FORMS OF BUSINESS

ORGANIZATION
LEARNING OBJECTIVES

 To identify the different forms of business organizations and understand their

meaning
 To discuss the merits and limitation of different forms of business
organization
 To identify the types of partnership, cooperative society, private, public and
one person company
 To highlight the stages in the formation of a company
Forms of business organization

• Sole proprietorship
• Joint Hindu family business
• Partnership
• Joint stock Company
• Cooperative Societies
Sole proprietorship

Meaning
 owned, managed and controlled by an individual
 Bears all the risk
 Receives all the profit.
Features of sole proprietorship

1. Formation and closure

2. Liability
3. Sole risk bearer and profit recipient
4. Control
5. No separate entity
6. Lack of business continuity
Merits of sole proprietorship

Quick decision making

Confidentiality of information
Direct incentive
Sense of accomplishment
Ease of formation and closure
Limitation of proprietorship

Limited resources
Limited life of a business concern
Unlimited liability
Limited managerial ability
Joint Hindu Family business

Meaning
 owned and managed by members of Hindu undivided family
 Managed by the eldest member of the family known as KARTA
 Three successive generations as members in the business.
Features of Joint Hindu undivided family

Formation
Liability
Control
Continuity
Minor members
Merits of Joint Hindu undivided family

Effective control
Continued business existence
Limited liability of members
Increased loyalty cooperation
Limitation of Joint Hindu undivided
family
Limited resources
Unlimited liability of Karta
Dominance of Karta
Limited managerial skills
Partnership

Meaning

 Voluntary association of two or more

persons
 share its profits and losses.
Features of partnership

Formation
Liability
Riskbearing
Decision making and control
Continuity
Mutual agency
Merits of partnership

Ease of formation and closure

Balanced decision making
More fund
Sharing of risk
Secrecy
Limitation of partnership

Unlimited liability
Limited resources
Possibility of conflicts
Lack of continuity
Lack of public confidence
Types of partners

Active partner
Sleeping partner
Secret partner
Nominal partner
Partner by estoppel
Partner by holding out
Types of partner

Classification on the basis of duration

• Partnership at will
• Particular partnership
Classification on the basis of liability
• General partnership
• Limited partnership
Partnership deed
• Name of firm
• Nature of firm
• Duration of partnership
• Duties and obligations of partners
• Valuation of assets
• Interest on capital and interest on drawings
• Profit-loss sharing ratio
• Salaries and withdrawals of the partners.
• Preparation of accounts and their auditing.
• Procedure for dissolution of firm
• Method of solving disputes.
Consequences of registration

• A firm cannot file a case or file suit against

other partners or the partnership firm.
• Firm cannot sue against third parties.
• The form cannot file a case against its
partners of the firm.
Procedure for getting firm registered

• Submission of application in prescribed

form with the Registrar of Firms.
• Fee deposition with the Registrar.
• Receiving certificate of registration after
the Registrar is satisfied.
Cooperative society

voluntary people working for a

common purpose
To protect economic and social
interests of the members
Must registered under the
Cooperative Societies Act, 1912.
Features of cooperative society

Voluntary membership
Legal status
Limited liability
Control
Service motive
Merits of cooperative society

Equality in voting status

Limited liability
Stable existence
Economy in operation
Support from government
Ease of formation
Limitation of cooperative societies

Limited resources
Inefficiency in management
Lack of secrecy
Government control
Differences of opinion
Types of cooperative societies

• Consumer’s cooperative societies

• Producer’s cooperative societies
• Marketing cooperative societies
• Farmer’s cooperative societies
• Credit cooperative societies
• Cooperative housing societies
Joint stock company

Meaning

 artificial person
 separate legal entity
 perpetual succession
 common seal."
Features of joint
stock company
• Artificial person

• Separate legal entity

• Formation

• Perpetual succession

• Control

• Liability

• Common seal

• Risk bearing
Merits of joint stock company

• Limited liability
• Transfer of interest
• Perpetual existence
• Scope for expansion
• Professional management
Limitation of joint stock company
• Complexity in formation
• Lack of secrecy
• Impersonal work environment
• Numerous regulations
• Delay in decision making
• Oligarchic management
• Conflict in interests
Types of companies
a. Private Company
• A company must have minimum 2 or maximum 200 members.

• Right to transfer shares is restricted.

• Funds cannot be generated from the general public.

• Uses 'Private Limited' after the company name.

b. Public Company
• Minimum 7 members with no limit on maximum members.

• Free to transfer shares.

• Issue shares to the general public.

• Uses 'Public Limited' after the company name.

 Difference between public and private
company
Basis Public Company Private Company

Minimum: 7 members Minimum: 2 members

Members
Maximum: Unlimited Maximum: 200

Minimum number of directors 3 directors 2 directors

Invitation to Public Can invite public for subscription Cannot invite public for subscription

Transfer of shares Can transfer Cannot transfer

Index of Members Compulsory Not compulsory