Forms of Business Organ is at Ions

8/2/2019 Forms of Business Organ is at Ions

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FORMS OF BUSINESSORGANISATIONS

Prof. Bijaya Ku. Sundaray


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Proprietorship

A business enterprise exclusively owned,managed and controlled by a single personwith all authority, responsibility and risk.

It is also known as Sole proprietorship or singleentrepreneurship.

Any person who carries on a business exclusively

on his own account and at his own risk is knownas a sole trade.

The owner realizes all the profits and assumesresponsibility for all losses.


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Salient Features

Single Ownership

Common Identity

Capital Unlimited Liability

One Man Control

Profits and Losses


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Advantages Easy Formation Flexibility

Quick Decisions

Secrecy

Personal Touch

Direct Motivation

Independent Way of Life

Minimum government Regulations


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Disadvantages

Limited Capital

Limited Managerial Skill

Unlimited Liability

Uncertainty

Limited Opportunities


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Suitability of Proprietorship

Small business requiring modest capital and limitedmanagerial talent as in case of retail stores.

In those lines of business where there is a need for greaterpersonal attention to customers as in tailoring, professionalservices like medicine and law.

In those lines of business where the demand of products isoften influenced by seasonal trends and fashions.

In the production of un-standardized goods like embroideryor artistic things.

Where the individual has certain skills with the help of whichhe wants to earn his livelihood independently.

For catering to the demands of local market like perishableproducts, laundries, grocery stores and confectioneries.


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Partnership

A partnership is a form of business organization in whichtwo or more persons up to a maximum of twenty jointogether to undertake some form of business activity.

The Indian Partnership Act, I932 defined partnership as"the relation between persons who have agreed to share

the profits of business carried on by all or any of themacting for all".

The Uniform Partnership Act of the USA defines apartnership "as an association of two or more persons tocarry on as co-owners a business for profit".

partnership is an association of two or more persons whohave joined together to share the profits of businesscarried on by all or any of them acting for all.


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The persons who own the partnership businessare individually called 'partners' and collectivelyknown as the 'firm or 'partnership firm'.

On an agreed basis, partners contribute to capital

and share the responsibility of running thebusiness.

However, in some cases one partner may providethe whole or major portion of the capital andothers contribute technical and managerial skills

with or without some capital.

All such terms and conditions of partnership areusually mentioned in the partnership agreement.


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Partnership Agreement

Name of the business or partnership

Names of the partners

Type of investment of each partner (such ascash, equipment, real estate) and its value

Managerial responsibilities of each partner

Accounting methods to be used Rights of partners to review and/or audit

accounting documents


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Continues

Information about how profits will be divided

and how losses will be shared

Salaries/money to be withdrawn by partners

Duration of the partnership

Information concerning dissolution of the

partnership

Distribution of assets upon dissolution

Procedure relating to the death of a partner


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Salient Features

Plurality of persons

Contractual relationship

Profit sharing

Existence of business

Principal-agent relationship

Unlimited liability

Good faith and honesty

Restriction on transfer of share


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Classification of Partners

Based on the extent of participation

a) Active partner: If a partner takes an active part inthe management of the business, we call him as active

partner. He is also known as a 'working partner'.b) Sleeping partner: If the partner is not actively

associated with the working of the partnership firm, wecall him a sleeping partner. A sleeping business partnersimply invests his capital. He does not participate in thefunctioning of the firm. Such a partner is also known asa 'dormant partner'.


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Continues

Based on the sharing of profits

a) Nominal partner: A partner who just lends his name to thepartnership is known as a nominal partner. He neither invests hiscapital nor participates in the day-to-day working and management

of the firm. Such partners are not entitled to a share of profits, butthey are liable to other parties for all the acts of the firm.

b) Partner in profits: A partner who shares the profits of thebusiness without being liable for losses is called a partner in

profits. As a rule, he will not take any part in the management ofthe business. This is applicable to a minor who is admitted to thebenefits of the firm.


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Continues

Based on liabilities

a) Limited partner: The liability of such a partner is limited tothe extent of the capital contributed by him. He is not entitledto take part in the management of the business, but he can

advise the other general members. His acts do not bind thefirm. He has right to inspect the books of the firm for hisinformation. Such partners are also called 'special partners'.

b) General partner: He is also called 'unlimited partner. Hisliability is unlimited and he is entitled to participate in themanagement of the business. Every partner who is not alimited partner is treated as a general partner.


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Advantages

Easy formation

More capital available

Flexibility Secrecy

Keen interest

Protection

Checks and controls over careless decisions

More diverse-skills and expertise

Diffusion of risk


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Disadvantages

Limited capital

Unlimited liability

No public confidence

Non-transferability of interest

Difficulty in disposing of partnership interest

Potential for personality and authority conflicts


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Co-operative Organisations

A co-operative organization is a voluntaryassociation of persons joining together on equalbasis for the fulfillment of their economic &other interests.

It is generally formed and registered under the co-operative societies act ,1912.

The uniqueness of co-operative lies in its ethicalapproach-service and sacrifice.


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Salient Features

Voluntary association

Open Membership

Service Motive

Capital Accumulation

Return on Capital

Distribution of Surplus

Separate legal entity

Democratic Functioning


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Advantages

Easy Formation

Democratic Functioning

Limited liabilities Continuity

Mutual benefit association

Government Assistance


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Disadvantages

Limited Capital

Plenty of state regulation

Lack of managerial Talents

Misuse of Funds

Differences & Bickering among members


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TYPES OF CO-OPERATIVES

A. CREDIT CO-OPERATIVE-TheRural credit co-op

society started in Germany in 19th century . Its main

objective was to provide agricultural finance . It

consisted of three tier model-base (primary society),middle (central co-op bank), top (apex bank). Ex:- In

India for agricultural loan at the top there is

NABARD (National Bank for Agricultural & RuralDevelopment), middle there is state co-op and atthe bottom there is urban co-op.


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Continues

B. CONSUMERS CO-OPERATIVE- It started in 1844 in England . Themain objective was to serve members by purchasing & sellingconsumer goods at a cheaper price.

Main features:*membership is voluntary

*One man one vote

*capital is contributed by members

*managed by elected office bearers of society

*Earning profit with service motive

Ex:-Amul , Omfed in Orissa , Mother dairy


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Continues

C. PRODUCERS CO-OPERATIVE- It 1st started inFrance in 19th century . But these co-op could notget popularity as it lacked technical & managerial

skills . It had two objectives.

Social-safeguarding the interest of poorer section

against exploitation by capitalist.Economic-Promoting small producers with betterbargaining power


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Statutory Corporation

Statutory Corporation is a corporation created by statute. Their precisenature varies by jurisdiction thus they might be ordinarycompanies/corporations owned by a government with or without othershareholders, or they might be a body without shareholders which iscontrolled by national or sub-national government to the (in some casesminimal) extent provided for in the creating legislation.

Statutory corporation are public enterprises into existence by aSpecial Act of the Parliament. The Act defines its powers andfunctions, rules and regulations governing its employees and itsrelationship with government departments.

This is a corporate body created by the legislature with definedpowers and functions and is financially independent with a clearcontrol over a specified area or a particular type of commercialactivity.


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SALIENT FEATURES

The powers, duties and functions of a statutory corporation are prescribedby the statute passed.

It is a body corporate and has a separate legal entity and as such can sueand be sued and enter into contracts and acquire and hold property in itsown name. It has a perpetual succession and common seal.

It is wholly owned by the Government and the entire equity capital is heldin the name of the Government.

The management of the corporation is vested in the hands of theDirectors appointed by the Government. There is no interference by theGovernment in the day-to-day working of the corporation.

It has independent financial policy. It can raise funds by borrowing fromthe public and the treasury. It can reinvest its earnings. Thus, it isfinancially autonomous and can follow the commercial principles in itsoperations.


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Advantages

It is clothed with the powers of the Government and possesses the flexibilityand initiative of a private enterprise. It is free from the defects of rigidity and

dilatory action inherent in Government administration because it is an

autonomous body.

A Public corporation can take long term policy decisions within the powers

given to it by the Act which created it. It is not affected by the changes in the

Government.

It can readily finance expansion programmes without undue delay by use of its

revenues or borrowings from the public interest.

Its accountability to the Parliament ensures that is it managed to serve the

public interest.


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Disadvantages

Autonomy and flexibility supposed to be enjoyed by a public corporation are onlynominal. Ministers, Government officials and political interests often interfere withthe internal management of the corporations.

The members of the Board of Directors of a corporation are appointed by theGovernment and they consist of civil servants, politicians, professional peopleand representatives of other interests. In may cases, they have proved to be

misfits as they dont possess the background, training and talent required tomanage a corporation.

Public corporations generally do not face competition and do not have profitmotive due to which their working turns out to be inefficient.

The corporations may indulge into anti-social activities. They may charge higherprices from the consumers to cover up their inefficiency because of the monopoly

power enjoyed by them. The charter or constitution of a public corporation is rigid and it is very difficult to

change it to incorporate new objectives. The statute has to be amended which isa very cumbersome process.


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Companies

Any entity engaging in business, such as a proprietorship, partnership, orcorporation.

Company is a voluntary association of persons formed for the purpose of

doing business having a distinct name and limited liability.

It is a juristic person having a separate legal entity distinct from the

members who constitute it, capable of rights and duties of its own and

endowed with the potential of perpetual succession.

The Companies Act, 1956, states that 'company' includes company formed

and registered under the Act or an existing company i.e. a company formed

or registered under any of the previous company laws.


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Features

Separate legal entity Incorporated body

Artificial legal person

Perpetual succession

Limited liability

Common seal

Right to own property

Right to sue

Right to enter in to contracts

Flexibility of investment

Separation of control from the ownership


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Classification of companies

Chartered Company

Statutory Company

Unlimited Company

Limited Company

Limited by Shares Limited by Guarantee

Registered company

Private Company

Public Company

Government Company

Holding Company

Subsidiary Company


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Comparison and Choice of structures

Sole Proprietorship Partnership Corporation

Any Business Owned and

Operated by an Individual

Two or More Persons Operating

a Business for a Profit

Legislatively Created and

Regulated Governance,

Ownership and FinancialStructure

No Formalities or Legal

Documentation; May be

Implied from Conduct or

Actions

Written or Oral Agreement or

May be Implied from Conduct or

Actions

Filing of Articles of

Incorporation with

Secretary of State and

Payment of Fees

Government documents

are not required

Most have Agreement specifyingRights, Duties and Obligations

Articles of Incorporation

create Corporation; Bylaws

prescribe its Operation

C i


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Continues

Wholly Owned by Single

Individual

For Contribution, Partner receives

Proportionate Share of

Profits/Losses and Partnership

Property

Residual Claim on Corporate

Equity and Right to Vote for

Directors and Essential

Governance

Sole Proprietor Personally

Liable for All Debts and

Obligations

Partners are Jointly and Severally

Liable for all Partnership

Obligations, in Contract and in Tort

Shareholders Liability limited to

Extent of Capital Contribution

[Limited Liability]

Not a Taxable Entity; Income

(Loss) passes through to

Sole Proprietor

Partnership not a Taxable Entity;

Allocations of Income and Loss

allowed within Partnership before

Pass-Through

Corporation taxed as Separate

Entity and Dividends/Capital

Gains also Taxed [Double

Taxation]

Sole Proprietor has

Complete Management

Control

All Partners have Equal Rights in

Partnerships Management and

Conduct

Managed by Board of Directors

elected by Shareholders; Board

may Delegate Authority to

Appointed Officers


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Continues

Sole Proprietorship not

Transferable; Property and

Products are Transferable

Limited Right of Transfer

subject to Consent by all

Partners

Freely Transferable through

Formal (NYSE) and Informal

(Private Equity) Capital

Markets

Terminates Sole

Proprietorship

Partner Death or Withdrawal

may Terminate Partnership

Corporation has Unlimited Life

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Forms of Business Organ is at Ions

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