CHAPTER 2

The institution or establishment through which business is undertaken is called business organisaiton.

Types or forms of business organisation in private sector

1] Sole proprietorship

2] Partnership

3] joint stock company

4] Joint hindu family

5] Co-operative society

Business organisation owned,managed and controlled by one person is called sole proprietorship/sole trading concern/individual business/one man business.It is the oldest and commonly seen form of business organisation.

Features

1] Individual ownership

2] Individual capital contribution

3] Individual management

4] No division of profit/loss

5] Unlimited liability

6] No separate legal entity

7] No legal formalities

8] Small scale operation

9] More risk

10] Lack of continuity

Merits

1] Easy to form

2] Easy to operate

3] Easy to close

4] Sole beneficiary of profit

5] Benefits of small scale operation

6] Scope for maintaining secrecy

7] Quick decision making

8] Direct link with the customers

9] Social significance

Limitations

1] Limited capital

2] Limited managerial skill

3] Lack of specialistion

4] Llimitations of small scale operations

5] Unlimited liability

6] Greater risk

7] Absence of legal status

8] Lack of continuity

PARTNERSHIP

Business organisation owned,managed and controlled by two or more persons is called partnership.

Members of partnership are individually called partners and collectively the firm.

Partnership is defined as the relationship between persons who have agreed to share the profits of the business carried on by all or any of them acting for all.

-Sec 4 of The Indian Partnership Act 1932

Features

1] Association- minimum 2 maximum 10 [Banking business] or 20 [Non banking business]

2] Agreement

3] Unlimited liability

4] No seperate legal existance

5] Mutual agency

6] Lawful business

7] Utmost good faith

8] No transferabioity of interest

9] Sharing of profit or loss

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Merits

1] Easy to form

2] Larger resources

3] Efficient management

4] Division of work

5] Prompt and balanced decision

6] More credit facilities

7] Maintaining business secrecy

8] Less govt controll

Limitations

1] Lack of harmony

2] Limited resources

3] Lack of public confidence

4] Unlimited liability

5] No transferability of interest

6] Risk of implied authority

7] Lack of continuity

Types of partners

1] Active/acting/managing partner

A partner who contributes capital and actively participating in the day today affaires of the organisation is called active partner.

2] Sleeping/dormant partner

A sleeping parner does not take any participation in the day today conduct of business but contributes capital to the business.A sleeping partner’s share of profit is less than that of others and he is liable for all the debts of the firm as others.

3] Nominal/ostensible/quosi partner

A person who neither contributes nor take part in the management of the business is called a nominal partner.He is liable to third parties for all the debts of the firm and may or may not be entitled to share the the profit of the organisation.

4] Secret partner

A secret partner is one whose association with the firm is unknown to the general public.In all aspects,he is like the rest of the partners.

5] Partner by estoppel

If a person by his talk or action gives an impression to third parties that he is a partner,he actually becomes a partner by estoppel.He is not entitled share the profit of the firm but will be liable to third parties.

6] Partner by holding out

A person may be represented as a partner to the public by others but really he is not a partner.If he does not deny such a representation so made even after knowing it ,he is held down to be a partner in the firm as he is liable to third parties.

Comparative statement of types of partners

Minor as a partner

Aperson during his minority[not attained the age of 18]may be admitted to the benefits of the partnership and he may act as a partner.A minor,however,will have only limited liability[ie share in the profit.]

Types of partnership

1] On the basis of duration

A] Partnership at will

When in partnership agreement,the duration of partnership is not fixed,it is called partnership at will.Here,the duration of parnership depends upon the will and pleasure of all or any one parntner.

B] Particular partnership

When a partnership is formed for a particular purpose or the duration of the partnership is not fixed,it is called particular parnership.Such firm is dissolved immediately on the completion of the particular purpose time period.

2] On the basis of liability

A] General/ordinary partnership

Here,the liability of all partners is unlimited and joined and every partner has an equual right to take part in the management of business.It is the most common form of parnership in India.

B] Limited partnership

Here,the liability of atleast ome member is limited.Such a parnership does not get terminated with the death or insanity of the limited partner.Registration of such parnership is compulsory.

Partnership deed/articles of partnership

The written agreement which specifies the terms and conditions that govern the parnership is called partnership deed.

Purpose

1] To maintain descipline

2] To avoid misundrstanding and dispute

3] To remined the partners about their rights and duties

Content

1] Name of the firm

2] Name and address of partners

3] Name of location of business

4] Amount of capital to be contributed

5] Amount of salary,commission etc..if any

6] Amount of drawings that can be made

7] Interest on capital and drawings if any

8] Division of work among partners.

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9] Profit sharing ratio

10] Methods of valuation of goodwill

11] Proceedure of admission or retirement of a partner

12] Proceedure of dissolution of firm

13] Dispute settlement

14] Rights and duties of partners

15] Preparation of accounts of the firm

16] Any other important matters

Registration/incorporation

Registration of a partnership firm means entering the name of the firm along with the relevent prescribed particulars,in the Register of firms kept with the Regisrar of firms.It provides conclusive proof of the existance of a partnership firm.Under the Partnership Act 1932,the registration of partnership is optional and not compulsary.

Steps

1] Submission of application in the prescribed form to the Registrar of firms

2] Deposit of required fee

3] The registrar after approval will make an entry in the register of firms and will subsequently issue the certificate of registration/incorporation certificate.

Consequenses of non registraiton[importance of registration]

1] An unrgistered firm can not sue a third party for the recovery of debts.

2] An unregistered firm can not sue against it’s own partners.

3] A partner can not sue an unregistered firm/co partners/third parties for the recovery of his caim

4] A third party can not recover his dues from an unregistered firm through the court of law.

JOINT STOCK COMPANY

Joint stock company or company means voluntary association of persons having separate legal existance,perptual succession and a common seal.

Company is defined as “ company formed and registered under this Act or an existing company”.

- Sec 3(1)(i) of Companies Act 1956

Features

1] Voluntary association

2] Separate legal entity

3] Perpetual succession

4] Common seal

5] Limited liability

6] Transferability of share

7] Separation of ownership and management

8] Registered body

9] Books of accounts

10] Auditing

Types

1] Private company

A private company is a company which by it’s Article

1] Limits the number of members to 50

2] Prohibits any invitation

3] Restricts the rights to transfer the shares

from public to subscribe it’ shares

4] Must have a minimum paid up apital of Rs 100000 or such higher amoint which may be prescribed from time to time.

2] Public company

According to Companies Act 1956,a public company is a company which is not a private ompany.

In other words it is a company which by it’s Article

1] No limit on maximum number of members

2] Not prohibited from inviting the public to subscrib it’s share of capital

3] No restriction on transferability of shares

Public company v/s Private company

Privileges of a private company

1] Only 2 persons are required to form

2] Private company can be managed by 2 directors

3] A private company need not issue prospectus

4] No need of statutory meeting

5] Accounts need not be published

6] A private company can commence business as soon as it’s registration

7] No need of minimum subscription

8] No restriction on the amount of loan to the directors

Merits

1] huge capital

2] separate legal entiyty

3] transferability of interest

4] perpetual sucession

5] professional management

6] employment opportuninities

7] scope for expansion

8] imited liability

Limitations

1] complexity in formation

2] lack of secrecy

3] impersonal work environment

4] delay in decision making

5] lack of motivation

6] social ill effect of large company

7] oligarchic management

Joint Hindu Family/Hindu Undivided Family

Joint Hindu Family/Hindu Undivided Family

Joint Hindu Family refers to a business owned and carried on by members of the joint hindu family.It is a distinct form of business wich is found only in India.HUF is not formed by an agreement but it comes into existance by the operation of Hindu Law.The members of HUF are called co-parceners.

There two systems which govern the membership in the family business:-

1] Dayabhaga system- prevails in West Bengal and allows both the male and female members of the family to be co-parceners.

2] Mitakashara system- prevails all over India except West Bengal and allows only male members to be co-parceners in the business.

Features

1] Created by the operation of the Hindu Law

2] Governed by the Hindu Succession Act 1956

3] Membership by birth

4] Minor can be a member

5] Management in the hands of Kartha[the eldest male member of the family]

6] Liability of members is limited except Kartha

7] No maximum limit on membership

8] Capital constitute the ancestral properties of the family.

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Merits

1] Assured share of all male members

2] Division of labour

3] Continuity of business

4] Business secrecy

5] quick decision

6] Social significance

7] Limited liabilty of members

8] Loyalty and co-operation

Limitations

1] Limited capital

2] Lack of motivation

3] Lack of harmony

4] Limited liability of co-partners

5] Unlimited liability of Kartha

6] Dominance of Kartha

7] Limited managerial skill

Cooperative Society

The cooperative society is a voluntary association of persons,who join together with the motive of welfare of the members.

Features

1] Voluntary association

2] Legal status

3] Limited liability

4] Service motive

5] Open membership

6] One man one vote

7] Cash and carry

Types

1] Consumers cooperative sociey

2] Producers cooperative society

3] Marketing cooperative society

4] Farmers cooperative society

5] Cooperative housing society

6] Credit cooperative society

Merits

1] Easy to form

2] Equality in voting right

3] Limited liability

4] Support from government

5] Economy in operation

6] Dempcratic management

7] Service motive

Limitations

1] Unsuitable for large business

2] Inefficient management

3] Lack of motivation

4] Lack of secrecy

5] Government control

6] Differences of opinion

Comparative evaluation of forms of organisation

Choice of form of business organisation

1] Cost and ease in setting up the organisation

2] Liability

3] Continuity

4] Management ability

5] Capital consideration

6] Degree of control

7] Nature of business

8] Freedom from government regulation

ASKAR.K MCom,MBA,MA[Eco],BEd�HSST Commerce�CHENNAMANGALLUR HSS�9846262398