ORGANISATION STRUCTURE OF SMALL SCALE INDUSTRIES IN INDIA

ByBADM Dept.

WHAT IS ORGANISATION STRUCTURE?

Organisation structure means determining the form of entire organisation system of undertaking.

According to Henry H. Albert, “The organisational structure is the framework within which management and operating task are performed”.

Characteristics of ORGANISATION STRUCTURE

• Performance of Business Activities• Arranges functional relations among the

managers and the employees• Various roles and positions are framed• Establishing relations between the managers,

employees and their group• Functions are assigned to various

Departments

Characteristics of ORGANISATION STRUCTURE

• Arrangements of mutual formal relations, among the employees

• Relations between various parties may be depicted by charts and charts

• Powers & Responsibilities of the employees are determined in the organization structure

• Vertical, horizontal and marginal functional relations actively flow in the organization structure.

Factor or Elements affecting Organization Structure

Organization Structure is governed by several interrelated and interdependent factors :-

• Objectives of the organization• The nature of business is the most important

factor• Scale of operations i.e. volume of business ( large,

medium, small) and size of the market area (local, national, international)

• Pace of Growth of the Organization• Commercial Scope• Competitive Conditions• Departmentalization in Organization• Policies of Managers• Even Strata• Abilities of Managers• Traditions and Customs

• Human & Social needs• Environment• The degree of control desired by the owner(s)• Changes • Amount of capital required for the establishment

and operation of a business• The volume of risks and liabilities as well as the

willingness of the owners to bear it• Comparative tax liability

WHAT IS THE RIGHT FORM OF ORGANIZATION STRUCTURE ?

• There really is not one right form of ownership. • The correct form depends of the type of

company, the goals of the owners, and the plans of what the company may become.

• Factors such as tax considerations, liability exposure, capital requirements and structure and ownership control all play a role is determining which form is correct for a business.

Types of

Ownership

PrivateEnterprises

Co-operative Sector

Enterprises

Public SectorEnterprises

TYPES OF BUSINESS ORGANISATIONS

• Private Sector• Sole Proprietorship• Joint Hindu Family Business• Partnership Firm• Joint Stock Company 1) Private Limited 2) Public Limited• Company• Co-operative Society

TYPES OF BUSINESS ORGANISATIONS

• Public Sector• Departmental Organization• Corporations• Government Company

SOLE TRADING or PROPRIETORSHIPWhen the ownership and management of a business are in control of one individual the form of business is called sole proprietorship.

SOLE PROPRIETERSHIP

• The most common form of business organization.• Owned by one person, who performs most roles and

owns everything• Very few legal requirements for setting it up.• Owner gets all profits, takes all the losses → called

unlimited liability• Easiest and least expensive to set up• Easiest for tax purposes → income recorded under

personal income

CHARACTERISTICS • Oldest form of business organization• The business enterprise is owned by one

single individual (i.e. both profit and risk belong to him)

• Owner is the Manager• Owner is the only source of Capital• The proprietor and business enterprise are

same in the eyes of the law.

CHARACTERISTICS

• Liability of sole proprietor is unlimited• Sole proprietorship business is free from

many legal formalities subjected to the general law of the land

• Proprietor makes all decisions pertaining to the business

• Limited scope of operations.

ADVANTAGES OR MERITS OF

SOLE PROPREITORSHIP • Ease in formation• Discretion in start and dissolution• Flexibility• Free from legal Formality• Independence of proprietor• Quick decesions

ADVANTAGES OR MERITS OF SOLE PROPREITORSHIP

• Facilitate Coordination• Personal contacts with customers• Secrecy• Perfect Control• Economy in operation• Ease to borrow funds• Direct relation between effort and rewards• Successors benefited by inherited business• Social advantage

DISADVANTAGES OR DEMERITS OF SOLE PROPREITORSHIP

• Limited managerial capacity

• Hasty decisions• Secrecy causes

suspicion• Owner has unlimited

liability• Limited financial

resources

DISADVANTAGES OF SOLE PROPREITORSHIP

• Loss in absence• Difficulty in attracting and retaining good

employees• High morality rate• Lack of stability• Unfit for medium and large businesses

PARTNERSHIP FIRM A Partnership consists of two or more

individuals in business together

Meaning of Partnership

• A partnership is an association of two or more persons who agree to carry on business for earning and sharing profit among them.

• According to Indian Partnership Act, 1932, “Partnership is 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.”

CHARACTERISITCS OF PARTNERSHIP• Minimum 2 number of partners and maximum 20

partners. All of must be competent to contract.• The relation between the partners is created in the

form of a contract. Written contract is called “Partnership Deed.”

• The firm means partners, the partners mean the firm

• The profit is divided in any as ratio as agreed• No partner can sell/transfer his interest in the firm

to anyone without the consent of other partners

CHARACTERISITCS OF PARTNERSHIP• The relation of partnership arises from a valid

agreement.• The liability of partners is unlimited.• To constitute a partnership, there must be a relation of

mutual agency between the partners.• The relation of partnership is founded upon mutual

trust and confidence. Therefore, every partner is bound to be faithful to each other.

• A firm does not have separate legal existence from its partners. Firm is not a person in the eye of law.

• The registration of partnership is not compulsory in India.

Test of Partnership

• There must be an agreement between two or more persons.

• There must be a business of partnership.• The partners must have agreed to share the

profits of the business.• The business must be carried on by all or any

one

ADVANTAGES OF PARTNERSHIP

• Easy Formation • Larger Resources• Greater Management Talent• Flexibility of Operation• Prompt Decision• Balanced decisions• Sharing Of Risk and liability• Personal care and

supervision of business

ADVANTAGES OF PARTNERSHIP

• Secrecy• Direct relation between work and reward• More possibility of growth and expansion• Protection of minority interest• Easy dissolution

DISADVANTAGES OF PARTNERSHIPS

• Unlimited Liability• Limited resources• Limited managerial skill• Fear of Dispute• Instability• Non- transferability of interest• Lack of public interest• Risk of mutual agency

relations

Partnership Deed

• When the contract of partnership is made in writing, it takes the form of a document. Thus, the document which contains the terms of contracts of partnership is called the deed of partnership.

• It must contain all the important terms of partnership agreed by the partners.

Contents of deed• Name of the firm• Name of the partners• Nature and place of business• Date of commencement of partnership• Duration of the partnership/ firm.• Capital employed or to be employed by each partner.• Profit and loss sharing ratio• Interest on capital• Limit of drawing and interest on it• Interest on loans by and to partners• Salary or commission, if payable, to the partners

Company

• According to companies act 2013, “Company” means a company incorporated under this act or under any of the previous companies law.

• According to Prof. Haney, “ A company is an artificial person created by law, having separate entity with a perpetual succession and common seal.”

CHARACTERISITCS OF COMPANY• Registered voluntary association/ body corporate• Members/ Subscriber• Artificial person• Separate legal entity• Perpetual succession• Common seal• Limited liability

CHARACTERISITCS OF COMPANY• Share Capital• Transferable shares• Separate property• Capacity to sue and be sued• Management team• Governance by majority• Nationality• Not a citizen and has no fundamental rights

ADVANTAGES OF COMPANY

• Limited Liability• Huge financial resources• Perpetual existence or stability• Transferability of shares• Sound management• Diffusion of risk• Economy in operation

ADVANTAGES OF COMPANY

• Democratic management• Scope of expansion and growth• Public confidence• Encourages capitalization• Social advantages

DISADVANTAGES OF COMPANY

• Difficulty in formation• Regulation and Control• Oligarchy of directors• Neglect of minority interests• Lack of Secrecy

DISADVANTAGES OF COMPANY

• Delay in decisions• Lack of motivations• Tax Burden• Difficulty in winding up• Insider trading

MEANING OF A CORPORATION• The term ‘Co-operation’ has been derived by

adding a prefix ‘Co’ with the word ‘operation’. ‘Co’ means together and ‘operation’ means work. Therefore the literal meaning of the term co-operation is to work together.

• Co-operation means working together for a common good of all.

CO-OPERATIVE SOCIETY

It is a voluntary association of people or business to achieve a an economic goal with a social perspective

DEFINITION OF A CORPORATION• A Co-operative society or organization is one which

has been voluntarily formed by some persons for the promotion of their common economic interest.

• According to the Indian Co-operative Societies Act, 1912, A Co-operative society is “a society which has its object as the promotion of economic interests of its members in accordance with co-operative principles.”

CHARACTERISTICS OF A CO-OPERATIVE ORGANIZATION

• Voluntary organization• Must be registered • Separate legal entity and artificial person• Liability is limited• Perpetual existence• Every member has to buy at least one share• Non-transferable shares

CHARACTERISTICS OF A CO-OPERATIVE ORGANIZATION

• Each member of a co-operative society has a right to one vote• Managed on Democrative principles• Certain proportion of profit is of co-operative

society is distributed among its member• Works for promotion of economic interest of

its member• Primary object is to serve its members• Based on principles equality, justice and

mutual benefit

CO-OPERATIVE PRINCIPLES

• Principle of voluntary and open membership• Principle of democratic member control• Principle of member’s economic participation• Principle of autonomy and independence• Principle of education, training and

information• Principle of co-operation among co-operatives• Principle of concern for community

ADVANTAGES OF A CO-OPERATIVE ORGANISATION• Organisational Advantages• Easy formation• Small amount of investment• Equal voting rights• Democratic management• Stability• Easy to wind up

ADVANTAGES OF A CO-OPERATIVE ORGANISATION• Economic Advantages• Economic management• Tax advantages• Ploughing back the profits• Government aid• Equitable distribution of profits• Limited liability

ADVANTAGES OF A CO-OPERATIVE ORGANISATION• Social Advantages• Spirit of mutual help and brotherhood• Uplift standard of living of weaker sections of

society• Promotes equal distribution of income and wealth

in the society• Relief from exploitation• decentralisation of economic power• Changes in society by peaceful means• Promotes maximum social welfare

Public Enterprises

• Public enterprises (PE) refers to an enterprise which is owned and controlled by the Government or public authority.

• A public enterprise refers to an industrial, commercial or service enterprise which is owned and controlled by the Government or by public authority/ Government organisation for providing goods and services to the public.

CHARECTERISTICS OF PUBLIC ENTERPRISES

• Owned by the government or any public organisation

• Managed, controlled and operated by the Government

• Carry on activities of production of goods or services

• Run in different form of organisation (departmental organisation, public corporation, Government Company, Boards, Trusts etc.)

CHARECTERISTICS OF PUBLIC ENTERPRISES

• Established with some special objectives (economic objectives, social objectives, political objectives etc.)

• Service motive is prime motive• PE accountable to the public• Subject to audit rules of the Government• Required to prepare annual return of working &

place the same before the Lok Sabha.• Monopoly position in certain economic activities

such as railways, mining, petro-products etc

ROLE & IMPORTANCE OF PUBLIC ENTERPRISES

• Infrastructure Development• Strong Industrial Base• Planned Development• Balanced regional development• Employment• Promotes capital formation or investment• Export promotion

ROLE & IMPORTANCE OF PUBLIC ENTERPRISES

• Import Substitution• Contribution to the GDP• Contribution to Exchequer• Research and Development• Help reduce disparities of income and wealth/

concentration of economic power• Protection of consumer interests

Forms of Organization

Departmental organisations

Government Company

Public Corporations

Departmental Organisation

• Departmental form of organisation is the oldest form of organising public enterprises.

• Under this form of organisation, an enterprise is put under the control of a department.

• Such department is headed by the concerned minister.

• For example- Railway is a public enterprises which is under the control of Railway department and is headed by Railway Minister.

Public/ Statutory Organisation

• A public or statutory corporation is a body corporate incorporated under a special Act or State Legislature.

• According to Morrison, “In public corporation, we are seeking a combination of public ownership, public accountability and business management for public ends.”

Government Company

• According to the Companies Act 1956, a Government company means any company in which not less than fifty-one per cent of the paid-up share capital is held by the following-

a) By the central Governmentb) By any State Government or Governmentsc) Partly by the Central Government and Partly by

one or more State Governments• A Government company is one in which not less

than 51% of the paid-up capital is held by the Central or/ and State government.

Joint Sector

• A Joint Sector Enterprise is one which is established in the partnership of the public sector and the private sector.

• It is refers to a form partnership between the Government and private sector.

• According to M. Adhikari, “Joint sector is a form of partnership between the public sector and the private sector or between the government and business.”

Characteristics of a Joint sector Enterprise

• Public & Private sector partnership• Both entrepreneur contribute to the capital • Managed & controlled by a Board of Directors• Day to day operations of the enterprise are

conducted by the managing director• Not accountable to the public

Characteristics of a Joint sector Enterprise

• Organised in company form of organisation• Both public enterprises and private enterprises

may be converted into joint sector enterprises• Whenever a big business house or a foreign

enterpreneur wants to participate in a joint sector enterprise, prior permission of the central government is essential

• Effective voice in the management and operations

AMUL• Amul is an Indian dairy cooperative, based at Anand in the state of Gujarat,

India.[2] The word amul (अमूल) is derived from theSanskrit word Anand Milk Utpadan Limited , meaning rare, valuable .[3] The co-operative was initially referred to as Anand Milk Federation Union Limited hence the name AMUL.

• Formed in 1946, it is a brand managed by a cooperative body, the Gujarat Co-operative Milk Marketing Federation Ltd. (GCMMF), which today is jointly owned by 3.6 million milk producers in Gujarat.[4]

• Amul spurred India's White Revolution, which made the country the world's largest producer of milk and milk products.[5] In the process Amul became the largest food brand in India and has ventured into markets overseas.

• Dr. Verghese Kurien, founder-chairman of the GCMMF for more than 30 years (1973–2006), is credited with the success of Amul.

Role & Importance of Joint sector enterprises

• Integration of public and private sector• Board-based entrepreneurship• Social control over industry• Promotion of socio-economic objectives• Acceleration of industrial growth• Curbing concentration of economic power• Helps develop entrepreneurship• Promotion of mixed economy

Problems/ Demerits of Joint sector enterprises

• Problem due to capital contribution ratio• Problem of management and operation• Many formalities• Difference of opinion among the directors• Selection of project

Problems/ Demerits of Joint sector Enterprises

• Difficulty in choosing private entrepreneur• Change in the board• Conflict on objectives• Delay in completion of the project• Under utilisation of capacity

2. PUBLIC COMPANY• Stocks are held by a large

number of people• Minimum 7 shareholders

and no limit for maximum• Can be listed on stock

exchange and can go public

• Have to follow many laws with regards to the board composition and AGM.

TWO TYPES OF CORPORATIONS1. PRIVATE COMPANY• Closely held by a few people• Minimum 2 and maximum 50

shareholders• Stocks cannot be traded on exchanges

and private equity cannot be raised• Less regulations as compared to Public

Companies

CHARECTERISTICS OF CO-OPERATIVE

• Voluntary association• Minimum membership requirement is 10

and there is no maximum limit• Registration of Co-operative is must

under the “Co-operative Societies Act” is a must. After the registration it enjoys certain privileges of a Joint Stock Company

ADVANTAGES OF CO-OPERATIVE• Easy Formation• Limited Liability• Stability• Democratic

Management• State Assistance

DISADVANTAGES OF A CO-OPERATIVE

• Possibility of conflict

• Long decision making process

• Not enough capital

JOINT STOCK COMPANY A joint stock company is a voluntary

association of people who contribute money to carry on business

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