.
 It functions under the overall control of one

ministry or department of government.

 For example, Railways, post & telegraph,

broadcasting, telephone service etc.

Features of departmental
undertakings
 They operate under the overall control of one
of the ministries of central or state
government.
 They are a part of government only, there is

no separate entity.
 The revenue of departmental undertakings is

deposited in the treasury of government.

 They are financed from the annual budgets of

the government.
Merits of departmental undertakings
 It is very easy to form a departmental
undertaking as no registration is compulsory.
  There is direct parliamentary control. The

performance of departmental undertakings

can be discussed in parliament. So there is
public accountability.
 The revenue of departmental undertaking is

deposited in the treasury of the government.

So these undertakings help to increase the
government revenue.
Public Corporation/Statutory
Corporation
 A statutory corporation is a body corporate
formed by a special act of parliament or by
the central or state legislature.
 It is fully financed by the government. Its

powers, objects, limitations etc. are also

decided by the act of the legislature.
 For example Indian airlines, air India, state

bank of India, life insurance corporation of

India, food corporation of India, oil & natural
gas corporation, etc.
Features of a public corporation
 It is created by an act of parliament or central
or state legislature.
 The powers, objectives & limitations of a

public corporation are defined in the act only.

 Under total control of central or state

government operations of public corporations

takes place.
 a public corporation is a separate legal entity.

It gets incorporated automatically when the

act is passed in the parliament.
Merits of a public corporation
 A public corporation is able to manage its
affairs with independence & flexibility.
 A public corporation is relatively free from

red tape, as there is less file work & less

formality to be completed before taking
decisions.
 The activities of the public corporation are

discussed in parliament. This ensures the

protection of public interest.
Government Companies
 The company in which at least 51% of the
paid-up share capital is held by the central or
state government or partly by central or state
government is Government Company.
 The government companies are governed &

ruled by the provisions of the companies act,

2013 like any other registered companies.
 For example, steel authority of India, state

trading corporation, Hindustan machine

tools.
Features of Government Company:-
 Registration: The government company gets
incorporated under the companies act, 1956. All the
provisions of companies act are applicable to a
government company.
 Ownership: The government company is wholly or
partly owned by the government. The share capital of
these companies is owned by the government of India
in the name of the president.
 Management: The government is managed by the
board of directors, who are nominated by the
government & other shareholders. The government has
the authority to appoint a majority of the directors.
Merits of Government Company
 The government company is relatively free from
government & political interference.
  The government company is managed, financed &
audited just as any other private sector company. It
can, therefore, secure greater flexibility, freedom of
operation & quickness of action in running the
enterprise.
 The government companies can avail &
accommodate managerial skill, technical know-how
or expertise of the private enterprise of the private
enterprise by conveniently collaborating with it.
3. JOINT SECTOR ENTERPRISES
 Joint sector enterprises consist of those
undertakings wherein the Government,
Private entrepreneurs and Public share the
management, ownership, and powers of the
enterprise, jointly.
Example
 Cochin Refineries and Gujarat Fertilizers are
few examples of joint sector enterprises in
India.