Business Organization and Management

Dr. Nuzhath Khatoon

Unit 1
Introduction & Forms of Business
Organization
 Concept of Business, Trade & Commerce

Business
• A business is defined as an organization or enterprising entity
engaged in commercial, industrial, or professional activities.
• Businesses can be for-profit entities or non-profit organizations.
• There are various forms of a business, such as a limited liability
company (LLC), a sole proprietorship, a cooperation, and a
partnership.
• Businesses can range from small operations operating in one
industry to large operations operating in many industries around
the world.
 Industry
Economic activities associated with the procurement or extraction of
raw materials and converting them into finished products which
reach the final customer is known as an industry. The term
‘industry’ is used to denote those activities which involve the use
of mechanical appliances and technical skills, i.e. activities with
the manufacturing, production, and processing of products. It
indicates the supply side of the market. The activities covered
under industry are as under:
• Extraction of materials such as coal, petroleum etc.
• Conversion of raw materials into useful goods like soaps, fans,
cement, etc.
• Construction of buildings, dams, roads etc.
 Cont..
The industry represents a group of factories, specialized in a
specific product line. The different types of industries are as
under:
• Primary Industry: Industry concerned with obtaining and
providing natural raw materials like mining, agriculture or
forestry.
• Secondary Industry: Industry engaged in conversion
activities, i.e. converting raw material provided by primary
industry, into finished products.
• Tertiary Industry: Industry that provides support services
to the primary and secondary industry.
 Trade
• Trade broadly refers to exchanging goods and services, most
often in return for money.
• Trade may take place within a country, or between trading
nations. For international trade(If a country cannot efficiently
produce an item, it can obtain the item by trading with another
country that can), the theory of comparative advantage predicts
that trade is beneficial to all parties, although critics argue that in
reality it leads to stratification among countries.
• Economists advocate for free trade between nations, but
protectionism such as tariffs, subsidies, and quotas may present
themselves due to political motives, for instance with 'trade
wars'.
 Commerce
• Commerce has existed from the early days of human civilization when
humans bartered goods to the more complex development of trade routes
and corporations.
• Today, commerce refers to the macroeconomic purchases and sales of
goods and services by organizations.
• Commerce is a subset of business that focuses on the distribution aspect
of business as opposed to the production side.
• The buying or selling of a single item is known as a transaction, whereas
all the transactions of that item in an economy are known as commerce.
• Commerce leads to the prospering of nations and an increased standard of
living, but if left unchecked or unregulated, it can lead to negative
externalities.
• E-commerce is a variant of commerce in which goods are sold
electronically via the Internet.
 Functions of the Business
• Organizing function: It helps to organize all the activities. It organizes men, Machine,
materials, money and methods. It performs different activities and all activities are
organized properly
• Financing function: It is related to money. It helps in maximum utilization of resources.
Bank is a financial company. All the activities related to money are defined in this
function.
• Production function: The main function of business is to produce goods and commodities
and transfer them to right place at right time. It helps to complete needs of human beings.
• Distributing function: It helps in the transfer of goods/services from producers to
customers. It transfers right product at right time in right place.
• Personnel function: It deals with human activities. It is related o the utilization of people
to perform different activities. It is also called staffing function. It helps in management of
resources
• Managing function: It helps in management of business. It includes planning, organizing,
controlling, coordinating, decision-making and so on. It helps to make activities of people
effective.
• Research and development function: It helps in improvement of product. It works under
the taste, desire and preference of the customers. In it various marketing, strategies, skills,
knowledge and experts are used. Research and development is the main way to achieve
profit with customer satisfaction
 Objectives of the Business
Economic objectives The economic objectives are related to earning profit through customer satisfaction. It is
to provide quality goods with reasonable price. Economic objectives can be defined in terms of money too.
Some of the major economic objectives are:
• Earning profit: The main economic function of business is earning profit. It includes supply of quality goods
and services to gain profit. Profit is necessary for the survival of business and it is also rewarded for the
investors. It is required for expansion of business
• Production of commodities: Production of goods and services are to be done according to the customer
demand and desired. Supply of commodities is also to be done according to needs of customer.
• Creation of market: Business can provide service only if demand of customers are fulfilled. When production
is made according to the requirements of the customers then there is creation of new customer which
creates new market. Creation of market helps in enlargement of production and promotes business
expansion too
• Technical improvement: Use of modern technology is the base for successful operation of business. When
modern tools, techniques and technologies are used then there is production of quality goods. Changes are
the basic factor for flexibility and changes in terms of working methods is the main objective of business
• Innovation: New ideas, methods, men, tactics and technology create the ways of better production and
services. It helps in survival of business too.
Social objectives: Business is operated in society and use resource available in society, which fulfills social
expectation. All business operations are established in society, grow in society and fulfill all its expectation in
society. Some of the major social objectives of business are:
• Supply quality good & services: It provides better quality of goods and services by charging reasonable price.
• Utilizing resources: A business house can’t continue its operation without utilizing the resources
available in the society. Maintenance of environment is must.
• Providing employment: Human needs are the basic need for operation of business. Many
personnel are required dot fulfill the job of a business. Therefore, a business house without
nepotism and favoritism must employ the human from the society and provide employment
opportunities to the optimum level.
• Avoiding social stigma: Big industries are the cause of environmental pollution. Constant noise,
smoke from the industries produces water and air pollution. The social objective of the business
to control pollution and wastages. They must establish their industries far from residential areas.
Human objectives: Human objectives are performed through different human activities. It is
related with satisfaction of employees, investors and other personnel. Some of the major human
objectives are
• Satisfaction of employees: The success of business depends on employees’ performance. It
provides better working environment to satisfy the employees. It provides salary, bonus,
provident funds and job security. It also provides financial and non financial supports.
• Payment to creditors: Creditors means supplier who supply goods and services. It is the objective
to make duly payment. Satisfaction of creditors helps in further expansion of business.
• Satisfaction of customers: Production of goods and services are to be done according to the
customer demand and desired. Supply of commodities is also to be done according to needs of
customer. It provides better quality of goods and services by charging reasonable price
• Satisfaction of shareholder:. They should be given reasonable returns of their investments.. It
also provides the information about plan of business.
 Social Responsibility of a Business
Social responsibility is a means of achieving sustainability. Adopting key social
responsibility principles, such as accountability and transparency, can help
ensure the long-term viability and success of any organization or system.
The responsibility of an organization for the impacts of its decisions and activities
on society and the environment, through transparent and ethical behavior that:
• Contributes to sustainable development, including health and the welfare of
society
• Takes into account the expectations of stakeholders
• Is in compliance with applicable laws and consistent with international norms of
behavior
• Is integrated throughout the organization and practiced in its relationships
• Organizations can achieve sustainability by paying careful attention to their
impact on society and the environment. Behaving in a transparent, ethical
manner ensures an approach that helps protect the long-term success of society
and the environment.
• ISO 26000-2010: Guidance on Social Responsibility identifies seven core social
responsibility subjects
• Organizational governance
• Human rights
• Labor practices
• Environment
• Fair operating practices
• Consumer issues
• Community involvement and development
• In addition to the core subjects, ISO 26000 also defines seven key principles of
socially responsible behavior:
• Accountability
• Transparency
• Ethical behavior
• Respect for stakeholder interests 
• Respect for the rule of law
• Respect for international norms of behavior
• Respect for human rights
 Business Structures
• It is also important to determine the legal structure of the business.
Depending on the type of business, it may need to secure permits,
adhere to registration requirements, and obtain licenses to legally
operate.
• A sole proprietorship, as its name suggests, is a business owned and
operated by a single natural person. There is no legal separation
between the business and the owner; the tax and legal liabilities of the
business are thus that of the owner.
• A partnership is a business relationship between two or more people
who join to conduct business. Each partner contributes resources and
money to the business and shares in the profits and losses of the
business. The shared profits and losses are recorded on each partner's
tax return. 
 Cont…
• A  cooperation  is a business in which a group of people acts together
as a single entity; most commonly, owners of a cooperation
are shareholders who exchange consideration for the
cooperation's common stock. In cooperating a business releases
owners of the financial liability of business obligations
LLP: According to Limited liability partnership Act 2008, limited liability
partnership means, “a partnership formed and registered under this
act”.
• LLP agreement means any written agreement between the partners of
the LLP or between LLP and its partners which determines the mutual
rights and duties of the partners and their rights and duties in relation
to that LLP.
• Any two or more persons can form an LLP. Even a limited Company, a
foreign Company, a LLP, a foreign LLP or a non-resident can be a
partner in LLP.
 Sole Proprietorship
According to J. L. Hanson – “A type of business unit where one person is solely
responsible for providing the capital and bearing the risk of the enterprise, and for the
management of the business.”
Characteristics of Sole Proprietorship:
• Single Ownership – The sole proprietorship form of business organization has a
single owner who himself/herself starts the business by bringing together all the
resources.
• No Separation of Ownership and Management – The owner himself/herself
manages the business as per his/her own skill and intelligence.
• Less Legal Formalities – The formation and operation of a sole proprietorship form
of business organization does not involve any legal formalities.
• No Separate Entity – The businessman and the business enterprise are one and the
same, and the businessman is responsible for everything that happens in his business
unit.
• No Sharing of Profit and Loss – The sole proprietor enjoys the profits and losses
alone.
• Unlimited Liability – The liability of sole proprietor is unlimited.
• One-man control- The owner has complete control of operations.
 Advantages of Sole Proprietorship

• Easy to form and wind up – It is very easy and simple to form a sole proprietorship
form of business organization. No legal formalities are required to be observed.
Similarly, the business can be wound up any time if the proprietor so decides.
• Quick Decision and Prompt Action – Nobody interferes in the affairs of the sole
proprietary organization. So he/she can take quick decisions on the various issues
relating to business and accordingly prompt action can be taken.
• Direct Motivation – In sole proprietorship form of business organizations entire profit
of the business goes to the owner. This motivates the proprietor to work hard and run
the business efficiently.
• Flexibility in Operations – It is very easy to effect changes as per the requirements of
the business. The expansion or curtailment of business activities does not require many
formalities.
• Maintenance of Business Secrets – The business secrets are known only to the
proprietor. He is not required to disclose any information to others unless and until he
himself so decides.
• Personal Touch – Since the proprietor himself handles everything relating to business,
it is easy to maintain a good personal contact with customers and employees
 Limitation of Sole Proprietorship
• Limited Resources – The resources of a sole proprietor are always limited. It
is not always possible to arrange sufficient funds from personal sources.
• Lack of Continuity – The continuity of the business is linked with the life of
the proprietor. Illness, death or insolvency of the proprietor can lead to closure
of the business. Thus, the continuity of business is uncertain.
• Unlimited Liability – In the eyes of law, the proprietor and the business are
one and the same. So personal properties of the owner can also be used to meet
the business obligations and debts.
• Unsuitable for Large Scale Operations – As the resources and the
managerial ability are limited, sole proprietorship form of business
organization is not suitable for large- scale business.
• Limited Managerial Expertise – A sole proprietorship form of business
organization always suffers from lack of managerial expertise. A single person
may not be an expert in all fields like, purchasing, selling, financing etc.
 Partnership
• Indian Partnership Act, 1932 defines partnership
as “the relation between persons who have agreed
to share the profits of the business carried on by
all or any of them acting for all”.
• Partnership form of business organization in India
is governed by the Indian Partnership Act 1932.
The agreement between the partners may be in
oral, written or implied. When the agreement is in
writing, it is termed as partnership deed.
 Characteristics of Partnership
• Two or More Persons – To form a partnership firm at least two persons are required.
• Contractual Relationship – Minors, lunatics and insolvent persons are not eligible to become the
partners. However, a minor can be admitted to the benefits of partnership firm i.e., he can have
share in the profits without any obligation for losses.
• Sharing Profits and Business – There must be an agreement among the partners to share the
profits and losses of the business of the partnership firm. If two or more persons share the income
of jointly owned property, it is not regarded as partnership.
• Existence of Lawful Business – The business to be carried on by partners, must be lawful. Any
agreement to indulge in smuggling, black marketing or any other lawful activity cannot be called a
partnership firm in the eyes of law.
• Principal Agent Relationship – There must be an agency relationship between the partners.
Every partner is the principal as well as the agent of the firm. When a partner deals with other
parties he/she acts as an agent of other partners, and at the same time the other partners become the
principal.
• Unlimited Liability – The partners of the firm have unlimited liability. They are jointly as well as
individually liable for the debts and obligations of the firms. If the assets of the firm are insufficient
to meet the firm’s liabilities, the personal properties of the partners can also be utilized for this
purpose.
• Voluntary Registration – The registration of partnership firm is not compulsory. But an
unregistered firm suffers from some limitations which make it virtually compulsory to be
registered.
 Advantages of Partnership
• Easy to Form
• Availability of Larger Resources
• Better Decisions
• Flexibility
• Sharing of Risks – The losses of the firm are shared by all the partners equally
or as per the agreed ratio as decided in the partnership agreement.
• Keen Interest – Since partners share the profit and bear the losses, they take
keen interest in the affairs of the business.
• Benefits of Specialization – Partnership firm enjoys benefits of individual
partners, specialization, for instance, in a partnership firm, providing legal
consultancy to people, one partner may deal with civil cases, one in criminal
cases, and another in labor cases and so on as per their area of specialization.
• Protection of Interest – In partnership form of business organization, the rights
of each partner and his/her interests are fully protected. If a partner is
dissatisfied with any decision, he can ask for dissolution of the firm or can
withdraw from the partnership.
• Secrecy – Business secrets of the firm are only known to the partners.
 Limitation of Partnership
• Unlimited Liability – Partners in partnership firm suffer from
the problem of unlimited liability. Resultantly, members may end
up using personal assets to meet the liabilities of business.
• Instability – Every partnership firm has uncertain life. The
death, insolvency, incapacity or the retirement of any partner
bring the firm to an end. Not only that any dissenting partner can
give notice at any time for dissolution of partnership.
• Limited Capital – A partnership firm suffers due to limited
personal capacity of partners.
• Non-transferability of share – The share of interest of any
partner cannot be transferred to other partners or to the outsiders.
• Possibility of Conflicts – At times there is a strong possibility of
conflict among partners due to divergent views and interest.
 Limited Liability Partnership (LLP)

• A Limited Liability Partnership (LLP) means a

body corporate registered under the LLP Act
2008, in which some or all partners (depending
on the respective jurisdiction of state) have
limited liability. It therefore exhibits elements of
partnerships and corporations.
• According to Limited liability partnership Act
2008, limited liability partnership means, “a
partnership formed and registered under this act.
 Characteristics of LLP
• LLP is governed by the Limited Liability Partnership Act 2008, which has come into force
with effect from April 1, 2009. The Indian Partnership Act, 1932 is not applicable to LLP.
• LLP is a body incorporate and a legal entity separate from its partners having perpetual
succession, can own assets in its name, sue and be sued.
• The partners have the right to manage the business directly, unlike corporate shareholders.
• One partner is not responsible or liable for another partner’s, misconduct or negligence.
• Minimum of 2 partners and no maximum limit.
• Should be ‘for profit’ business.
• The rights and duties of partners in an LLP, will be governed by the agreement between
partners and the partners have the flexibility to devise the agreement as per their choice.
The duties and obligations of Designated Partners shall be as provided in the law.
• Limited liability of the partners to the extent of their contributions in the LLP. No exposure
of personal assets of the partner, except in cases of fraud.
• LLP shall maintain annual accounts. However, audit of the accounts is required only if the
contribution exceeds Rs. 25 lakh or annual turnover exceeds Rs. 40 lakh. A statement of
accounts and solvency shall be filed by every LLP with the Registrar of Companies (ROC)
every year.
 Advantages of LLP
• An LLP is a body corporate and legal entity separate from its partners.
• It has perpetual succession.
• Being the separate legislation (i.e. LLP Act, 2008), the provisions of Indian Partnership Act, 1932 are
not applicable to an LLP and it is regulated by the contractual agreement between the partners.
• Liability of partners is limited to their agreed contribution in the LLP and no partner is liable on
account of the independent or un-authorized actions of other partners, thus individual partners are
protected from joint liability created by another partner’s wrongful business decisions or misconduct.
• LLP has more flexibility and lesser compliance requirements as compared to a company.
• Simple registration procedure, no requirement of minimum capital, no restrictions on maximum limit
of partners.
• It is easy to become a partner or leave the LLP.
• It is easier to transfer the ownership in accordance with the terms of the LLP Agreement.
• As a juristic legal person, an LLP can sue in its name and be sued by others. The partners are not
liable to be sued for dues against the LLP.
• No restriction on the limit of the remuneration to be paid to the partners unlike in case of companies.
However, the remuneration to partners must be authorized by the LLP agreement and it cannot exceed
the limit prescribed under the agreement.
• The Act also provides for conversion of existing partnership firm, private limited Company and
unlisted public Company into an LLP by registering the entity with the Registrar of Companies
(ROC).
• No exposure to personal assets of the partners except in case of fraud.
 Limitation of LLP
• Any act of the partner without the consent of other partners,
can bind the LLP.
• Under some cases, liability may extend to personal assets of
the partners also.
• A LLP is not allowed to raise money from Public.
• Due to the hybrid form of the business, it is required to comply
with various rules and regulations and legal formalities.
• It is very difficult to wind up the business in case of exigency
as there are lots of legal compliances under Limited Liability
Partnership (Winding Up and Dissolution) Rules and it is very
lengthy and expensive procedure also.
 Hindu Undivided Family ( HUF)
• It refers to a form of business organization which is
owned and carried on jointly by the members of the
Hindu Undivided Family (HUF).
• It is also known as Hindu Undivided Family
Business.
• The business is managed by the head of the family
(eldest member) and he is called Karta. However, all
the members hold equal ownership over the property
of an ancestor and they are called as co-parceners
 Characteristics of Joint HUF
Formation
 There should be at least two male members in the family to form a HUF.
 property should have been inherited by members of HUF.
 All of the members enjoy this property and have an equal share in that property.
 Thus, any child taking birth in that family becomes a member of the HUF.
 There is no requirement for an agreement to become a member.
Liability
 There is limited liability of all the members or co-partners in the Hindu Undivided Family business.
 All the co-partners have equal rights and shares in the property of Hindu Undivided Family business
 The Karta has unlimited liability.
Control
 Karta is the person who has full control over the Hindu Undivided Family business.
 Karta can take advice from all the members but he is not bound to accept their decisions.
Continuity
 After the “Karta” is deceased, the very next eldest member takes up the position of Karta in Hindu
Undivided Family business.
 The business can be divided and ended up by the mutual consent of the members.
Minor Members
 The person who has taken birth in Hindu Undivided Family can be a member of the family business.
 Therefore, a minor can also be a member of the family.
 Advantages of HUF
(1) Effective Control
• The Karta has full control over the business activities and takes a decision quickly.
• No one can interfere in the decision of Karta as every member is bound to accept his decision.
• Hence, it avoids clashes among the members and results in very speedy decision making.
(2) Continued Business Existence
• After the death of Karta, the next eldest member takes up his position. So, it does not affect the
activities of the business.
• Hence, all the business activities are done smoothly, continuously without any threat.
(3) Limited Liability of Members
• As all the liability of the members is restricted to the extent of their share in the business.
• But the Karta has unlimited liability due to his complete hold on the business.
• Hence, in case of dissolution of the business, Karta’s personal assets and his share will be
liable.
(4) Expanded Loyalty and Cooperation
• All the business operations are carried on by the members of a family jointly.
• So, this increases loyalty and cooperation with each other without any hindrance.
• Therefore, all the targets of the business can be achieved by the cooperation among the
members and the Karta.
 Limitation of HUF
(1)Limited Resources
• All the members of Joint Hindu Family Business totally depend upon the ancestral property due to their limited
liability.
• Many commercial banks resist extending the credit limit due to the weak financial position of the business.
• Hence, this will result in limited expansion and growth of the business.
(2)Unlimited Liability of Karta
• All the important decision regarding management of various business activities are taken by Karta.
• But there is a disadvantage with the Karta that he has unlimited liability.
• Hence, all the business debts are paid by using the personal assets of the Karta.
(3)Dominance of Karta
• The Karta takes all the decisions individually and manages the business
• He also involves other members in decision making.
• But Karta is not bound to accept the decisions of the members which may create conflicts between the Karta and
the other members.
• Hence, due to clashes in decision making, lack of cooperation between Karta and other members occurs.
(4)Limited Managerial Skills
• Sometimes the members suffer due to unfair decisions taken by the Karta in respect of business operations.
• Unfair decisions are taken due to the lack of managerial skills.
• So, the Karta cannot be knowledgeable or proficient in all managerial functions.
• Nowadays, the joint Hindu family business is declining due to the decreasing number of joint Hindu families in the
nation
Cooperative business organization
Cooperation is a form of business organization the only sys­tem of
voluntary organization suitable for poorer people. It is an
organization wherein persons voluntarily associate together as
human beings on a basis of equality, for the promotion of economic
interests of themselves.
A cooperative organization always prefers
• Service instead of profit maximization,
• Survival of the weakest instead of survival of the fittest,
• Self-help and self-reliance instead of dependence on external
bodies.
• Development of moral character of members instead of emphasis on
pure material development.
 Characteristics of Cooperative Organization (CO)
1. Voluntary Association: A cooperative so­ciety is a voluntary association of persons and not of capital. Any person can join a cooperative soci­
ety of his free will and can leave it at any time. When he leaves, he can withdraw his capital from the so­ciety. He cannot transfer his share to
another person.
• The voluntary character of the cooperative as­sociation has two implications:
• (i) None will be denied the right to become a member and
• (ii) The cooperative society will not compete anybody to become a member.
2. Spirit of Cooperation: The spirit of coop­eration works under the motto, ‘each for all and all for each.’ This means that every member of a co­
operative organization shall work in the general interest of the organization as a whole and not for his self-interest. Under cooperation, service
is of supreme importance and self-interest is of second­ary importance. 
3. Democratic Management: An individual member is considered not as a capitalist but as a human being and under cooperation, economic
equality is fully ensured by a general rule—one man one vote. Whether one contributes 50 rupees or 100 rupees as share capital, all enjoy
equal rights and equal duties. A person having only one share can even become the president of cooperative society.
4. Capital: Capital of a cooperative society is raised from members through share capital. Coop­eratives are formed by relatively poorer sections
of society; share capital is usually very limited. Since it is a part of govt. policy to encourage coopera­tives, a cooperative society can increase
its capital by taking loans from the State and Central Coop­erative Banks.
5. Fixed Return on Capital: In a cooperative organization, we do not have the dividend hunting element. In a consumers’ cooperative store,
return on capital is fixed and it is usually not more than 12 p.c. per annum. The surplus profits are distrib­uted in the form of bonus but it is
directly connected with the amount of purchases by the member in one year.
6. Cash Sale: In a cooperative organization “cash and carry system” is a universal feature. In the absence of adequate capital, grant of credit is
not possible. Cash sales also avoided risk of loss due to bad debts and it could also encourage the habit of thrift among the members.
7. Moral Emphasis: A cooperative organization generally originates in the poorer section of population; hence more emphasis is laid on the de­
velopment of moral character of the individual member. The absence of capital is compensated by honesty, integrity and loyalty. Under
cooperation, honesty is regarded as the best security. Thus co­operation prepares a band of honest and selfless workers for the good of
humanity.
8. Corporate Status: A cooperative associa­tion has to be registered under the separate legisla­tion—Cooperative Societies Act. Every society
must have at least 10 members. Registration is desirable. It gives a separate legal status to all cooperative organizations—just like a company.
It also gives ex­emptions and privileges under the Act.
Types of Cooperative Organization
1. Cooperative Credit Societies: Cooperative Credit Societies are voluntary associations of peo­ple with moderate
means formed with the object of extending short-term financial accommodation to them and developing the habit of
thrift among them.
• National Bank for Agriculture and Rural De­velopment (NABARD) has been established with an Authorized Capital of
Rs. 500 crores. It will act as an Apex Agricultural Bank for disbursement of agricultural credit and for implementation
of the programme of integrated rural development. It is jointly owned by the Central Govt. and the Reserve Bank of
India.
2. Consumers’ Cooperative Societies: 28 Rochedale Pioneers in Manchester in UK laid the foundation for the
Consumers’ Cooperative Move­ment in 1844 and paved the way for a peaceful revo­lution. The Rochedale Pioneers
who were mainly weavers, set an example by collective purchasing and distribution of consumer goods at bazar rates
and for cash price and by declaration of bonus at the end of the year on the purchase made.
3. Producers’ Cooperatives: Producers’ Cooperatives, also known as indus­trial cooperatives, are voluntary associations
of small producers formed with the object of elimi­nating the capitalist class from the system of in­dustrial production.
These societies produce goods for meeting the requirements of consumers. Some­times their production may be sold to
outsiders at a profit.
• There are two types of producers’ cooperatives. In the first type, producer-members produce indi­vidually and not as
employees of the society. The society supplies raw materials, chemicals, tools and equipment’s to the members. The
members are sup­posed to sell their individual products to the soci­ety.
• In the second type of such societies, the member-producers are treated as employees of the soci­ety and are paid wages
for their work.
4. Housing Cooperatives: Housing coopera­tives are formed by persons who are interested in making houses of their
own. Such societies are formed mostly in urban areas. Through these soci­eties persons who want to have their own
houses secure financial assistance.
5. Cooperative Farming Societies: The coop­erative farming societies are basically agricultural cooperatives formed for
the purpose of achieving the benefits of large scale farming an maximizing agricultural output. Such societies are
encouraged in India to overcome the difficulties of subdivision and fragmentation of holdings in the country.
 Advantages of CO
1. Easy to Form 2.Open Membership, 3. Democratic
Management, 4. Limited Liability, 5. Stability,
6. Economical Operations 7. Government
Patronage 8. Low Management Cost 9. Mutual Co-
Operation 10. No Speculation 11. Economic
Advantages 12. Service Motive 13. Internal
Financing 14. Income Tax Exemption 15. Durability
16. Cheaper Goods 17. State Patronage 28.
Elimination of Middleman 19. Equality 20.
Perpetual Existence 21. Scope for Self-Government.
 Limitation of CO
1. Limited Capital 2. Inefficient Management 3. Absence
of Motivation 4. Differences and Factionalism among
Members 5. Rigid Rules and Regulations 6. Lack of
Competition 7. Cash Trading 8. Lack of Secrecy 9.
Weightage to Personal Gains 10. Lack of Incentive and
Initiative 11. Corruption 12. Limited Consideration 13.
High Interest Rate 14. Undue Government Intervention
15. Differences of Opinion 16. Lack of Expertise 17.
State Control 18. Lack of Loyalty 19. Lack of
Understanding of Principle of Cooperative Societies 20.
Lack of Universal Applicability.