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 The term "business organization" refers to how a business is

structured.
 It refers to a commercial or industrial enterprise and the
people who constitute it.

 The choice of the form of business is governed by several

 Sole Proprietorship interrelated and interdependent factors :-
 One person Company  The nature of business is the most important factor
 Joint Hindu Family Business  Scale of operations i.e. volume of business ( large, medium, small)
and size of the market area (local, national, international)
 Partnership Firm
 The degree of control desired by the owner(s)
 Limited liability Partnership Firms
 Amount of capital required for the establishment and operation of
 Joint Stock Company a business
1.) Private Limited 2.) Public Limited  The volume of risks and liabilities as well as the willingness of the
 Co-operative Society owners to bear it
 Comparative tax liability
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Owned by 1 person
When the ownership and management of a
Simple and business are in control of one individual the
inexpensive
form of business is called sole proprietorship.
Owner makes all

decisions Owner &

business are
“one”

Easy reporting & filing

 Proprietor: the owner of a business, or a holder of property  Easy formation and wind up
 The business enterprise is owned by one single individual  Better Control (Prompt decision making and Flexibility in
(i.e. both profit and risk belong to him) Operations)
 Owner is the Manager  Quick decisions and prompt actions
 Owner is the only source of Capital  Maintenance of business secrets
 The proprietor and business enterprise are same in the eyes  Subject to fewer regulations
of the law.  Ownership of all profits
 No sharing of profits and loss
 Unlimited Liability
 One man control
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 Owner has unlimited liability Suitable where:

 The market is limited, localised and customers give importance to
 limited resources
personal attention
 Continuity of business is uncertain i.e. Business has a limited
 Capital requirement is small, and risk involved is limited
life
 For production of goods involve manual skills eg. Handicrafts, jewellery,
 Difficult to raise capital haircutting and tailoring etc.
 Difficult to do business beyond a certain size
 Limited managerial expertise
Examples: writers and consultants, local restaurants and shops, and
home-based businesses.

Companies like Coca-Cola, Apple, Hewlett-Packards, Amazon, Google,

Mattel and Walt Disney etc all started their company as Sole
Proprietorship and Flipkart,snapdeal etc started a business as sole
proprietorship companies in India.

 One Person Company (OPC) a separate legal entity with

just one member. Unlike a private limited company which Criteria SOLE PROPRIETERSHIP OPC (One Person
requires minimum 2 shareholders and 2 directors, an OPC Company)
can be formed with only one shareholder. Registration No agreement or
 OPC is registered under the Companies Act 2013 with the registration required to Incorporated under
Ministry of Corporate Affairs. start a proprietorship as provisions of Companies
same is an individual Act, 2013
 Examples:
business
 in Growing of crops; market gardening; horticulture
Minimum number of Only 1 shareholder
 Field Milk Products (opc) Private Limited, Vijayawada, Single individual member
owners required
 Aditiya Bhoomi (opc) Private Limited, Chhattisgarh,
Multitech Agro India (opc) Private Limited, Bangalore Minimum Number of
 Proprietor himself Minimum 1 Directors
Directors / Designated
manages his business required
Partners
 In Forestry and related service activities
 Surender Bhardwaj Agro Herbs (opc) Private Limited Liability Unlimited Liability Limited liability
 Grow Up Genetics (opc) Private Limited
Legal Entity Not a Separate Legal Separate Legal entity
Entity
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A Partnership consists of two

 Minimum 2 number of partners and maximum 20 partners
or more individuals in
 The relation between the partners is created in the form of
business together
a contract. Written contract/agreement is called
“Partnership Deed”. i.e. contractual relationship
 The firm means partners, the partners mean the firm
 The profit is divided in any as ratio as agreed
 Voluntary registration (not compulsory), if yes, with the
Registrar of Firms of the concerned state with registration
fee
 No partner can sell/transfer his interest in the firm to
anyone without the consent of other partners

 Advantages: Suitability:
 Easy Formation
 Business activities like construction, providing legal services,
 Larger Resources
 Sharing Of Risk
medical services etc.
 Better Management and Flexibility of Operation  Where capital requirement is of a medium size
 No corporate income tax
 Subject to fewer regulations as compared to companies
 Disadvantages:
 Unlimited Liability
 Limited Life
 Difficult to raise capital
 Non transferability of share
 Chances of Dispute
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BASIS FOR COMPARISON SOLE PROPRIETORSHIP PARTNERSHIP

Meaning A type of business oganization, in A business form in which two or
which only one person is the owner more persons agree to carry on
as well as operator of the business business and share profits & losses
is known as Sole Proprietorship. mutually is known as Partnership.

 A Limited Liability Partnership or LLP is an alternative corporate

business form which offers the benefits of limited liability to the Governing Act No specific statute Indian Partnership Act, 1932

partners at low compliance costs. Owner Known as sole trader or sole

proprietor.
Individually known as partners and
collectively known as firm.
 It also allows the partners to organize their internal structure like
a traditional partnership. A limited liability partnership is a legal Incorporation
Minimum members
Not required
Only one
Voluntary
Two
entity, liable for the full extent of its assets. Maximum members Only one 100 partners
 The liability of the partners, however, is limited. Hence, LLP is a Liability Borne by the proprietor only. Shared by the partners.
hybrid between a company and a partnership. Decision making Quick Delay
Duration Uncertain Depends on the desire and
capacity of the partners.
 One of the main difference between LLP and Partnership is
about the liability of Partners. Since the partner and the firm is Profit & Loss Proprietor is solely responsible for Shared in agreed ratio
the profits & losses.
considered as a separate legal entity. Hence, the liability of the
partners is limited to the amount invested in the company. Secrecy Business secrets are not open to Business secrets are open to each

Minimum 2 and no upper limit for maximum number of partners in any person except the proprietor. and every partner.

LLP. Finance Scope for raising capital is limited. Scope for raising capital is
comparatively high.

 Comes into existence as per the  Membership is restricted only to members of the Joint
Hindu Inheritance and
Succession Act, 1956 of India. family. No outsider can become the member
 This form of business found only  Karta has unlimited liability while all other members have
in India limited liability
 All members of the Hindu
 The share of each member keeps on fluctuating
Undivided Family(HUF) own the
business jointly  Business continues to exist upon the death of any member or
 The affairs of the business are Karta.
managed by head of the family
called “Karta”. All other
members are called “Co-
parceners” and al of them have
equal ownership right over the
properties of the business.
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 Reliance Industries Limited

 Reliance Industries Limited is a Joint Hindu Family business form of business
organisation. It is a company headquartered at Mumbai & was founded by
Dhirubhai Ambani. This company is engaged in businesses like textiles,
 A Hindu family can come together and form a HUF. Buddhists, energy, petrochemicals, telecommunications & retail.
Jains, and Sikhs can also form a HUF.  Son of Dhirubhai Ambani, Mukesh Ambani is the present Karta of the
company. He is current chairman & managing director of the Reliance
 Formation: atleast two members must be there in the family Industries Ltd.
 Legal status: governed by the Hindu Succession Act 1956.  Mahindra & Mahindra Limited
This is a car manufacturing business headquartered at Maharashtra, Mumbai.
 It has to be registered with the Income tax department to avail

It was established in 1945 in Ludhiana. Initially, its name was Muhammad &
the tax concessions involved. Mahindra. Later on, it was renamed as Mahindra & Mahindra.
 The form of a Hindu Undivided Family will be eligible to claim separate tax deduction under section 80C  Its founders were 2 brothers Kailash Chandra Mahindra and Jagdish Chandra
of the Income-tax Act, 1961.
Mahindra and Malik Ghulam Muhammad. Anand Mahindra, the grandson of
 Membership: only members of undivided family Jagdish Chandra Mahindra is the chairman of Mahindra group. Generations of
its founders are today managing the whole business.
 Profit sharing: all coparceners have equal share in the profits of  Tata Sons Private Limited
business  It is a joint Hindu family business which is headquartered in Mumbai. It was
 Management: by Karta founded in 1868 by Jamsetji. His generations are toady managing the
business. It is a company which is engaged in businesses like automobiles,
 Continuity: continues after death of members telecommunication, airline, power & chemicals. Natarajan Chandrasekaran
is present chairman of tata sons.

 Advantages:  “a voluntary association of persons for profit, having the

 Every co-parsener has an assured share in profits capital divided into some transferable shares, and the
 The business has continued existence
ownership of such shares is the condition of membership of
the company.”
 Decision making is quick as the powers are with the Karta
 CHARACTERISTICS OF A CORPORATION
 No corporate tax
 It is considered as a separate legal entity
 People use it mostly for tax benefits these days
 It comes into formation after all formalities under the Indian
 Disadvantages: Companies Act 1956, 2013 are completed
 Absolute power in the hands of Karta.  Management and ownership is completely separate
 Instability  joint-stock company is a business entity in which shares of the
company's stock can be bought and sold by shareholders.
 Limited Resources
 Capital is raised through shares which are transferable
 Scope for conflict and misuse of power
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 A joint stock company is an organisation which is owned

jointly by all its shareholders. Here, all the stakeholders
have a specific portion of stock owned, usually displayed  Advantages:
as a share.  Limited liability of the shareholders/promoter
 Each joint stock company share is transferable, and if the
 Can easily raise capital
company is public, then its shares are marketed on
registered stock exchanges. Private joint stock company  Have unlimited life
shares can be transferred from one party to another party.  Ease of transfer of ownership
However, the transfer is limited by agreement and family
member.  Disadvantages:
 Few examples are mentioned below.  Formation is not easy
 Indian Oil Corporation Ltd.  Excessive Government Regulation
 Tata Motors Ltd.
 Subject to Corporate Tax and Dividend Tax (Double Taxation)
 Reliance Industries Ltd.
 State Bank of India  Delay in Policy Decisions
 ONGC (Oil and Natural Gas Ltd.)  Control by a Group

1. PRIVATE COMPANY  Co-operation: working together

 Closely held by a few people  It is a voluntary association of people or business to
 Minimum 2 and maximum 50 shareholders achieve an economic goal with a social perspective.
 Stocks cannot be traded on exchanges and private equity (the  The important objectives of cooperative society form of
value of the shares issued by a company) cannot be raised business organization are service in place of profit, mutual
 Less regulations as compared to Public Companies help in place of competition, self help in place of
2. PUBLIC COMPANY dependence, and moral unity in place of unethical business
 Stocks are held by a large number of people practices.
 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
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 Voluntary association  Some of the most renowned co-operatives in India are Amul,
 Minimum membership requirement is 10 and there is no maximum Shree Mahila Gruha Udyog (Lijjat Papad), and Indian Farmers
limit Fertiliser Cooperative (IFFCO – which is also one of the
 Open membership largest co-operatives in the world).
 Registration of Co-operative is must under the “Co-operative
Societies Act, 1912 or under the state Cooperative Societies Act”
is necessary. After the registration it enjoys certain privileges of
a Joint Stock Company
 Capital: from members and loans from government
 Democratic setup
 Service to society: main motive
 State control

 Advantages: Suitability:
 Easy Formation
 Limited Liability  To solve common problems
 Open membership  For medium sized business operations
 Stability
 Tax concessions  Eg: consumer cooperative societies; marketing cooperative
 Democratic Management societies; producer’s cooperative societies; housing
 State Assistance cooperative societies; farming cooperative societies etc.
 Disadvantages:
 Possibility of conflict
 Long decision making process
 Not enough capital
 Lack of managerial expertise
 Corruption
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Ownership

Basis for Selection of Ownership Form Basis for Selection of Ownership Form …
 Number of promoters  Cost and ease of setting up the organization
 Nature of business  Management ability
 Capital considerations  Business continuity
 Tax structure  Degree of control
 Promoter liability  Exit strategy
 Compliance burden
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Factors Influencing Choice of Form Tax Implications

 Proprietorship –Taxed as individual, based
on the total income of the proprietor
 Partnership, OPC and LLP – Profits are
taxed at 30%
 Private
Limited – 25.168% for existing and
17.16% for new, both without tax exemption;
from 26% to 34.94% with tax exemption
 Surcharge and Cess extra

Sole Proprietorship-Features
 One-man Ownership
 Full Control, no interference
 Unlimited Liability
 Sole risk bearer and profit recipient
 Free from Government Regulations
 No separate entity; proprietor & firm are
identical
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Sole Proprietorship-Pros & Cons

Advantages Disadvantages
 Ease of Formation  Limited Resources
 Direct Incentive  Limited Managerial
 Complete Degree of Control Ability
 Quick in Decision Making  Lack of business
 Flexibility in Operation Continuity
 Confidentiality  Unlimited Liability
 Catering for Individual Tastes
 Credit Standing
 Low Government Regulation

Features of Partnership Form Partnership-Pros & Cons

Advantages Disadvantages
 Contractual Relationship
 Ease of Formation  Unlimited Liability
 Plurality of Persons – min 2, max 20 (50 from  Benefits of Larger Resources  Limited Resources
2014)  Benefits of Combined
 Possibility of Conflict
Ability
Balanced Decision Making  Lack of Continuity
 Lack of business continuity 
 Sharing of Risk  Lack of Public Confidence
 Sharing of Profits  Confidentiality  Heavy Burden through
Implied Authority
 Mutual Agency – both ‘agent’ & ‘principal’
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Implications of Partner Type

Types of Partners
 Active Partner
 Sleeping or Dormant Partner
 Secret Partner
 Nominal Partner
 Partner by Estoppel
 Partner by holding out

OPC –Features
 A separate
legal entity registered under the
Companies Act, 2013
 Director and Nominee Director have limited
liability
 Only2 people viz. Director and Nominee
Director
 Ownership can be transferred
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OPC –Features … …
 Existence
not dependent on the Director or
Nominee Director
 Couldbe dissolved only voluntarily or by
Regulatory Authorities
 No requirements to conduct annual
statutory meetings
 Mustfile annual accounts with the Registrar
of Companies

LLP – Features LLP – Features … …

 Ownership can be transferred
 LLP will be
registered with the Ministry of
Corporate Affairs under the LLP Act, 2008  Existence of a LLP is not dependent on the
 A separate legal entity Partners

 Limited Liability  Could be dissolved only voluntarily or by an

order of the Company Law Board
 Minimum 2 persons required to start
 No requirements to conduct annual
 Can have unlimited number of partners statutory meetings
 Foreigninvestment allowed with prior  Must file annual accounts & solvency
approval of RBI and FIPB
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Features of Limited Company Features of Limited Company …

 Artificial Person  Formation
 Created by law  Time consuming
 Exists independent of its members  Expensive and complicated process
 Involves the preparation of several documents and
 Can own property, incur debts, borrow money,
 Compliance with several legal requirements
enter into contracts, sue and be sued
 Perpetual Succession
 Separate Legal Entity
 Members may come and members may go, but the
 Acquires an identity distinct from its members company continues to exist
 Its assets and liabilities are separate from  Control
those of its owners  With Directors who are accountable to shareholders; but
 Law does not recognize the business and shareholders don’t have right in day-to-day operations of
the company
owners to be one and the same

Features of Limited Company … Limited Company –Pros & Cons

 Liability Merits Demerits
 Limited to the extent of the members’ capital  Limited Liability  Complexity in Formation
 It is the company and not the members that owes debts
 Transfer of Ownership  Lack of Secrecy
 Members must contribute to the loss only to the extent of
the unpaid amount of share held by them  Perpetual Existence  Impersonal Work
 Common Seal Scope for Expansion Environment

 The company being an artificial person cannot sign  Numerous Regulations
 Professional Management
 Therefore, every company is required to have its own seal  Slow Decision Making
which acts as official signature
 Oligarchic Management
 Risk Bearing
 The risk of losses in a company is borne by all the  Conflict of Interest
shareholders
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Difference Between a Public & Private

Company Cooperative Society
 Cooperative means working together and with
others for a common purpose
 Is a voluntary association of persons
 Motive is welfare of the members
 Ten adult persons required to form a society
 Capital raised from its members through issue of
shares
 Registration under the Cooperative Societies Act
1912 is compulsory
 The society acquires a distinct legal identity after
its registration

Features of Cooperative Society Cooperative Society-Pros & Cons

 Voluntary Membership Merits Demerits
 Equality in Voting  Limited Resource
 Legal Status Status  Inefficiency in Mgmt.
 Limited Liability
 Lack of Secrecy
 Limited Liability
 Stable Existence
 Govt. Controls
 Control
by members elected through a  Economy in Operations
 Difference of Opinion
democratic voting process  Support from Govt.

 Service
Motive; surplus distributed as  Ease of Formation
dividend to members
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Types of Cooperative Societies

 Consumers’ Cooperative Societies

 Producers’ Cooperative Societies

 Marketing Cooperative Societies

 Farmers’ Cooperative Societies
 Credit Cooperative Societies
 Cooperative Housing Societies