Forms of Buisness Organisation

Chapter - 2
Forms of
Business Organisation
Forms of Private Sector
Undertakings
Forms of Private Sector
Undertakings te
ora
orp ises
Non C rpr
-Co te
Ent rpo En
erp rate
ri
ses
Non-Corporate Enterprises
Sole Proprietorship Partnership
Joint Hindu Family

Business
Corporate Enterprises
Co-operative Societies Joint Stock Companies
1
Sole Proprietorship
Sole Proprietorship
It is a “one man business” as he invests the entire
capital, bears all the risks, takes all the advantages
and manages the business by
himself
It is also called Individual Proprietorship

Features of Sole Proprietorship
a Formation and closure is easy
Less formalities as it has no separate law

b Unlimited Liability
Even the personal properties are held liable to meet the

liabilities of the firm
c Sole risk bearer and profit recipient
All the risk on his shoulder and the entire profit

enjoyed by him
d Control
Complete control of business is held with the

proprietor himself
e No separate entity for the business from the
businessman
The owner is held liable for all the activities of

the business
f Lack of continuity
Since the business and owner are one and the same
entity, his death, insanity etc. will affect the
existence of the business
1. Formation and Closure is easy

2. Unlimited Liability
3. Sole risk bearer and profit recipient
4. Control
5. No separate entity
6. Lack of continuity
Merits of
Sole
Proprietorship
Merits of Sole Proprietorship
a Quick decision making
No need to consult with others

b Confidentiality of information
Secrecy can be maintained

c Direct incentive
All the profit goes to the proprietor

d Sense of accomplishment
Personal satisfaction by working for himself

e Ease of formation and closure
Minimum legal formalities only

1. Quick decision making
2. Confidentiality of information
3. Direct incentive
4. Sense of accomplishment
5. Ease of formation and closure
Limitations of
Sole Proprietorship
Limitations of Sole Proprietorship
a Limited resources
Capital is limited and the size of business is small

b Limited life
As the business has no separate legal entity

c Unlimited liability
Even the personal properties are attached

d Limited managerial ability
The proprietor may not be efficient in all

managerial functions
1. Limited resources
2. Limited life
3. Unlimited liability
4. Limited managerial ability

2
Joint Hindu
Family
Business
JointHinduFamilyBusiness
Business owned by the members of a
Joint Hindu Family
It is the oldest system of business that can be seen only

in India
It is governed by the provisions of
Hindu Law
The basis of membership in the business is birth in a particular

family and three successive generations can be members in the
business
The business is controlled by the head of the family who is the
eldest member and is called ‘Karta’
All members (male and female) have equal ownership right over
the property of an ancestor and they are
known as ‘co-parceners’
Features o f
Joint Hindu
Family
Business
a Fe a t u re s o f J H F B u s i n e s s
Formation
Minimum two members from the family and their
ancestral property is used for business
It is governed by Hindu Succession Act, 1956

b Fe a t u re s o f J H F B u s i n e s s
Liability
Limited Unlimited
Limited liability to the members except Karta

c Fe a t u re s o f J H F B u s i n e s s
Control
Management is vested in the hands of Karta

d Fe a t u re s o f J H F B u s i n e s s
Continuity
The death of a member or Karta does not

affect the business
e Fe a t u re s o f J H F B u s i n e s s
Minor Members
Membership by birth
Fe a t u re s o f J H F B u s i n e s s
1.Formation - Minimum two members from the
family
2.Limited liability to the members except Karta
3.Controlled by Karta
4.Continuity - death of a member or Karta
does not affect the business
5. Minor Members – Membership by birth
Both male and female members in
thefamilyhaveequalrightinthe
businessbasedontheHindu
Su c ession(Amendment)Act2
05
Merits o f
Joint Hindu
Family
Business
MeritsofJHFBusiness
a Effective control
No conflict among members as the decisions are

taken by Karta
MeritsofJHFBusiness
b Continued existence
Even the death of Karta does not affect the existence of

business, as the next eldest member
will take up the position
MeritsofJHFBusiness
c Limited liability
Liability of members except Karta is limited

MeritsofJHFBusiness
d Increased loyalty and co-operation
The business is treated as a pride to the family

MeritsofJHFBusiness
1. Effective control – Decisions by Karta
2.Continued existence
3.Limited liability
4. Increased loyalty
and co-operation
Limitations o f
Joint Hindu
Family Business
LimitationsofJHFBusiness
a Limited resources
It depends mainly on ancestral properties

b Unlimited liability of Karta
His/ Her personal properties are also liable to

meet the debts of the firm
c Dominance of Karta
The leadership of Karta may not be acceptable to all the

members in the family, which may results even the
breakdown of family
d Limited managerial skills
The Karta may not be an expert in all

the areas of management
1. Limited resources
2. Unlimited liability of Karta
3. Dominance of Karta
4. Limited managerial skills

3
Partnership
Partnership
Partnership form of business
organisations emerged to overcome the
difficulties of sole proprietorship business
Partnership
Definition
The relation between persons who have agreed to

share the profits of a business carried on by all
or any of them acting for all
Features of
FeaturesofPartnership
a Formation
Formation is based on the agreement among the
partners to run a lawful business and it may be either
oral or written
But two people coming together for charitable

purpose is not a partnership
b Liability
The liability of each partner is unlimited
Even their personal properties are held liable for

the debts of the partnership firm
c Risk bearing
All the risk of loss is shared by the partners as
they are sharing profits of the firm
d Decision making and control
Decisions are generally taken with
mutual consent
e Continuity
A partnership is purely a personal organization and it
has no separate legal existence apart from its members,
hence it lacks continuity
Death, insanity etc. of a partner bring an end to the business

f Membership (2 to 50)
Minimum number of members is 2

According to Section 464 of Companies Act 2013
maximum number of partners can be 100, subject the
number prescribed by the government
At present it is limited to 50 by Govt. of India
g Mutual agency
Each partner is an agent of the other partners as well
as the firm
1. Formation is based on the agreement
2. Liability of each partner is unlimited
3. The risk of loss is shared by the partners
4. Decisions on mutual consent
5. It lacks continuity
6. Minimum number of members is 2
7. Mutual agency
Meritsof
Partnership
MeritsofPartnership
a Easy formation and closure
Less formalities only

MeritsofPartnership
b Balanced decision making
Because of the involvement of more than one person

MeritsofPartnership
c More funds
Large capital can be accumulated

MeritsofPartnership
d Sharing of risk
Reduces the anxiety, burden and stress on

individual partners
MeritsofPartnership
e Secrecy can be maintained
No legal requirements to publish its

accounts and reports
MeritsofPartnership
1.Easy formation and closure
2.Balanced decision making

3.More funds
4.Sharing of risk
5.Secrecy can be
maintained
Limitations of
Partnership
LimitationsofPartnership
a Unlimited liability
liabi
l
ity
Attaches even the personal properties

Limitations of Partnership
b Limited resources
Unable to run large scale business organizations

c Conflicts
Disagreement between partners leads to

dissolution of firms
d Lack of continuity
As it has no separate legal entity

e Lack of public confidence
As it is free from government control

1.Unlimited liability
2.Limited resources
3.Conflicts among partners
4.Lack of continuity
5.Lack of public
confidence
Types of
Partners
Ty pe s o f Pa rt ners
1
Active or Working Partner
Contributes capital & take part in the day to day

affairs of the business
2
Sleeping or Dormant Partner
No active role in the business

contributes capital shares
profit or loss
3
Secret Partner
His connection with the firm is unknown
to the public
Contributes capital
Participates in management
Unlimited liability
4 Nominal Partner
Lends his name and reputation for the
benefit of the firm
Also known as Ostensible Partner or Quasi
Partner
Does not contributes capital No

participation in management
No share in profit
But liable to outsiders
5 Partner by Estoppel
If a person acts as a partner of a firm by his words and
conduct, he can be called as partner by
estoppel.
Even though he is not an actual partner, he is liable for the debts of the firm
as he makes himself as a partner
in front of the public
6 Partner by holding out
A person may be declared as a partner in a firm by the
outsiders and does not deny this even after becoming
aware of it
He is also liable for the debts of the firm he

is not an actual partner
Ty peso f Pa r t ners
Type Capital Management Share in Liability
Profits/Losses
Active Contributes Participates in Shares Profits/Losses Unlimited
Partner Capital Management
Sleeping Contributes Does not Participate Shares Profits/Losses Unlimited
Partner Capital in Management
Secret Contributes Participates in Shares Profits/Losses Unlimited
Partner Capital Management
Does not
Nominal Does not Participate Generally does not Unlimited
Contributes
Partner in Management Share Profits/Losses
Capital
Does not
Partner by Contributes Does not Participate Does not Share Unlimited
Estoppel Capital in Management Profits/Losses
Does not
Partner by Contributes Does not Participate Does not Share Unlimited
Holding out Capital in Management Profits/Losses
Minor as a
Pa r t n e r
MinorasaPartner
A minor is a person who has not completed 18
years of age
A minor cannot become a partner as he is not capable to enter into a

contract, but he may be admitted as a partner to the benefits of the
firm, with the consent of all the partners
Eg: If a celebrity is admitted, it may be beneficial to the firm
MinorasaPartner
He cannot take active part in management
His liability is limited to the extent of his share in the

capital and profits of the firm
MinorasaPartner
After becoming major, he will be eligible to enjoy
all the rights of a partner and his liability becomes
unlimited
A partnership cannot be formed with a minor partner

Rightsofa
Minor Partner
R i g h t s o f a M i n o r Pa r t n e r
1 Right to share the profits and
properties of the firm
2 He can inspect and copy the accounts
of the firm
But he has no access to all the books of the firm.

3 He can sue the partners
for payment of his share of
profits or properties in the
firm
Typesof
Partnership
TypesofPartnership
Partnership
General Limited
Partnership Partnership
General
Partnership
GeneralPartnership
Also known as ordinary partnership
Unlimited liability to partners Usually
found in India
TypesofPartnership
General
Partnership
Particular Partnership at
Partnership will
Particular
Partnership
ParticularPartnership
It is Formed for a particular purpose
or for a particular period
It will be dissolved after the expiry of the time
or the completion of the project
E.g. If a partnership is formed for two years, or

for the construction of a house
Partnership
at will
PartnershipatWill
b Duration of partnership is not
specified in the agreement
It will be continued for an indefinite period
It can be dissolved at any time as it is decided by all or

any of the partners
Limited
Partnership
Limited/SpecialPartnership
Two types of partners in Limited
Unlimited
Partnership Limited
Liability Liability
General Special
Partners Partners
Limited/SpecialPartnership
Minimum one general partner is a must
It is not allowed in India but prevails in England

Partnership
Deed
Partnership Deed
Page 1 Page 2
Partnership Deed
Articles of Partnership
Partnership Deed
Partnership is established by an agreement which may be
oral or in writing
It is always better to have the agreement in writing to avoid
any dispute
The document, containing the agreement in writing among
the partners is called
Partnership Deed
It is also known as the articles of partnership

Contentsof
Partnership Deed
Contents of Partnership Deed
1. Name of the firm
ABC ASSOCIATES
2. Names and addresses of all partners
3. Nature and place of business
4. Date of Commencement of partnership
5. Duration of partnership, if any
6. Capital contribution by the partners
7. The amount that can be withdrawn

by each partner
Rs. 20,000
8. Rules regarding
operation of bank accounts
9. Division of profits or losses
10. Interest on capital or drawings, if any
11. Interest on partner’s loan to the firm
12. Salaries, commission, etc. if

payable to any partner
13. Details of division of work

among the partners
Purchase Manager Production Manager Sales Manager
14. Ascertainment of goodwill
On admission, retirement and death of a partner

15. Settlement of accounts
red
Reti
In the event of retirement or death of partners

16. Settlement of accounts
On dissolution of the firm

17. Provisions relating to the

maintenance and audit of accounts
18. Provisions for arbitration in

the event of disputes
19. Provisions regarding borrowings of the firm
20. Rights, duties and liabilities of partners
Rights Duties Liabilities

1. Name of firm
2. Nature of business and location of business
3. Duration of business
4. Investment made by each partner
5. Distribution of profits and losses
6. Duties and obligations of the partners
7. Salaries and withdrawals of the partners
8.Terms governing admission, retirement and expulsion of a
partner
9. Interest on capital and interest on drawings
10. Procedure for dissolution of the firm
11. Preparation of accounts and their auditing
12. Method of solving disputes etc.
Registration of
Partnership
Registration of Partnership
Registration of partnership is not compulsory
But it can be registered with the Registrar of

Firms as per the Partnership Act 932
Procedure for Registration
a Submit an application in prescribed form
with the following details:
a) Name of the firm.
b) Location of the firm.
c)Names of places where the firm carries on
other business.
d) The date of joining of each partner.
e) Names and addresses of partners.
f) Duration of partnership.
g) This application should be signed by all the partners.
b Remitting the fees for registration
c Issue of Registration Certificate
After approval, the Registrar should enter the name of the firm
in his register and issues
a certificate of registration
Effectsof
Non-Registration
Effects of Non-Registration
1 Cannot sue against third parties
An unregistered firm cannot sue against a third

party for the recovery of claims
2 Cannot sue against its partners
An unregistered firm cannot sue against its partners

3 A partner cannot enforce his claims
A partner of an unregistered firm cannot enforce his claims

against outsiders or against his
co-partners or the firm
4
Co-
operative
Societies
Co-operative Societies
Voluntary associations of persons constituted for

the purpose of protecting their
economic and social interest
Basic Principles of Co-operative Societies
Self help through mutual help

or
Each for all and all for each
Fe a t u r e s o f
Co-operativeOrganisations
Features of Co-operative Organisations
1
Voluntary Membership
Anybody can become a member in a co-

operative society at his own wish and there is not
compulsion at all
2
Legal Status
As the registration of a cooperative society is

compulsory, it gets separate legal entity and
continuous existence
3
Limited Liability
The liability of members is limited

4
Control
Board
Meeting
Control is vested in the hands of board of directors who are elected by the
members under the principle of one man one vote
5
Service Motive
The main objective is to render services to its

members rather than profit
1. Voluntary Membership
2. Legal Status
3. Limited Liability
4. Control in the hands of board of directors
5. Service Motive
Fo r m a t i o n o f a
Co-operative Society
Formation of a Co-operative Society
As per Kerala co-operative societies Act, there should be

at least 10 members who are bound together by a
common bond belonging to the same locality, class,
occupation or having a common economic need
These members are called promoters
They should present a joint application to the

Registrar of Co-operative Societies
This application should contain the following:
●
Proposed name of the society.
●
Aim and objective.
●
Area of operation.
●
Nature of members’ liability
●
Particulars of share capital to be raised.
●
Copy of bye-laws of the society
After scrutiny, the Registrar issues a Certificate of
Registration and thereafter the society can admit new
members
Meritsof
Co-
operativeSocieties
MeritsofCo-operativeSocieties
1
Equal Voting Rights
Each member is having equal voting rights irrespective of their

capital contribution, as it follows the principle of
‘one man one vote’
2
Limited Liability
Liability of members is limited to the extent of their

capital contribution
3
Stable Existence
The existence of a society is not affected by the

death, insanity, insolvency etc. of members
4
Economy in Operations
To eliminate middlemen, the members offer honorary services to

the society, which will in turn reduces cost of operation
5
Support from Government
As it is a democratic organization, government provides various

supports such as low taxes, subsidies, grants, low interest rates for
loans etc.
6
Easy Formation
No complex legal formalities are required to

form a co-operative society
1.Equal Voting Rights
2.Limited Liability
3.Stable Existence
4.Economy in Operations
5.Support from Government
6.Easy Formation
Limitationsof
LimitationsofCo-operativeSocieties
1
Limited Resources
Low rate of dividend and one man one vote principle

reverts the members to invest more capital
2
Inefficient Management
Office bearers are elected from members and they may

not be competent
3
Lack of Business Secrecy
The general body openly discusses all facts and

figures of the society without any secrecy
4
Excessive Government Control
It will affect the smooth functioning

5
Difference of Opinion
Conflict among the members adversely

affect the organization
1. Limited Resources
2. Inefficient Management
3. Lack of Business Secrecy
4. Excessive Government Control
5. Difference of Opinion
Types of
Co-operativeSocieties
TypesofCo-operativeSocieties
1 Consumers' Co-operative Societies
●
Formed by consumers
●
To ensure supply of consumer goods in a fair price
●
Purchases directly from wholesalers
●
Distributes to members and outsiders
●
Takes only a little margin of profit
2 Producers Co-operative Societies
●
Also called industrial co-operative societies
●
Promoted by small producers and craftsmen
●
Help them to start small scale and cottage industries
●
Supplies raw-materials, tools and equipments
●
Sells their products in market
3 Marketing Co-operative Societies
●
Formed by farmers, artisans and small producers
●
Collect the products from members
●
Grade and process the products
●
Provide storage facilities
● Sell in the market only on
●
favourable conditions
●
Provide finance and raw-materials
Help to promote bargaining
4 Farmers' Co-operative Societies
●
An association of small farmers in a village Large
●
scale production through joint cultivation Increase
● in yield per acre of land
● To introduce modern method of cultivation
● To inculcate the spirit of co-operation among
farmers
5 Credit Co-operative Societies
●
To provide short term finance
●
Charging only a reasonable rate of interest
●
To protect the members from money lenders
Types of Credit Societies
a) Rural banks - to support farmers
b) Urban Banks - to help small traders and artisans.
c)Employees’ credit societies - formed by the

employees in govt. or non-govt organizations.
d)Wage earner’ societies - formed by workers to

meet their credit needs.
6 Co-operative Housing Societies
●
To provide housing facilities to the members
●
Either ownership or rental basis
●
Help to purchase houses at a less cost
●
Help to purchase houses on easy instalments
(1) Consumers' Co-operative Societies
(2) Producers Co-operative Societies
(3) Marketing Co-operative Societies
(4) Farmers' Co-operative Societies
(5) Credit Co-operative Societies
(6) Co-operative Housing Societies
5
Joint
Stock
Companies
J oint Stock Companies
JointStockCompaniesare
emergedtoovercomethe
difficultiesofsole
proprietorshipandpartnershi
p
businessorganisationsandto
runlargescalebusiness
enterprises
Definition
A company is a voluntary association of persons having separate
legal existence, perpetual succession and a common seal
As per Companies Act 2013, a company means company
incorporated under this Act or any other previous company law
Previous Company Laws:
●
Act relating to companies in force before the Indian Companies Act 1866 The
● Indian Companies Act 1866
● The Indian Companies Act 1882
● The Indian Companies Act 1913
● The Registration of Transferred Companies Ordinance 1942 The
● Indian Companies Act 1956
Fe a t u r e s o f
J o i n t S to c k C o m p a n i e s
Featu res ofJ ointStockCompanies
1 Artificial Person
A company is created by law and exists independent of its

members and it can own properties, borrow funds, enter into
contracts in its own name, but it is not a natural person
2 SeparateLegalEntity
As the company is a registered body, it is treated as a legal

person and its assets and liabilities are separate from
those of its owners
3 Formation
Formation of a company is a time consuming and expensive

process as it involves the preparation of several documents and the
registration is compulsory under Companies Act 2013
or any other previous company laws
4
PerpetualSu c ession
A company is created by law and hence only the law

can bring an end to its existence
Death, insanity, insolvency or lunacy of members does not
affect the life of the company
5 Control
Director Board
The owners of a company are the members or shareholders,

whereas the management and control is vested in the hands
of directors elected by the members
6 Liability
The liability of members is limited to the extent of their
capital contribution only.
The members can be asked to contribute to the loss only if any

unpaid amount on shares held by them
7 Common Seal
A company may or may not have a common seal As it

is an artificial person it cannot sign documents
Therefore a common seal is used for its signature
8 Risk Bearing
The risk of loss in a company is borne by all the shareholders, so that it

will not become a heavy burden to them
FeaturesofJoi ntStockCompanies
1. Artificial Persons
2. Separate legal entity
3. Formation of a company is time consuming and expensive
4. Perpetual Succession
5. Control by Directors
6. Liability of members is limited
7. Common Seal is used for its signature
8. Risk Bearing (By all the members)
Meritsof
M e r i t s o f J o i n t S to c k C o m p a n i e s
1 LimitedLiability
The public may be encouraged to invest in the shares of a

company because of limited liability
2 Transfer of Shares
The investors are attracted to purchase the shares of

companies as it can be converted into cash
at any time
3 PerpetualExistence
A company will continue to exist even if

all the members die
It can be liquidated only as per the provisions
of
Companies Act
4 Scope for Expansion
Through the issue of shares, a company can accumulate large

amount of capital
Hence it has greater scope for expansion
5 ProfessionalManagement
Management of a company constitutes the Board of

Directors and supported by salaried managers
Merits of J oint Stock Companies
1.LimitedLiability
2 . Tra n s fe ro f S h a re s
3.PerpetualExistence
4 . S c o p e fo r E x p a n s i o n
5.ProfessionalManagement
Limitationsof
LimitationsofJointStockCompanies
1 Difficulty in formation
Due to complex formalities

2 Lack of secrecy
Each public company should publish their accounts and
reports to the Registrar of Companies and to the public
time-to-time
Hence there is no secrecy in the operations of a joint stock

company
3 Impersonal work environment
The large size of a company makes it difficult to maintain

personal contact with the employees, customers and
creditors
4 Numerous regulations
Compulsory audit, filing of reports, statutory meeting,

obtaining certificates from Registrar,
SEBI etc. leads to complexities
5 Delay in Decision making
Due to get consent from the Directors and

Share holders
6 Oligarchic management
Oligarchy means “rule by a few”
The control is in the hands of a few people who may ignore the
interests of the share holders
7 Conflict of Interest
Conflict between the management and share

holders may adversely affect the
progress of the company
1. Difficulty in formation
2. Lack of secrecy
3. Impersonal work environment
4. Numerous regulations
5. Delay in Decision making
6. Oligarchic management (rule by a
few)
7. Conflict of Interest
Typesof
Companies
Types of Companies
Private Co.
Public Co.
One Person Co.
1
Private Company
Private Company
A private company is defined as a company by its Articles
of Association, restricts the right to transfer the shares, has a
minimum of 2 and maximum of 200 members excluding the
present and past employees, does not invite public to
subscribe to its securities and it is necessary to use the word
private limited after its name
P r iv i l e g e s o fa
Private Company
PrivilegesofaPvt .Co.
1 Easy Formation
Only two persons are required to form a

Private Company
2 No need to issue Prospectus
Public is not invited to subscribe to the shares of a

private company
3
Allotment of Shares
It can allot shares and raise capital privately No

need to issue prospectus
No need of minimum subscription
4
Starting of Business
It can start the business as soon as it is

incorporated
PrivilegesofaPvt.Co.
5
Board of Directors
Need to have only two directors minimum

(Maximum number of directors is 15 in private and public
companies)
6
Not required to keep an Index of Members
1. Easy Formation (2 members required)
2. No need to issue Prospectus
3.Minimum subscription not required for the allotment
of shares
4.It can start the business as soon as it is
incorporated
5. Need to have only two directors
minimum
6. Not required to keep an Index of
2
Public Company
P ublicCompany
As per Companies Act, 2013, a Public Company is a
company which is not a private company. In other
words it has no restriction on the right of members to
transfer the shares, has a minimum of 7 members and no
limit on maximum members and permits to make any
invitation to public to subscribe to its shares and
debentures.
P ublicCompany
A private company which is the subsidiary of a
public company is treated as a public company
3
O n e Pe r s o n C o m p a ny
O n e Pe r s o n C o m p a ny
O P C means a company with only
one person as its member
Section 3(1) of Indian Companies Act 2013

P ublicCompany
Vs.
PrivateCompany
D i f e r e n c e s : P u b l i c C o . & P r iva t e C o .
1 Number of Members
PublicCo. PrivateCo.
Minimum - 7 Minimum - 2
Max - Unlimited Max - 200

2 Minimum Number of Directors
Public Co. PrivateCo.
Three Two
3 Index of Members
Not
Compulsory Compulsory
4 Transfer of Shares
No Restriction
Restriction on Transfer
5 Invitation to Public
It can invite the It cannot invite

public the public
Basis Public Company Private Company
Minimum – 7 Minimum – 2
Members
Maximum – Unlimited Maximum – 200
Minimum number of Three Two
directors
Index of members Compulsory Not Compulsory
Transfer of shares No restriction Restriction on transfer
Invitation to public to Can invite Cannot invite

subscribe to shares
ChoiceofForm o f
Business Enterprise
Factorstobeconsidered
whilechoosingasuitable
form ofbusinessenterprise
ChoiceofForm ofBusinessEnterprise
1 Cost and ease in setting up
the organization
Sole proprietorship and partnership are the most

inexpensive form or organization and having less legal
formalities
2 Liability
From side of investors, company form of organization is

more suitable as the risk involved is limited
3 Continuity
Sole proprietorship and partnership business
organizations lacks continuity
If the business is intended for a long period of time, company

or cooperative society form of organizations are more suitable
4 Managerial Ability
A sole proprietor may find it difficult to have expertise in all

functional areas of management
5 Capital Consideration
If the business requires huge capital, it should be organized as a

company or co-operative society
6 Degree of control
If direct control over operations and decision

making is required, proprietorship is
more preferred
7 Nature of Business
For large business units, where personal attention is not

much required, company form of organization is more
suitable
Factorstobeconsideredwhilechoosinga
suitableform ofbusinessenterprise
1.Cost and ease in setting up the organization
2.Liability of members
3.Continuity of business
4.Managerial Ability
5.Capital Consideration
6.Degree of control
7.Nature of Business
(Size, Product etc.)
ComparativeEvaluation
of Forms of Organisation
ComparativeEvaluationofFormsofOrganisation
Sole
Basis Proprietors Partnership Joint Hindu Cooperative Company
hip Family Business Society
Compulsory
Easy –
Easy – Less legal Registration is registration –
Formation Easy Registration
formalities compulsory expensive and
is optional
complex formalities
Private Co.
Min: 2
Minimum: 2 Minimum 2 Minimum 10 Max: 200
Members Only Owner Maximum: persons from the adults. No
50 family maximum Limit Public Co.
Min: 7
Max: Unlimited
Capital Limited Limited Ancestral Limited Large

property
ComparativeEvaluationofFormsofOrganisation
Sole Joint Hindu
Basis Proprieto Partnersh Family Cooperative Company
rship ip Business Society
Unlimited for
Karta and
Liability Unlimited Unlimited Limited for Limited Limited
other
members
Control &
Managem With the All Karta Elected Elected Board
ent Owner partners Board
Stable – Stable –
Continuity Unstable More Stable even if separate separate legal
stable Karta dies legal status status

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Forms of Buisness Organisation

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Chapter - 2

Joint Hindu Family

It is also called Individual Proprietorship

Less formalities as it has no separate law

Even the personal properties are held liable to meet the

All the risk on his shoulder and the entire profit

Complete control of business is held with the

The owner is held liable for all the activities of

1. Formation and Closure is easy

No need to consult with others

Secrecy can be maintained

All the profit goes to the proprietor

Personal satisfaction by working for himself

Minimum legal formalities only

Capital is limited and the size of business is small

As the business has no separate legal entity

Even the personal properties are attached

The proprietor may not be efficient in all

4. Limited managerial ability

It is the oldest system of business that can be seen only

The basis of membership in the business is birth in a particular

It is governed by Hindu Succession Act, 1956

Limited liability to the members except Karta

Management is vested in the hands of Karta

The death of a member or Karta does not

No conflict among members as the decisions are

Even the death of Karta does not affect the existence of

Liability of members except Karta is limited

The business is treated as a pride to the family

It depends mainly on ancestral properties

His/ Her personal properties are also liable to

The leadership of Karta may not be acceptable to all the

The Karta may not be an expert in all

2. Unlimited liability of Karta

4. Limited managerial skills

The relation between persons who have agreed to

But two people coming together for charitable

Even their personal properties are held liable for

Death, insanity etc. of a partner bring an end to the business

Minimum number of members is 2

Less formalities only

Because of the involvement of more than one person

Large capital can be accumulated

Reduces the anxiety, burden and stress on

No legal requirements to publish its

2.Balanced decision making

Attaches even the personal properties

Unable to run large scale business organizations

Disagreement between partners leads to

As it has no separate legal entity

As it is free from government control

Contributes capital & take part in the day to day

No active role in the business

Does not contributes capital No

He is also liable for the debts of the firm he

A minor cannot become a partner as he is not capable to enter into a

His liability is limited to the extent of his share in the

A partnership cannot be formed with a minor partner