Module – 04

Legal forms of Entrepreneurial

Organizations

MBA 2st SEMESTER

 Introduction:
While selecting an ownership form, it is very essential for entrepreneurs to understand that there is no
universal form of ownership. The decision of ownership selection should be based on the prevailing
conditions of a specific business enterprise. The top management or the highest level of authority sets the
key objectives of enterprise ownership. For example, a company’s CEO may decide the main objective of
the company, i.e., to become a market leader by providing the best quality of products.
Entrepreneurs have a number of legal forms of business to choose from, such as sole proprietorships, C-
corporations, partnerships, or Limited Liability Companies (LLCs). Entrepreneurs should determine which
business form is best for them based on their short and long-term needs. Because there are significant tax
and non-tax differences among the forms, entrepreneurs should carefully consider the results and
requirements of each form to ensure that the business form they choose best meets their requirements.
Enterprise ownership is legal forms in which a business enterprise may be organized and operated.
Business concerns are established with the objective of making profits. They can be established either by
one person or by a group of persons in the private sector by the government or other public bodies in the
public sector. A business started by only one person is called sole proprietorship. The business started by
a group of persons can be a partnership firm, cooperatives or Joint Stock Company.

Selection of an Appropriate Legal Structure:

There are many type of business organization. No one organization is suitable in all condition. So for
selecting an appropriate type of organization, following factor must be considered.
 Selection of an Appropriate Legal Structure:
1) Nature of Business: The selection of an appropriate form of business ownership depends upon, to
a great extent, the nature of the proposed business itself. For example, the businesses that require
personal attention and skill for their success are usually organized as proprietary concerns. Business
requiring pooling of funds and skills are generally run as partnership firms. For business involved in
large scale production, the company form of business ownership is preferred.
2) Area of Operations: The are of operations has also an important bearing on the selection of the
form of ownership. If the operation of a business is confined to an area or locality only, the
appropriate form of ownership will be proprietorship. On the contrary, in case the area of operation is
widespread catering to national and international markets, the suitable form of business ownership
may be company.
3) Degree of Control: Direct control over business operations is required, the suitable form of
ownership may be proprietorship or partnership. In case direct control over business operations is
not needed, the best form of business ownership will be a company.
4) Capital Requirements: The capital required in the business also determines the selection of
business ownership. If business requires a small amount of capital, the best form of ownership may
be either proprietorship. In case of huge capital requirements, the company form of ownership will be
the best.
5) Extent of Risk and Liability: Business involves risk. If an entrepreneur is ready and capable to bear
risk involved in business, they can organize their business on proprietorship or partnership. But if the
entrepreneur is hesitant to bear the risk involved in business, they can go for a company where
 Selection of an Appropriate Legal Structure:
6) Duration of Business: If business is proposed for a definite duration and on ad hoc basis, proprietorship
or partnership or are better forms of business ownership. The reason is that they are easy to form and
dissolve. In case, the business is to be run on permanent basis, it can be organized as company or a
cooperative because they enjoy perpetual succession.
7) Government Regulations: If an entrepreneur does not like much government involvement in business,
they can select proprietorship or partnership as the form of business ownership instead of a company or
cooperative where the government rules and regulations apply more.

Identifying Legal Structures/Ownership:

A business enterprise is structured and operated in an authorized form of ownership. These enterprises are
established with a major concern of earning huge profits. A business can be operated by one or a group of
persons either privately by the government or under other public undertakings in the public sector.
The type of business is started and owner by a single person, and is known as sole proprietorship. Whereas,
a business run by two or more persons can be referred to as cooperatives, joint stock company or partnership
firms. Following are the major types of enterprise ownership:
Identifying Legal Structures/Ownership:
1) Sole Proprietorship
2) Partnership
3) Joint Stock Company
 Sole Proprietorship:
A business which is owned by an individual and is not registered as a limited liability company with the
state is known as a ‘sole proprietorship’. It is the easiest form of enterprise ownership and one can be
established easily without having much knowledge about it. For example, an entrepreneur working as a
freelancer, a commission-based salesman, independent contractor, a craftsman on a contract-based job,
etc. These entrepreneurs also called as sole proprietors.
According to L.H. Haney, “The individual proprietorship is the form of business organization at the head
of which stands an individual as one who is responsible, who directs its operations, and who alone runs
the risk of failure”.
Features of Sole Proprietorship:
1) Sole Ownership: In this form, the business enterprise is solely owned by an individual. The capital
required for the business is arranged form his personal funds or by borrowing funds from others.
2) No Separate Legal Entity: A sole proprietorship does not hold any separate legal entity from that of
its owner. In the eyes of law, the owner and the business exist together. But the business will have no
existence, if its owner dies or becomes insolvent. Both are considered as a single unit.
3) Unlimited Liability: The proprietor is the only person liable for all its debts. If the debts of the
company are more and cannot be fulfilled by the assets then the proprietor can involve his personal
property for clearing all dues.
4) No-Profit Sharing: A sole proprietor as an individual is entitled to all profits and all losses. There is no
one to share the profits or losses with him. He is the only person to bear the entire losses of the
 Sole Proprietorship:
5) No Legal Formalities: No legal formalities are associated with the establishment or management of the
sole proprietorship business. However, only a license is required for running the business.
Suitability of Sole Trading:
1) Where Market is Local: Sole proprietorship is considered as the most suitable form of ownership for
local markets. When there is a local market for goods and services then the capital required for it is
less compared to other forms. For example, retail traders are commonly sole proprietors.
2) When Personal Contact with Customers is Required: Many businesses consider the tastes and
preferences of their customers before offering any goods or services in the market. For example, the
tailoring ships, beauty salons, canteens, cafeterias, etc., are sole proprietors and have a direct link
with their customers. Therefore, all sole proprietors cater to the individual tastes and preferences of
customers. That is why, it is considered as the most popular form of ownership.
3) Where One Likes Being his Own Boss: Sole proprietorship is suitable for the type of individuals
who do not want to work under any other person. These individuals like to be their own boss and want
to keep all the profits with themselves, which is one of the main motives of being an entrepreneur.
4) Where the Nature of Business is Simple: Sole proprietorship is mostly adopted by these
businessmen who have adequate technical knowledge and simple business system. These
businesses can be telephone booth, grocery business, merchandise, etc.
 Sole Proprietorship:
5) Where Promptness is Required in Decision-making: In many businesses, quick decision-making is highly
preferable as per the situation. Like in the stock exchange market, the prices of shares are very volatile in
nature and require immediate decision-making. Therefore, a businessman may not have much time to take
suggestions from others. Businesses where unstable demand and supply exist; there sole proprietorship is
considered the most suitable form of ownership.
6) Where Capital Requirement is Small and Risk Involvement is not Heavy: Sole proprietorship is
appropriate for businesses which involves low risk and minimum capital. These types of businesses may
include tailoring, barber shop, automobile repair ship, tae stalls, etc.
7) Where Manual Skills are Required: Sole proprietorship is suitable for the businesses which require use of
manual skills for the production of their products and services. These types of businesses may involve jeweler
making, small restaurant, barber, automobiles repair, etc.
Advantages of Sole Proprietorship:
1) Low Production Cost: The single owner of the business works hard for the success of his business as the
business is exclusively owned by him. He ensures that resources are fully utilized without any wastage and
keep a check on all the business activities. This leads to a low cost of production.
2) Timely Decision-making: A sole proprietor may or may not discuss his business issues with anyone. He
then accordingly takes prompt decisions regarding the situations in no time.
3) Personal Contacts and Relationships: The sole owner has a small-scale business because of which he
is able to maintain close and personal contacts with his customers. This also helps him to know the exact
needs and wants of the customers and fulfil those requirements. For example, a barber makes a close
 Sole Proprietorship:
4) Easy to Start and Dissolve: Sole proprietorship is the simplest form of business ownership. No legal
laws or government formalities are required to be followed while starting a business enterprise. Only a
license is needed to start the business from the appropriate authority. Similarly, on winding-up the
business, no legal formalities are involved. The owner can dissolve the business on his own will.
5) Business Confidentiality: There are certain secrets and sensitive information within every business
organization regarding new product development, purchase of equipment or raw materials, product sales,
etc. In case of a single owner, there is no chance of disclosure of secrets to anyone.
6) Flexibility in Business: The sole owner can make alternations in his business according to the
changing market conditions. He can adjust his quality and quantity of product in accordance with the
varying demand and supply in the market. As there is no one to interfere in his decision whatever the
situation may be.
Disadvantages of Sole Proprietorship:
1) Inadequate Sources of Production: A small business organization has limited resources. A single
owner faces several problems while expanding the business, as he is not capable enough to raise
funds alone. This limits the business expansion and the owner is only able to develop it as per the
financial status.
2) Limited Skills and Knowledge: A single person has limited skills and knowledge which he applies in
his business. Other than this, he also has limit funds therefore he is able to hire skilled and
experienced manager, advisor or accountant. Along with this, he is unable to invest large amount of
funds in marketing and promotion of products and services.
 Sole Proprietorship:
3) No Economies of Large-Scale Production: Sole proprietorship is a small-scale business which
involves all the factors of production in low quantities, i.e., land, labour, capital, raw materials, etc. With
this, the owner is unable gain the economies of large-scale production. Subsequently, the production costs
of products in this business are more than the products of large-scale businesses.
4) Small Income: Having a small-scale business, a sole owner is able to only small profits. Therefore, it is
very difficult for the owner to start-up a large enterprise. With this, the business remains as it is bringing in
small income.
5) Instability: This form of business organization remains sound and secure until the good health of the
owner. The stability of the business entirely depends upon the sole proprietor. In case of the death or
illness of the owner, the business is largely affected and lately it may come to an end.
6) Unlimited Liability: The business owner has unlimited liability, which allows him to expand his
business. But, in case, the owner incurs losses then all the loans and debts have to be paid by him. This
may involve use of company’s assets and sometimes his personal property as well.

Partnership:
Partnership is a contractual agreement between two or more persons who are willing to share the profits of
a business which is owned by all or a single person acting for all. In general, it a business relationship
between different persons having a common ownership or management of a business enterprise. The
minimum number of persons required for a partnership is 2 and the maximum limit can be of 10 members
(for banking industries and 20 members (for other industries).
 Partnership:

According to J.L. Hauson, “A partnership is a form of business organization in which two or more
person’s up to a maximum of twenty join together to undertake some form of activity.”
Features of Partnership Firms:
1) Two or More Persons: At minimum two persons, and maximum 10 (in banking industry) and 20 (in
other industries), are required for establishing a partnership firm. An individual cannot form a
partnership with himself.
2) Agreement or Contract: There is an agreement or contract held between persons who are willing to
share the business ownership. Usually, no legal problems are associated with these contracts or
agreements as they are registered under specific terms and conditions.
3) Lawful Business: Partnership is an act of managing a business and earning profit, which is legally
permitted by the government. Whereas, partnership formed for other purposes such as social or
charitable work, or any illegal activity like black marketing, smuggling, etc. does not come under
partnership law.
4) Profit Sharing: Under the partnership firm, all the profits are equally or proportionally shared between
the partners as mentioned in the agreement. Likewise, losses are also shared in the same proportion
among the partners.
5) Mutual Agency: Mutual agency is considered as a fundamental characteristic of partnership firms. As
it is very important to have good faith, mutual trust and confidence between the partners.
 Partnership:
Suitability of Partnership Firms:
1) Capital Factors: A huge amount of capital is required for establishing a business enterprise which
can be easily raised in partnership compared to sole proprietorship. In partnership, partners in the
business can mutually contribute high capital amount which can be a difficult task for a sole proprietor.
2) Management Factors: Various managerial skills are required for running a partnership firm. It is
difficult for a single person to acquire all the necessary skills, but different persons can have different
skills and expertise. Therefore, partnership is appropriate choice for businesses where diverse
managerial skills are needed.
3) Risk Factors: Partnership is beneficial in reducing the burden of risk on one person. Here, partners
can jointly share the business risk without putting much pressure on a single person. Thus, it is more
reliable form of ownership compared to sole proprietorship.
4) Relationship Factors: Partnership firms can be successful only when the relationship between the
partners is splendid. They should have good communication and must avoid any kind of
misunderstanding among themselves. The differences in opinions or views must be sorted out
immediately.
5) Knowledge Factors: For knowledge related businesses, partnership is considered most appropriate.
The partnership firm involves various individuals with diverse knowledge and skills. This form of
ownership is very common in businesses like training institutes, consultancy services, etc.
 Partnership:
6) Goodwill Factors: Partnership business is suitable in the case where an individual can utilise the goodwill
of another person to build his own name in the market. For example, Mr. X has goodwill in the market,
whereas, Mr. Y does not have goodwill in the market. So in this case, Mr. Y may request Mr. X to become
partners in business, with or without investing capital. This will provide goodwill to both Mr. X and Mr. Y as well
as they can share profits made in the agreed proportion.
Advantages of Partnership:
1) Easy to Establish: These types of firms require no special permissions from the government and hence
are easy to establish. Only an agreement is set between the partners and the firm has to get registered.
There is no compulsion for a firm to get registered, it entirely depends on the will of the partners whether
they want to get registered or not.
2) Right and Prompt Decision-Making: Under partnership firms, all decisions are made with the consent of
all the partners. As the partners remain in direct contract with each other, it is easy to make decisions.
There is no or least possibility of misjudgement or wrong decision, because a single problem is scanned
by all the partners of the firm.
3) Use of Diverse Skills and Knowledge: A partnership form comprises of individuals having varied talents
and skills which can be fully utilised by dividing the work among partners. For example, if a partnership
firm has four partners, one can manage marketing and sales, second partner can manage finance, third
can look over human resources, and the other can control the transport and logistics department.
4) Business Confidentiality: Business secrecy can be maintained under partnership firms as there is no
need to disclose its profit and loss statement, investments, expenditures, etc. to the public or government.
 Partnership:
5) Personal Contacts and Relationships: Personal contacts and cordial relationships with the customers
and employees can easily be developed under a partnership firm, as it is a medium-sized. This also helps the
firm to know the opinions and issues of the customers and employees.
6) Personal Interest and Initiatives: Each and every partner in a partnership firm is equally accountable to
profits and losses. They take initiatives and show immense interest in all the activities of the business. They
ensure that the business is running efficiently and successfully.
7) Scope of Large-Scale Production: A large-scale of production can be attained by the partnership firm, as
it involves management of efficient individuals. Moreover, huge amount of capital and resources can be
gained by employing more partners, which also helps in increasing sales of the business firm.
8) Risk Sharing: In a partnership firm, all business risks are shared by all the partners. And if, the firm gets
into the losses or fails to perform well, then the loans and debts are also shared by all partners.
Disadvantages of Partnership:
1) Uncertain Existence: The existence of a partnership firm is uncertain. In case of a partner’s death,
retirement or insanity, the partnership comes to an end or has to be dissolved.
2) Disputes between Partners: For having a successful partnership firm, it is essential for partners to
maintain a code of harmony and cooperation among themselves. At time, many clashes or conflicts occur
due to the misunderstanding or differences on any problem and this may lead to the dissolution of a firm.
3) Non-Transferability of Partnership Shares: A partner cannot transfer his shares to any other person
without the approval of all the partners. Because of which, he is bound to remain the part of a firm till it
exists.
 Partnership:
4) Inappropriate for Large-Scale Business: A partnership concern is not suitable for large-scale
businesses. Since, there are limited number of partners with limited capital resources and managerial
skills. Large-scale businesses such as oil and steel plants, shipping, banks, etc., require huge amount of
investments that a partnership firm cannot afford.
5) Weak Management: Under partnership business, some partners become self-centred. They want to
put in minimum efforts in the business and receive maximum out of it. This deteriorates the firm and leads
to critical circumstances like it may hamper the business growth and transfer risks to others.
6) Unlimited Liability: In a partnership concern, all partners are liable to unlimited liability. But one wrong
step or decision by a partner may lead to huge losses, which will be suffered by all other partners also.
 Partnership:
Difference between Sole Proprietorship and Partnership Firms:

Aspects of Sole Proprietorship Partnership Firms

Comparison

1) Ownership Proprietorship Partners

2) Control Individual owner Partner(s)

3) Legal Status No separate legal entity No separate legal entity

4) Stability Instable legal entity Instable legal entity

5) Risk Unlimited liability Unlimited liability

6) Profit Belongs to proprietor Belongs to partners

7) Acts No specific Act Partnership Act, 1932

8) Suitability Small business Small and medium business

9) Approach Individualistic Fiduciary

10) Motive Profit Profit
 Joint Stock Company:
A company legally owned by the shareholders and managed by an elected “Board of Directors”, having limited liability
in known as the ‘Joint Stock Company’. In today’s world, Joint Stock Company is the most suitable form of business
ownership. It is considered as the only systematic and standard way of managing a business. The Joint Stock
Company is an associated of persons in an organisation possessing a separate legal entity, perpetual succession
with a unique name and a common seal. The capital of the company is divided into shares which are transferrable
and it also has limited liability.
According to Prof. Haney, “Joint Stock Company is a voluntary association of individuals for profit, having a capital
dividend into transferable shares, the ownership of which is the condition of membership”.
Features of Joint Stock Companies:
1) Artificial Person with a Separate Legal Entity: A Joint Stock Company is intangible in nature and has no
physical existence. It is an artificial person having an independent legal entity. It can purchase, sell or possess
properties under its own seal. Various properties can be owned by Joint Stock Company and it can purchase or
sell them under their seal. This company can conduct any other business and can sign an agreement with other
businesses.
2) Voluntary Association: It is a voluntary association of individuals, which is established by the people
themselves. It is not compulsory to follow any government rules and regulations while forming it.
3) Perpetual Character: This company exists permanently, it continuous until it is dissolved or sold off. It involves
shareholders, who may join or leave the company or may change hands, as and when required.
4) Common Seal: Since the company has no physical existence, it is not liable to sign any document. For this
purpose, the company has a common seal with a unique name on it, which is used for the purpose of signature.
This seal is always kept safe and secure. There must be two directors present as a witness whenever the seal is
used by the company on any document.
 Joint Stock Company:
5) Limited Liability: In this business form, the shareholders or owners of the company have limited
liability. This liability is limited up to the amount of capital invested by each shareholder.
Suitability of Joint Stock Companies:
1) Huge Capital: It is most appropriate for large scale businesses where huge amount of capital is
required. As the company consists of large number of individuals as the shareholders. Some of the
businesses which require large capital investments are cement, oil and steel plants, automobiles, etc.
2) High Level of Managerial Skills: Diverse managerial skills are required to manage the large
organisations. Joint Stock Company has the capability to appoint different people for managing
different areas like finance, marketing, production, human resource, etc., as it can pay high salaries to
them. Conversely, it is very difficult for a sole owner or a partnership firm to do so.
3) International Business Operations: Since liberalisation, it has become easy do business
internationally. The global markets are mostly ruled by large scale organisations or multinational
companies. Therefore, Joint Stock Company is most suitable for performing global business activities.
4) High Risk Factor: In a Joint Stock Company the probability of undertaking business risk is very high.
There is no limit on the number of members in a Joint Stock Company due to which, the risk is shared
between all the members or shareholders.
5) Large-Scale Production and Distribution: The suitability of Joint Stock Company is high when there
is a scope of large-scale production and distribution. And, it is more relevant for those companies
which involve research and development, as it requires large amount of investment.
 Joint Stock Company:
Advantages of Joint Stock Company:
1) Perpetual Existence: The major advantage of a Joint Stock Company is its perpetual existence. As it
is a legal person, and has its own existence. It is not at all affected by the shareholders and directors.
Because of the transferability of shares, shareholders and directors are free to join or leave the
company any number of times but the continuity of the company remains the same.
2) Large Amount of Funds: Through sale of bonds or debentures or by issuing different types of shares,
a Joint Stock Company can raise huge funds for its business activities. It can also raise funds from
other nations as many foreign nationals are also shareholders of the company.
3) Transferability of Share: A company’s shareholder can transfer or sell his shares on his own will,
whenever he wants to. This selling and purchasing of the shares by the shareholders is done in a
market known as Stock Exchange. Moreover, he can also purchase additional shares. This
transferability of shares allows them to switch over or quit the company anytime.
4) Limited Liability: The shareholders of a Joint Stock Company have limited liability compared to
partnership firms and sole proprietorship. As a result, a shareholder is only liable to pay the face value
of his shares. This serves as an advantage and attracts large number of investors to buy shares. This
also helps in increasing industrial growth and investment.
5) Sharing of Risk: In this type of company, a shareholder is able to invest in different companies,
because of which the shareholder’s risk gets distributed. This secures the shareholder from becoming
bankrupt, as he also holds shares in companies which are highly profitable.
 Joint Stock Company:
6) Economical and Efficient Management: A Joint Stock Company is managed by the directors, who are
also elected as the representatives of shareholders. They posses' wider insight, focused vision and
exceptional administrative ability. They only attend the Board meetings for which they are paid a nominal
fee. Therefore, the management of the company is very economical as well as efficient.
7) Appropriate for Large-Scale Enterprise: There are two things which are very essential for large-scale
enterprises. Firstly, a Joint Stock Company can raise a large amount of capital by selling shares and
debentures. Secondly, they are capable of providing an efficient and economic management. Therefore,
Joint Stock Company is the most suitable form of business ownership for running large scale enterprises.
Disadvantages of Joint Stock Company:
1) Difficult to Establish: There is large number of legal formalities involved in the establishment of a
Joint Stock Company. This involves a substantial amount of cost before the start-up of a company.
2) Democratic only in Theory: In a Joint Stock Company, the management is autocratic in reality and
democratic only in theory. The reason behind this is that, a small group of shareholders have all
control over the company. Their nominees get themselves re-elected every time for the post of
directors. While, the remaining ordinary shareholders have no power at the time of elections.
3) Lack of Motivation: The management and ownership of the company is handled by different people,
who lack motivation to work seriously towards their responsibilities. Directors and paid managers are
primarily responsible for the management of the company, and do not primarily bother about
shareholders’ interests. On the other hand, shareholders hold the ownership of the company but do
nothing for it and just own their portion of shares.
 Joint Stock Company:
4) Slow Decision-Making: Due to the heavy and complex structures of the company, quick decisions
cannot be made by the management. It is only suitable for the types of business where continuous
changes are required in the production policy. Hence, in comparison with other business forms, it has a
slow decision-making process.
5) No Secrecy: All the decisions in the company are taken by the ‘Board of Directors’, thus it is hard to
maintain any kind of secrecy. A balance sheet and financial details of a public company is published
annually. Along with this, the details of all profits and losses are also shown by the company.
6) Concentration of Power and Wealth in Few Hands: The power and wealth of a Joint Stock Company
is concentrated in the hands of people. This serve as a big disadvantage when viewed from the whole
country’s perspective. Only some of the rick shareholders manage, who are capable enough to purchase
large number of shares become powerful owner of the company.

Companies Under Section 25 (Non-Profit Organizations):

Companies which are formed for a non-profit cause are called Section 25 Companies. These are so called
as they are formed under Section 25 of the Companies Act, 1956. These companies are generally those
companies which are formed for the sole purpose of promoting commerce, art, science, religion, charity or
any other useful object and have been granted a licence by the Central Government recognizing them as
such. These types of companies can be either public company or private company having a limited liability.
Thus, there are three criteria for determining whether a particular company is Section 25 company or not:
 Companies Under Section 25 (Non-Profit Organizations):

1) Its objects should be only to promote commerce, art, science, religion, charity or any other useful object.
2) It should intend to apply its profits or other incomes only in promoting its objects.
3) Central Government should have granted a licence to such a company recognizing them as such, these
types of companies can be either public company or private company having a limited liability.
Merits of Companies Under Section 25:
4) Exempted from Using the Word ‘Limited’: All companies having limited liability are required to use the
term ‘limited’ or ‘private limited’. But Section 25 companies are allowed to dispense with the use of term
‘limited’ or ‘private limited’ from their names. This helps the company to enjoy limited liability without
disclosing to the public the nature of liability of its members.
5) Minimum Share Capital: As per the provision of Section 3 of the companies act a private or a public
limited company is required to have minimum share capital of one lac and five lac rupees respectively.
However, Section 25 Companies have been exempted from this requirement. As such they can be
registered even if they have share capital less then the statutory minimum.
6) Annual Returns of a Company not having Share Capital: Like other companies without share capital,
even Section 25 Company is also required to file annual returns with the Registrar of Companies but it has
been exempted from mentioning the particulars of the members who are presently with the company or
have ceased to be members since holding of its last AGM.
7) Increase in Number of Directors: A public company is not allowed to increase the number of its directors
beyond twelve and beyond the permissible limits under its articles without the approval of Central
Government provided such increase results in total number of directors to go beyond twelve.
 Companies Under Section 25 (Non-Profit Organizations):
5) Maintaining of Books of Accounts: Every company is required under law to maintain books of accounts
for the last eight years. However, Section 25 Companies are required to do so only for four years.
6) Quorum for Meetings: The required quorum (i.e., minimum required persons for a meeting to be valid) for
any company is one/third of the total number of total strength or tow whichever is higher. But the Section 25
Company is exempt from this section to the extent that the required quorum for any board meeting is eight
members or one/fourth of its total strength whichever is less provided it should not be less then two members
in any case.
7) Time and Place of AGM: There are certain rules as to the place, time on which the Annual General
Meeting of a Company can be held. However, for Section 25 Companies, the Board of Directors are free to
determine the date, place and time of its AGM. However, the only thing to be kept in mind is that such powers
should have been granted by the company.
8) Disclosure of Interest: Unlike other companies, Hence Section 25 Companies are allowed to conduct
trade or business with private companies, firms or persons where some director may be having an interest
provided such private company, firm or person regularly does trade or business in such a contract without
seeking approval or Board again and again.
9) Non-Applicability of CARO: Section 25 Companies are exempted from applicability of Companies
Auditor’s Report Order 2003 (CARO). CARO has been applicable to all companies from 1 st January 2004. But
CARO expressly exempts Section 25 companies from its applicability vide Clause 2(ii) of Para I of the Order.
10) Payment of Registration Fees: The fees payable by a Section 25 Company at the time of registration
and further increase of its share capital has been kept very low in comparison to other companies and is at
present fixed at mere Rs.50 irrespective of the authorized amount of share capital.
 Companies Under Section 25 (Non-Profit Organizations):
11) Stamping of Memorandum and Articles: The articles and Memorandum of a Section 25 Company
are not required to be stamped in accordance with the Indian Stamp Act, 1899.
Demerits of Companies Under Section 25:
1) Restriction on Profits Earned: A Section 25 Company has to ensure that its profits and all other
incomes are utilized only for the purpose of promoting its objects and not for any other purpose. It
should also ensure that its profits are not distributed as dividend among its members.
2) Restriction on Alternation of Memorandum: Section 25 Company cannot alter its objects clause in
its Memorandum without seeking the written approval of Central Government. If an existing company
obtains a licence under section 25 it has to ensure that its objects are confined to those mentioned in
section 25 itself and if not make proper alternation to its memorandum and articles.
3) Compulsory Compliances: If the Central Government has imposed some conditions and regulations
upon the company for granting a licence under Section 25 then such a company is bind by such
conditions and has to ensure adequate compliance with them.
4) Taxation: Section 25 Company is regarded as a ‘company’ within the meaning of the Income Tax Act,
1961 and as such its income is taxable according to the applicable rates similar to those applying to
other companies
 Legal Environment of Entrepreneurial Organizations:
Introduction:
For establishment and management of a new venture or setting-up of a small-scale enterprise, entrepreneurs
come across a number of situations to follow laws of the land. Right from the conception stage in promoting the
enterprise, entrepreneurs should be careful to obey the legal formalities, procedures, policies and plans for the
government so as to make themselves free from any sort of legal hassles in future.
As it has been rightly known that small-scale industries are an integral part of economic development, small-
scale entrepreneurs should adhere to the rules of the land. Thus, an attempt has been made to elucidate some
of the legal rights relating to setting up the organization:
1) Intellectual Property Rights: Intellectual property rights which includes patents trademarks, copyrights,
design and trade secrets represents important assets to the entrepreneur and should be understood even
before engaging the services of an attorney. Lack of understanding of intellectual property; ignore important
steps that they should have taken to protect these assets. So, understanding the intellectual property right
is very important for entrepreneurs.
2) Registration of the Unit in DIC: Small-scale units are required to be registered with the District Industries
Centres (DICs) which function under Directorate of Industries of the state in which the industries are
established. As a rule, entrepreneurs are assisted with two types of registration, viz., provisional registration
and permanent registration. As the name implies provisional registration is provisional in nature and the SSI
unit gets a PRC (Provisional Registration Certificate) from the DIC as an incipient unit to grow for
production in future normally within a period of five years. Permanent registration certificate is provided
when the industry has ‘gone into production’. The above registration certificates are necessary to make the
unit eligible to get the incentives, subsidies, exemptions provided by the government as per the benefit
envisaged in the Industrial Policy Resolutions (IPRs) of the government.
 Legal Environment of Entrepreneurial Organizations:
3) Statutory License or Clearance: All industrial undertakings are exempted from industrial licensing
except those industries which are coming under public sector or in respect of which the licensing is
compulsory. The Industries Development and Regulation Act (IDRA), 1951 provides the basic framework
for directing the flow of investments into different types of industries. Thus, industrial licensing is utilized as
an important instrument for the above purpose. In our country, a number of administrative bodies in
government are established for considering the proposal for the issue of industrial license and a time limit
exists for issue of the license.
4) No Objection Certificate (NOC) from Local Body/Panchayat/Municipality: While promoting a new
venture, the entrepreneur has to obtain No Objection Certificate from local body/NAC/panchayat or
municipality as well as the requisite permission to start the SSI. This is done for the purpose of
construction of industrial sheds and for land utilization as well as for the benefit which may be given to the
enterprise in course of its operation by the government.
Intellectual Property Rights (IPR):
Intellectual Property rights include patents, trademarks, copyrights, trade secrets, licensing and
franchising. Important assets of the business can be protected using these rights. The artistic and
commercial creativity of any business can be protected by copyrights and patents. The artistic aspects of
business creation include books, paintings, music, movies, software, photographs, etc., which can be
protected using copyright laws. For example, logos of Nike, swoosh, Coco-Cola, BMW, etc.
 Legal Environment of Entrepreneurial Organizations:
Legislations Regulating Intellectual Property in India:
Intellectual Property Rights or IPRs correspond to those rights that accrue to an individual in recognition of
his intellectual capabilities or creations. These rights generally provide the creator or the innovator with the
exclusive right to use his invention for a specified duration. There are several legislations regulating and
developing the concept of intellectual property rights in India. They are as follow:
1) The Patents Act 1970.
2) Copyrights Act of 1957
3) The Trade Marks Act 1958 and Trademarks Act, 1999.
4) The Geographical Indications of Goods (Registration and Protection) Act 1999.
5) The Semiconductor Integrated Circuits Layout-Design Act 2000.
6) The Designs Act 2000
Reasons for Filling for Intellectual Property Protection:
7) Economic Exploitation of Original Work: The primary and the very first advantage of intellectual
property is that it grants the creator the limited monopoly, i.e., the right to economically exploit the
creation for profit generation. On development of the business with a particular innovation, the creator
is allowed to take strides towards creation of more innovations and expanding the intellectual property
of the firm. Another reason for filing intellectual property protection is that it enables the creator to
acquire further gain by selling or licensing the intellectual property to someone else.
 Legal Environment of Entrepreneurial Organizations:
2) Protect Future Business Directions from Hindrances: Several enterprises formulate an extensive
assortment of patency in their competency, which enables them to beat their rivals in the long run. In case
an enterprise fails to take this step, it may collapse in the mid-way and would find it difficult to constantly
innovate in the desired direction. In such cases all its strategies would fail in front of the competitors and
the market would be overwhelmed by the stronger players in the market.
3) Restricting the Competition: It is a way of restricting/preventing any sort of planned or unplanned
invasion into the market place. These are the cases where the patents with the company cannot be
profitably exploited but are extensively protected so as to maintain the market share and goodwill of the
company.

Forms of IPRs:
1) Patents
2) Copyrights
3) Trademarks
4) Franchising
 Forms of IPRs:
1) Patents: An exclusive and absolute right granted to the owner or inventor of an invention to create,
utilize, produce, and market the invention. Such rights are awarded by the country, presuming that the
invention fulfils all the conditions specified in the law. These types of rights are called patents. These rights
are said to be ‘exclusive’ because no other person can create, utilize, produce, or market the invention in
the absence of proper approval of the patent holder. This exclusive right is available for a limited time
period. The right of granting a patent is territorial in nature, i.e., one need to apply for patent in countries of
their interest separately by submitting prescribed fees, completing formalities and documentation, etc. For
example, a new electronic circuit, a drug molecule, a new surgical instrument, a new vaccine, or an
innovative chemical process are all patentable inventions assuming that all the conditions of the law are
fulfilled.
For all the types of products, the validity of patent is twenty years from the date on which patent application
is filed. Without the written sanction sought in a stipulated manner and bestowed by or on behalf of the
Controller, no person can apply for the patent outside India.
The following two conditions are exceptions to it:
1) If the application for patenting the same product or idea has been filed in India at least before six
weeks than the date of filing the same in any other country.
2) Secrecy clause of the patent Act either does not have direction or all the directions have been made
ineffective.
 Patents:

Importance of Patents:
1) A patent provides the right to the patentee to restrict others from manufacturing the product.
2) The right of exclusivity allows the patentee to market his product without competition for a considerable period
of time enabling him to obtain higher prices for his invention.
3) It enables the patentee to legally sue anyone who attempts to make or sell patentee’s product without his
permission.
4) It allows the patentee to generate money by selling or licensing his product to someone else, who may
economically exploit the patentee’s invention.
5) The patent provides ‘a negative right’ to the inventor, which prevents others from making, selling or importing
the product for a certain period of time. This gives enough time to the patentee to economically exploit his
invention.
6) Patents encourage incremental changes in the existing product by recognising innovation; besides invention as
such patents are more interested in ‘evolution’ rather than ‘revolution’. It does not require that the technology
should be complicated.
7) The rights granted under the patent law are territorial in nature. The rights of a patent holder having his
invention registered in India are limited to India only.
8) Patents promote technological innovations by recognising and protecting new inventions and innovations.
9) It safeguards the creation and the resources spent on making the invention by awarding appropriately the
creative endeavour.
10) Patent helps in safeguarding all the technological innovations related to the industry, like, mechanical and
 Patents:
Conditions of Patentability:
Not every product or invention is patentable. There are certain conditions which an invention should fulfil in
order to be patentable. These conditions are:
1) Novelty: The element of novelty depends on the fact whether a particular invention is already in the
market or not. Thus, where an invention is already a part of existing knowledge, it cannot be regarded as
novel. Hence, for making an invention patentable, it must involve innovation. Also, it must not be
recognised, documented or used before applying for patentability.
2) Non-Obvious: Another condition for claiming patent is that the product or invention in question must be
non-obvious to individuals who are expert in the field to which the invention belongs. Hence, it is vital that
the invention can be patentable only if it has not be previously recognised, documented or used in any
form nationally and internationally prior to applying for patentability.
3) Useful and Industrially Applicable: Even if an invention is novel and non-obvious, it cannot be patented
unless it is beneficial to the people. Thus, it is essential for the invention to be beneficial for the society.
Also, it must be industrially applicable.
Rights of a patentee:
4) Exploitation of the Patent: The main purpose of applying for patent is to gain an exclusive right to
economically exploit the invention. It implies that the patentee acquires the exclusive right to produce and
sell the invention in the market. Even if the patent rights are not applied for, the inventor still owns the right
to produce and sell the goods. However in that case, he/she cannot restrict others from manufacturing or
selling the same item. As such to exercise the rights to exclude others, the inventor should obtain patent
 Patents:
2) Licensing the Patent to Other: A patentee may transfer his rights obtained under the patent by
entering into a licensing agreement thereby giving others the right to economically exploit his invention. By
its very nature, the license can be voluntary, statutory or exclusive. The voluntary licence consists of the
terms and conditions which are established between the license and the patent holder by themselves. In
statutory licensing system, the patent holder and the government play prominent roles. Further, an
exclusive license confers the licensee with all the rights under the patent excluding other individuals.
3) Assigning a Patent to Other: Assignment of rights involves the transfer of one’s rights and interests in
the property in favour of another. The licensee merely enjoys personal privilege by performing a certain
act. In other words, it does not involve transfer of interest in a licence. Transfer of rights requires
assignment, which can be done through legal assignment, equitable assignment or through mortgage. A
legal assignment requires entering into an agreement, which further requires registration with the
controller. Only after this type of assignment, the lawful assignee is allowed to get his name registered in
the form of a patent holder and is allowed to exercise all the rights under the patent conferred upon him by
the patent's proprietor. In contrast to legal assignment, equitable assignment does not require agreement
for transfer of rights. Instead, the transfer is affected through delivery of a letter.
4) Surrendering the Patent: The patentee may surrender his patent at any time by giving notice to the
controller. After receiving such a notice, it is the Controller’s duty to duty publish the surrender and thereby
notify all interested parties. This publishing allows any party to object to the surrender. The Controller is
then authorised to hear both the parties and revoke the patent by accepting the surrender offer.
 Patents:
5) Suing for Infringement of the Patent: Some special privileges are granted to the patentee through patent
right, which entitles him to distribute, sell or manufacture the patent within the country. Violation of any of these
rights leads to infringement. Patent rights may be infringed in many ways, some of them are given below:
i) Colourable imitation of an invention,
ii) Unimportant variations in the invention, or
iii) Using mechanical counterparts in the invention.
Though the colourable copying or unimportant changes involve making a little alternation in the original
product, yet it is copying of the basic components of the innovation by the patentee.
The suit of infringement may be brought forward in a District Court. Under certain circumstances, the case may
be transferred to a High Court. For example, where the defendant gives a counter claim revocation, the case is
transferred to a High Court.
Applying for Patent Right:
Patent rights in India are allowed on the basis of first-to-apply. Inventor himself or his representative can apply
for obtaining patent rights. Both Indian, as well as foreign applicants, are treated equally. The detailed process
for obtaining patent rights is given below:
1) Filing Application: The very first requirement for obtaining patent rights is to file an application. Application
number is provided to the applicant on the day his application is filed. An objection letter is forwarded to the
applicant in case of any error in the application. Such objection letter is given within one month from date of
filing. Further, the applicant needs to send a reply concerning the objection letter within stipulated time period.
 Patents:
2) Publication of the Application: After 18 months of filing, the application is published in the official
gazette. This means now the patent information is in public and anyone having problem can oppose it from
getting permitted following the legal procedures. The applicant can request for an examination within 36
months of filing the application.
3) First Examination Report: The first examination report contains reviews on any opposition filed till date
against the granting patent. Such report is issued by the examiner. The report may further give rise to
several objections against which the applicant needs to reply within six months.
4) Grant: If the applicants is successful in answering against all the objections imposed on him complying
legally, patent rights is granted. However, in case of failure to do so, the application will be cancelled.
5) Post-Grant Opposition: Opposition against patent can be filed even after it has been passed. Such
objection can be imposed within one year of the grant of patent.

Trademarks:
Certain products or services are recognised as those manufactured or provided by a specific individual or
business enterprise by means of an exclusive sign, that sign is termed as ‘trademark’. A trademark can
simply be a word, a number, an alphabet, or the combination of them. Not only these, but a trademark may
also include symbols, piece of drawing, certain colours, or unique shape and packaging of product.
Implementation of the Indian Trademarks Act, 1999, is a huge breakthrough from the earlier versions i.e.,
the Trademark Act, 1940 and the Trade and Merchandise Marks Act, 1958. With the adoption of this Act,
following changes occurred:
 Trademarks:
1) Enabling registration of trademarks in more than one class by filing of only one application,
2) Simplifying the registration procedure and widening of the scope of permitted use,
3) Registration of certified trademarks, service marks, and collective marks,
4) Comprehensive definitions for the terminologies often used,
5) Registration and renewal period has been increased from seven years to ten years and
6) More intense punishments for trademark violations.
Features of Trademarks:
7) Uniqueness: The uniqueness of the trademark can be either inherent or acquired. Inherent
uniqueness refers to the dissimilar features in itself and it could not be rationally claimed by anyone
else. Acquired uniqueness means that the trademark has attained uniqueness by continuous usage.
The inherent uniqueness can be formulated by using innovative names. For example, imaginary
names such as Nirma for washing powder, Videocon and LG electrical appliances, iPhone and
Samsung for Smartphone are intrinsic unique terms. On the other hand, personal names or surnames
like Ferrari or Tata for automobiles and Godrej for home appliances have attained uniqueness through
usage.
8) Non-Descriptive Names: It should be a non-descriptive name. It can be said that, it can be a word
which is different from the common words that are previously being used or it can be an innovative
term. For example, a common word such as ‘role’ can be prefixed or suffixed to from a new word as
 Trademarks:
3) Not a Geographical Name: Trademark should not be the name of a place. This implies that the
geographical names denoted for various areas are restricted to be registered as a trademark of a brand.
The reason behind this is that the trademark is meant to signify the origin of products from a specific
trader. If a geographical name is used, it will lead the customers to believe that the products originated
from that particular location/place/region, thereby creating confusion and act of fraudulence.
4) Non-Deceptive: The mark must not be deceptive in the form of claiming features or qualities which it
does not possess. For example, name of a juice brand “Southern oil” when it not actually from southern
region.
Types of Trademarks:
1) Non-Traditional Trademarks: The non-traditional or non-conventional type of trademark has been
recently originated. Though, it is not generally easy to get them registered, yet they stand for the
goods and services offered by some specific organisation. The basic variation in them is that they
need not essentially have symbol, logo, numbers or letters. These trademarks may comprise of
concrete symbols like colour, shape, hologram, moving objects or abstract idea like fragrance,
textures, sound/musica notes or even flavours. Following can be included under this:
i) Colour: Colours can be a unique characteristic to show the goods manufactured by a specific
company. For example, Microsoft has obtained trademark for its unique colours it uses in its windows
software.
ii) Sound: Some symbols can be heard and are differentiated due to some unique and special sound,
such as musical note. For example, sound of Intel Inside and Britannia.
 Trademarks:
iii) Shape of Goods and/or Packaging: Sometimes the shape of either goods or of packaging has some
unique characteristics. For example, heart shape of Britannia little hearts biscuit.
iv) Trade Dress: Trade dress is basically associated with creating the marketing image of the product. It
comprises of the non-functional components like designing, labelling (such as colour, shape or symbol), or
packaging. This implies that the name of brand can be depicted in a unique way with some specific
symbols. The idea of dress code is very vital in country like India, which has a large number of illiterate
people; as it helps to easily identify the product without reading the brand name. In this way the
manufacturers can reach out to a large number of people with great ease.
2) Motion Trademarks: With the growth of online stores, there is drastic rise in the motion trademarks.
These trademarks are also called animated trademarks, movement trademarks, moving trademarks, or
moving image marks. Getting them registered is not an easy task. One can observe these trademarks
appearing on the top right side of the screen when a website is accessed by the visitor.
3) Service Mark: The service marks are used in the service industry and the goods represented through
the trademark are actually not traded. It is a way of safeguarding the trademarks of the service business.
Thus, those trades which provide services like assemblage and maintenance of hardware, hotels and
hospitality, courier, transportation, beauty, healthcare, publishing, advertising, educational, etc., are able to
safeguard their identity and trademarks. For example, sign of aeroplane tail for Air India airline services.
4) Collective Mark: The trademarks which are collectively used by a certain trade group can be jointly
protected. The idea behind using a collective trademark is to highlight the special or unique feature of the
good which is associated with the group that produces it. The owners of the group can be business
 Trademarks:
5) Certification Mark: It denotes a certain degree of quality. The purpose behind these trademarks is quality
assurance. Certification mark is a proof of the fact that the product has gone through certain quality checks and
is recommended for consumption. The mark assures the customer that the manufacturer has followed all the
rules and norms in the production of the good concerned to guarantee that the product is of standard quality. It is
mainly used for the edible items, electrical appliances, toys, etc. It certifies that the product fulfils some specific
guidelines of the quality assurance. For example, Agmark, ISI Mark, etc.
6) Well-Known Marks: Those marks which are believed to be well-known are defined properly. Greater
protection is granted to these trademarks. Everyone is prohibited to copy the renowned trademarks. A trademark
can become renowned if it is known by significant section of people comprising both actual and possible users,
distributors and the dealers of goods/services. For example, marks of Audit, Mercedes-Benz, Nike, Adidas,
Coco Cola, etc.
Procedure for Registration of Trademark:
Stage 1: The availability of the trademark should be verified before the application is made. Even if a word,
symbol or design is not intended to be used in advertisement, but may be employed for a short period, even
then the availability must be established. It may help in avoiding potential lawsuits and other legal issues. The
applicant may also make an effort to check the resemblance of intended trademark to the existing data.
Stage 2: Once an applicant has made the decision to apply for registration, they need to provide necessary
details to the agent or attorney for filing the application. The application needs to be submitted to the Trademark
Registrar who may accept the application and allot a unique number. The applicant may start using the
trademark once the number is granted.
Stage 3: Application is securitized at this stage. Any objections raised by the registrar are communicated to the
 Trademarks:
Stage 4: The registrar may grant the data for personal hearing, if requested by the applicant or the
attorney.
Stage 5: The registrar may announce the decision, based on hearing.
Stage 6: Under Section 20 of the Act, once the application has been accepted, either absolutely or
conditionally, the registrar will pass an order for an advertisement in the Trademarks Journal. This is to
enable third parties to file their objection, if any. The applicant is required to pay the prescribed fee and
may also be required to provide printing block. The registrar may also require the applicant to file
additional information. If there is no objection, then Registration Certificate is granted and the applicant
may start using the trademark.
Importance of Trademarks:
1) Recognition: One of the basic objectives behind creating trademark is that it involves brand
recognition. Trademark allows customers to easily distinguish and select a particular product from a
large range of products available in the market. This phenomenon is of special significance in case of
brand loyal customers. With the help of trademark, logos, unique colours and names, customers are
able to easily distinguish the brand they seek.
2) Association: With the help of trademarks, customers often relate products with each other or with the
firms that manufacture them. On successfully launching a product in the market, the company may
wish to adopt the same trademark for designating the upcoming products. In this way, customers can
associate themselves with the new product. This also encourages brand loyalty For example, after
capturing market in instant noodles, Maggie has introduced several other related products like soups,
 Trademarks:
3) Investment: A huge amount of money is spent on creation of the trademark, specifically in exploring a
unique and distinctive one. Expenditures are also incurred in employing designers for designing the
trademark and merging it with the marketing efforts. But in the long run it proves to be an asset as it helps
in creating brand image which would eventually bring sumptuous gains. Also, it is the trademark which
represents a particular company.
4) Protection: The trademark and patent rights help the companies to safeguard their product against
duplication, fraudulence or misuse. Like in case of copyright, trademark owners are also required to
identify and report any incidents of trademark infringement. Since a lot of costs are associated with the
trademark, companies must make efforts to protect them.
5) Set Company Apart from Competitors: Businessmen should always consider having a trademark for
their offerings. In today’s world of cut-throat competition, it is vitally important to have a distinguished
presence in the market. A unique trademark is a great way of achieving this goal. It will help the
consumers to distinguish it from other products and aids companies to beat the market competition.
6) Valuable Marketing Tool: Trademark stands out as a valuable marketing tool. It is specifically for those
who are taking the first step towards trading and are looking for creating a reputed and long lasting
position in the market. It has been shown through various studies that the consumers prefer to select the
products with trademark or branded products instead of choosing the unknown one.
 Copyrights:
A right available for developing an original work related to the fields of literature, art, music, or drama is termed as
copyright. Copyrights protect the cinematographic films such as videos and sound-tracks and their recordings on
discs, tapes, perforated rolls and other such devices. Not only different literatures but also the computer
programmes and software come under the purview of literary work, which obtain protection in India under The
Copyright Act. The term of a copyright is sixty years from the starting of the calendar year succeeding the year in
which the work was published. The term of sixty years is applicable for cinematographic films, records, works of
government and international agencies, posthumous publications, photographs, anonymous publications, etc. Only
for broadcasting, the term is twenty five years from the starting of the calendar year subsequent to the year in which
the work was broadcasted.
Importance of Copyright:
1) Creation of Public Record: By registering for copyright, the patentee gets protection of his intellectual property.
The registration of the innovation helps in creation of public records which forbids other individuals or firms to
use the intellectual property of the company without due permission. The copyright also helps in recognising the
originator of the innovation.
2) Right to Sue for Copyright Violation: The registration of a particular work for copyright helps the owner to sue
for copyright violation. An innovator cannot sue those who try to replicate his work; unless his work is registered
for the copyright. A copyright empowers the owner to file a legal suite against violator of the copyright. The
product of the offender can be completely banned or he may be asked to pay due compensation to the sufferers
for the losses and damages.
3) Acts as Clear-cut Evidence: The registration of the copyright acts as a prima facie evidence which supports
the authenticity of the copyright and the associated facts. This implies that it acts as evidence which is enough
to support a fact. Hence, it is vital to register a work for copyright within five years of publication, to enable it to
 Copyrights:
4) Recovery of Damages: Only timely registration of the copyright helps in recovery of the damages
associated with the violation of the copyright. “Timely registration” means registering the work within the
first three months of its publication, or before its violation. This stands as a proof of legitimacy of the
copyright. An owner can claim only actual damages and not exemplary damages in case the copyright is
not registered.
5) Protection against Import of Copyright Product: Registered copyright owner can further serve notice
of registration to customs service. This provides safety against importation of copyrighted material that
may infringe the owner’s rights under copyright.
Types of Work Covered under Copyright:
1) Literary Works: These include fictions like stories, novels, plays, poems, screenplays, scripts, non-
fictions like magazine, newspaper, biographies, histories and reference works like dictionaries
encyclopaedias, software programmes and databases. This implies that the literacy work includes all
the original works, regardless of their creative or literary value. It is important to note here that
although the thoughts and ideas of the work need not to be original but its expression should be done
in a distinctive manner by the author.
Following are included in the literary works:
i) Adaptation: Adaptation means converting the literary work into a dramatic performance in front of
the people.
ii) Abridgement: Abridgement refers to rewriting the original work in shorter form.
 Copyrights:
iii) Translation: Translation means rewriting the work in some other language.
2) Dramatic Work: The dramatic works include the written narration, choreographic work, mimicry,
dramatic arrangement or enacting form pre-fixed in writing.
3) Musical Work: The musical work includes music and any pictorial notation of such work. However, it
does not involve any act or words which are intentionally sung, performed or spoken. In case any musical
work includes some more harmonies, rhythm or accompaniments, it is placed under the category of
‘adapted’.
4) Artistic Work: The artistic work includes drawings, paintings, photographs, architectural and artistic
craftsmanship work.
5) Cinematographic Film: The cinematographic work refers to visual recording on any medium which
helps in creating moving image and also includes sounds. Though, no precise level of innovation is
needed in it, but the major portion of the movie should not violate any previously done work. The copyright
is not provided to the artist and they enjoy performer’s rights. However, the copyright is acquired by the
producer of the movie, and the right of public performance is conferred to the music director and lyricist.
6) Sound Recordings: It includes all recordings of sounds irrespective of the medium used or method
employed for generation of sounds. Such rights generally accrue to the performers of the music, i.e.,
musicians, singers and directors of music under the category of related rights which is ascribable to
producers of recordings and broadcasters.
 Copyrights:
Rights Conferred by Copyright:
The owner of the copyright has liberty to use, the work in his desired way. But he should pay due respect
to the interests and rights of other people and should adopt proper mechanism for restricting others to use
his work without his permission. As such, the rights granted under copyright are known as exclusive rights.
The rights granted to a copyright owner are as follows:
1) Statutory Rights: According to these rights, the copyright owner has authority to forbid some actions
of others related to his own work. The copyright owner can prohibit or forbid others in the following
ways:
i) Its duplication in any form, like printed or recording.
ii) Circulation of copies of the work.
iii) Performance in front of the general public.
iv) Publically broadcasting or communicating the work.
v) Translation of the work in other languages.
vi) Adapting the work from one form to another, like turning a novel into a play.
2) Economic Rights: Economic rights are the monetary or financial gains which a person derives from the
use of his work. The owner may exercise his economic rights by exploiting his work himself or may license
the work to others in return of payment of some amount by way of royalty or other payment methods.
 Copyrights:
3) Moral Rights: The copyright owner is allowed to take some steps for protecting his association with his work.
Moral rights include the right to claim the authorship and right to object to any sort of twisting or alteration of the
original work, or any other offence related with the work which might harm his reputation or honour. This right
should be kept separate from the monetary rights and is enjoyed by him even when the work is being licensed to
others.
4) Copyrights is a Negative Right: The negative nature of copyright originates from the fact that it forbids others
from using the original creation of a person for his own gains without getting due permission or authorisation by
its creator.
Registration of Copyright:
Copyright may or may not be registered. Copyright office maintains a register of copyright. This register contains
applications for copyright. This register acts as a prima facie evidence with regard to ownership and possession
of the matter/substance. It is open for public inspection. Any information can be gathered from this register. The
register of copyrights is kept in the copyright office of the Department of Education. The register is divided into
Six parts:
Part 1: Literary works and dramatic works.
Part 2: Musical works.
Part 3: Artistic works.
Part 4: Cinematographic films.
Part 5: Sound recordings.
 Copyrights:
For the purpose of registration, all the details should be mentioned. Both published and unpublished works
are eligible for registration. Other requirements include submission of a copy of the work and the issue of
notice for submitting an application. The objections may be submitted to the registrar. Upon satisfactory
completion of all the requirements and validating the material. Further, the work is registered with the issue of
a certificate, named as ‘certificate of registration’.

Franchising:
Franchising is an agreement between two entities where the owner (franchisor) of a company grants the right
to the other party (franchisee), to use its trade name or trademark and also specific business processes and
techniques for producing and marketing goods or services.
According to the International Franchise Association (IFA), “Franchising is a continuing relationship in
which the franchisor provides licensed privilege to do business, plus assistance in organizing, training,
merchandising and management in return for a consideration from the franchisee”.
Types of Franchising:
1) Product Franchise: Product franchise is the most elementary and simple form of franchise. In this kind
of set-up, a franchisor can be seen as a distributor, who distributes the goods to the retailers with a
believe that the retailer is having the authority to sell the products and goods in a specific location. These
kinds of markets are associated with a certain geographical locations. Car dealership, gas stations and
many fashion and FMCG organizations can be seen as a typical example of this category. The older
examples of franchising are the product franchise in England and Germany, the beer franchises which
 Franchising:
2) Manufacturing Franchise: Manufacturing or processing franchise is the second form of franchise
system which is quite often derived from first type of franchise. In this type of franchise, a certain type of
element or particular specification is provided by the franchisor, which is used by the franchisee in the
production of the goods. Medicine and soft drinks are the typical examples of this type of system. Other
examples are companies having a retailer’s label can manufacture private label goods, and companies
having license of a designer label can manufacture fashion apparels.
3) Business-Format Franchise: Business-format franchise is the third form of franchise which was
developed in the post-war scenario of mind 1950s. In this type of system, an extensive, detailed, operating
setup is provided to the franchisee by the franchisor. Each franchisee should follow all the rules and norms
of the franchisor; else franchisor has a right to withdraw the franchise. These franchises can be food
centres, restaurants, travel agencies, etc. For example, pizza Hut, McDonalds, Holiday Inn, 24-7
convenience store, etc. Business-Format Franchise is the most common form of franchise which is very
prevalent in Australia and is considered as a mature sector. In 1999, total 708 franchises were operating
in Australia, out of which 677 were using business-format franchise.
This is the most widely used franchise format worldwide. The commonly used formats of franchising are as
follows:
i) Manufacturer-Retailer Franchise: In this kind of format, the retailer is given the authority to sell the
products and services of a certain franchisor, e.g., petrol pumps, bike dealership, etc.
ii) Wholesaler-Retailer Franchise: In this format, the retailer has a right to distribute the products of the
wholesaler, e.g., Health Mart, Max medical outlets, Titan watches, etc.
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iii) Service Sponsor Retailer Franchise: A service organization provides the license to any retailer to
serve its customers on the behalf of franchisor, e.g., VLCC centres, Lakme salons, etc.
Advantages of Franchising:
1) Proven Market for Product or Service: A well-known market already exists for the franchiser’s
products or services. Facts and figures about the performance of existing franchises can be easily
attained from the franchisee. This helps the franchisor to make future projections and decisions.
However, it is not a similar case for newly established franchises.
2) Services Provided by the Franchisor: A franchisor provides several valuable services to the
franchisee. Some of the franchisor's services are as follows:
i) Assistance in Location Selection: A franchisor often provides assistance to the franchisee in
selecting an appropriate location for doing business. It is very important for the success of a
business, especially off-reserve businesses in service and retail industry. Usually, a franchiser
possesses considerable knowledge and expertise in site selection which can be utilized by the
franchisee for business development.
ii) Purchase or Construction of Site, Buildings, and Equipment: Franchisor provides assistance in
purchase and construction of business site, buildings or equipment. This also saves a lot of time and
money.
iii) Provision of Financing: Many franchisors financially support their franchisee by providing the
required capital. The association of franchisor and franchisee also helps in obtaining financial
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iv) Standardized Methods of Operating: All the standard procedures and methods for operating a franchise is
provided by the franchisor. It mainly includes standards for customer service, control system, cost accounting,
etc.
v) Advertising: Sometimes, franchisors also provide advertising-related services by advertising nationwide. This
type of promotion significantly benefits the franchisee, as it may prove to be very costly and difficult for the
franchisee to advertise separately.
3) Advantages of Purchasing: The franchisor purchases large inventories for franchisee. The franchisees need
not have to purchase several items as they are already provided by the franchisor, which results in cost savings.
4) Advantages of Training: New franchisees are often trained by the franchisors. These trainings can be in the
form of thorough training sessions or instruction manuals. This has a positive impact on the growth of
franchisee’s business.
5) Advantages of Marketing and Management: Franchising business offers a product which is already known
and tested in the market. Customers believe the franchisees due to the goodwill and brand name of the
franchisors. Hence, it is easy for franchises to launch and manage a product in the market. The opportunity of
having accessible marketing image of the franchise business would be one of the best benefits of selecting a
franchising method. This is the reason why most franchisors put all their efforts and abilities in promoting,
advertising and marketing of their names, logos, product and services.
6) Quality Control Standards: There are certain quality control standards which are imposed by the franchisors
on the franchisee. These standards are essential for maintaining the quality of the products, thus, maintaining the
goodwill of the business in the market. The franchisee also identifies these standards as essential guidelines for
developing and maintaining high standards and considers these as a key reason for the success of business.
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7) Less Operating Capital Requirement: Usually, franchisees require very less capital for establishing
their business. They do not have to spend much on the infrastructure of the business as it is provided by
the franchisor at a nominal cost. Having a prior knowledge about the market also helps the franchisee to
spend less on inventories, as they are already aware of what product is in demand and what is not.
8) Growth Opportunities: Several growth opportunities are provided to new franchisees by the
franchisors in the form of setting up initial franchise unit and further purchasing additional franchise
locations. Because of this, franchisee faces no competition from other franchisees or other outlets in a
certain geographic area. This facilitates the new franchisee to start and develop new stores within the
specified locations.
Disadvantages of Franchising:
1) Lack of Independence: When a franchisee signs a contract of franchise with a firm, some kind of
assistance and help is expected from the franchisor. The franchisor will analyze the performance of
business to ensure the realization of franchise agreement. This constrains the liberty and freedom of
the franchisee.
2) Cost of the Franchise: There is a particular price for acquiring a franchise which includes a start-up
fee and royalties based on operations. A person has to pay a specific amount of money either as a fee
or has to create the infrastructure in order to take the franchise of a business organization.
3) Unfulfilled Promises: The franchisor provides services like training in operational skills and marketing
activities. But, in some cases, such a support is not provided by the franchisor.
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4) Constraints of the Contract: There may be several clauses of franchise agreement which can limit the
liberty of franchisee. They are stated as follows:
i) Product or Service Offered: The franchisee may not have the right to sell the product of any other
manufacturer.
ii) Line Forcing: The franchisee has to maintain the whole range of product line produced by the
franchisor despite the fact that many products may not be having any market in the area covered by
the franchisee.
iii) Termination: Without facing the penalties, a franchisee cannot surrender the franchise and he is also
not permitted to transfer franchise to his family member or friends and is restricted to sell the product
of other companies.
iv) Security: In case of any violation of agreement conditions, the franchisor has the authority of either
terminating the agreement before the contract period is over or not renewing it once it is terminated.
v) Demand Saturation: It has been observed that in many locations, a franchisor gives many franchise
which results in the saturation of demand for a certain franchisee and thus many franchisees which
are working in that area face financial drawback. A franchisor will try to sell as many franchises as
possible irrespective of the success of individual franchisee in a location if franchisor receives huge
initial fees with no royalties.
vi) Price of Merchandise: Sometimes, the franchisor sells products to the franchisee at higher prices
than all the other places. But the franchisee is bound to buy products from the franchisor as per the