Forms of Business Organisation

Overview

• identify different forms of business organisation;

• explain features, merits and limitations of different forms of

business organisations;

• distinguish between various forms of organisations; and

• discuss the factors determining choice of an appropriate form

of business organisation.
Sole proprietorship

Sole proprietorship Item

refers
2 to a form ofItem
business
3
organisation which is owned,
Item 1 managed and controlled
by an individual who is the recipient of all profits and
bearer of all risks.
Features of sole
proprietorship
(i) Formation and closure
Forming and closing sole proprietor business is very simple as there is no
separate law that governs this business except in some license might be
required other than this no complex formalities are required to start the
business.
Liability
Sole proprietors have Unlimited Liability. This
implies that the owner is personally responsible for
payment of debts in case the assets of the business are not
sufficient to meet all the debts.
Sole risk bearer and profit
recipient
Control
The right to run the business and make
all decisions lies absolutely with the
owner.
No separate entity
Law makes no difference between the owner and the
enterprise, business and the owner exist together.
Lack of business continuity

Death, insanity, imprisonment, physical ailment

or bankruptcy of the sole proprietor will have a
direct and detrimental effect on the business and
may even cause closure of the business.
Merits of sole proprietorship
● Quick decision making
● Confidentiality of information
● Direct incentive
● Sense of accomplishment
● Ease of formation and closure
Demerits of sole proprietorship
● Limited resources
● Limited life of a business concern
● Unlimited liability
● Limited managerial ability
Joint Hindu
Family
Business
It refers to a form of organisation wherein the
business is owned and carried on by the
members of the Hindu Undivided Family (HUF). It
is governed by the Hindu Law.

Hindu succession act 1956

Hindu succession (Amendment) act 2005
 The business is
All members have equal
controlled by the ownership right over the
head of the family property of an ancestor
who is the eldest and they are known as
member and is co-parceners.
called ‘KARTA’
 Features
Formation Liability
For a jointHindufamily The liability of all
business, there should members except the
be at least two
karta is limited
members in the family
and ancestral property The karta, however,
to be inherited by them. has unlimited
liability.
Control: Continuity :

The control of the The business continues

family business lies even after the death of
with the [Link] the karta as the next
takes all the decisions eldest member takes up
and is authorised to the position of karta,
manage the business. leaving the business
stable.
Minor member:

The inclusion of an
individual into the business
occurs due to birth in a
Hindu Undivided Family.
Hence, minors can also be
members of the business.
Merits

● Effective control
● Continued business existence
● Limited liability of members
● Increased loyalty and cooperation
Limitations

● Limited resources
● Unlimited liability of karta
● Dominance of Karta
● Limited managerial skills
Partnership
The Indian Partnership Act, 1932 defines
partnership as “the relation between persons
who have agreed to share the profit of the
business carried on by all or any one of
them acting for all.”
Features of Partnership

● Formation
It comes into existence through a legal
agreement wherein the terms and conditions
governing the relationship among the partners,
sharing of profits and losses and the manner of
conducting the business are specified.
Liability
The partners of a firm have unlimited liability.
The partners are jointly and individually liable for
payment of debts. Jointly, all the partners are
responsible for the debts and they contribute in
proportion to their share in business and as such are
liable to that extent.
Risk bearing
The partners bear the risks involved in running a
business as a team.
Profit and losses are shared in an agreed ratio by
partners
Decision making and control
Decisions are generally taken with mutual consent.
Thus, the activities of a partnership firm are
managed through the joint efforts of all the
partners.
Continuity
Partnership is characterised by lack of continuity of
business since the death, retirement, insolvency or
insanity of any partner can bring an end to the
business.
Number of Partners
The minimum number of partners needed to start a
partnership firm is two and the maximum number
of partners can be 50.
Mutual agency
Every partner is both an agent and a principal. He is
an agent of other partners as he represents them
and thereby binds them through his acts.
Merits of partnership
● Ease of formation and closure
● Balanced decision making
● More funds
● Sharing of risk
● Secrecy
Limitation
● Unlimited liability
● Limited resources
● Possibility of conflicts
● Lack of continuity
● Lack of public confidence
Types of partners
● Active partner
● Sleeping or dormant partner
● Secret partner
● Nominal partner
● Partner by estoppel
● Partner by holding out
Types of partnerships

Partnership can be classified on the basis of two

factors:

● On basis of duration
● On the basis of liability
Partnership on the basis of duration:
1. Partnership at will( exist at the will of the
partners they can continue as long as they want)
2. Particular partnership( formed for the
accomplishment of a particular project say
construction of a building or an activity to be
carried on for a specified time period)
Partnership on the basis of liability
1. General partnership(the liability of partners is
unlimited and joint.)
2. Limited partnership (the liability of at least
one partner is unlimited whereas the rest may
have limited liability)
Partnership deed
The written agreement which specifies
the terms and conditions that govern the
partnership is called the partnership deed.
Cooperative society
Cooperative organisation is “a
society which has its objectives
for the promotion of economic
interests of its members in
accordance with cooperative
principles. The Indian
Cooperative Societies Act 1912
Features of cooperative society
Voluntary membership:
A person is free to join a cooperative society,
and can also leave anytime as per his desire.
Legal status:
Registration of a cooperative society is
compulsory. This accords a separate identity
to the society which is distinct from its
[Link] a result of being a separate legal
entity, it is not affected by the entry or exit
of its members.
Limited liability:
As a result of being a separate legal entity, it
is not affected by the entry or exit of its
members.
Control:
In a cooperative society, the power to take
decisions lies in the hands of an elected
managing committee.
cooperative society has a democratic
character.
Service motive:
its purpose lays emphasis on the values of
mutual help and welfare.
If any surplus is generated as a result of its
operations, it is distributed amongst the
members
Merits:
● Equality in voting status
● Limited liability
● Stable existence
● Economy in operation
● Support from government
● Ease of formation
Limitations
● Limited resources
● Inefficiency in management
● Lack of secrecy
● Government control
● Difference of opinion
Types of cooperative societies
● Consumers cooperative societies
● Producers cooperative societies
● Marketing cooperative societies
● Farmers cooperative societies
● Credit cooperative societies
● Cooperative housing societies
Joint stock company
● A company is an association of persons
formed for carrying out business activities
and has a legal status independent of its
members.
● The company form of organisation is
governed by The Companies Act, 2013.
Features of joint stock company
● Artificial person
● Separate legal identity
● Perpetual succession
● Formation
● Control
● Liability
● Common seal
● Risk bearing
Merits
● Limited liability
● Transfer of interest
● Perpetual existence
● Scope for expansion
● Professional management
Limitations
● Complexity in formation
● Lack of secrecy
● Impersonal work environment
● Numerous regulation
● Delay in decision making
● Oligarchic management
● Conflict in interest
Choice of form of organisation
● Cost and ease in setting up the organisation:
● Liability
● Continuity
● Management ability
● Capital consideration
● Degree of control
● Nature of business
Proposed deliverables
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Deliverable 1
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Deliverable 2
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Deliverable 3
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Deliverable 4
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Timeline
Jan Feb Mar Apr May Jun Jul Jul

Deployment In-production services

Global go-live

Advanced projects

● Example 1
● Example 2
 The Team

Wendy Writer, CEO Ronny Reader, CFO Abby Author, CTO Berry Books, CPO

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