Choosing a Form of Business Organisation

A business enterprise can be owned and organized in several forms. Each form of
organization has its own merits and demerits. The ultimate choice of the form of
business depends upon the balancing of the advantages and disadvantages of the
various forms of business. The right choice of the form of the business is very crucial
because it determines the power, control, risk and responsibility of the entrepreneur as
well as the division of profits and losses. Being a long term commitment, the choice
of the form of business should be made after considerable thought and deliberation.

The choice of the form of business is governed by several interrelated and

interdependent factors :-

 The nature of business is the most important factor. Businesses providing

direct services like tailors, restaurants and professional services like doctors,
lawyers are generally organised as proprietary concerns. While, businesses
requiring pooling of skills and funds like accounting firms are better organised
as partnerships. Manufacturing organisations of large size are more commonly
set up as private and public companies.

 Scale of operations i.e. volume of business ( large, medium, small) and size of
the market area (local, national, international) served are the key factors.
Large scale enterprises catering to national and international markets can be
organised more successfully as private or public companies. Small and
medium scale firms are generally set up as partnerships and proprietorship.
Similarly, where the area of operations is wide spread (national or
international), company ownership is appropriate. But if the area of operations
is confined to a particular locality, partnership or proprietorship will be a more
suitable choice.

 The degree of control desired by the owner(s). A person who desires direct
control of business, prefers proprietorship, because a company involves
separation of ownership and management.

 Amount of capital required for the establishment and operation of a business.

A partnership may be converted into a company when it grows beyond the
capacity and resources of a few persons.
  The volume of risks and liabilities as well as the willingness of the owners to
bear it, is also an important consideration.

 Comparative tax liability.

Sole Proprietorship
A sole proprietorship is the oldest and the most common form of business. It is a one-
man organisation where a single individual owns, manages and controls the business.
Its main features are :-

 Ease of formation is its most important feature because it is not required to go

through elaborate legal formalities. No agreement is to be made and
registration of the firm is also not essential. However, the owner may be
required to obtain a license specific to the line of business from the local
administration.

The capital required by the organisation is supplied wholly by the owner himself
and he depends largely on his own savings and profits of his business.

 Owner has a complete control over all the aspects of his business and it is he
who takes all the decisions though he may engage the services of a few others
to carry out the day-to-day activities.

 Owner alone enjoys the benefits or profits of the business and he alone bears
the losses.

 The firm has no legal existence separate from its owner.

 The liability of the proprietor is unlimited i.e. it extends beyond the capital
invested in the firm.
  Lack of continuity i.e. the existence of a sole proprietorship business is
dependent on the life of the proprietor and illness, death etc. of the owner
brings an end to the business. The continuity of business operation is therefore
uncertain.

Advantages

 Ease of formation

 Maximum incentive for work

 Secrecy of business

 Quick decisions and flexibility of operations

Disadvantages

 Limited capital

 Limited managerial ability

 Limited life

 Unlimited liability

Hence, this form of organisation is suitable for the businesses which involve moderate
risk, small financial resources, capital requirement is small and risk involvement is
not heavy like automobile repair shops, small bakery shops, tailoring, etc. It accounts
for the largest number of business concerns in India.

Choosing a Form of Business Organisation:

Private Limited Company
A private limited company is a voluntary association of not less than two and
not more than fifty members, whose liability is limited, the transfer of whose
shares is limited to its members and who is not allowed to invite the general
public to subscribe to its shares or debentures. Its main features are :-

 It has an independent legal existence. The Indian Companies Act,1956

contains the provisions regarding the legal formalities for setting up of
a private limited company. Registrars of Companies (ROC) appointed
under the Companies Act covering the various States and Union
Territories are vested with the primary duty of registering companies
floated in the respective states and the Union Territories.

 It is relatively less cumbersome to organise and operate it as it has been

exempted from many regulations and restrictions to which a public
limited company is subjected to. Some of them are :-

• it need not file a prospectus with the Registrar.

• it need not obtain the Certificate for Commencement of

business.

• it need not hold the statutory general meeting nor need it file the
statutory report.

• restrictions placed on the directors of the public limited

company do not apply to its directors.

 The liability of its members is limited.

 The shares allotted to it's members are also not freely transferable
between them. These companies are not allowed to invite public to
subscribe to its shares and debentures.

 It enjoys continuity of existence i.e. it continues to exist even if all its

 members die or desert it.

Hence, a private company is preferred by those who wish to take the advantage
of limited liability but at the same time desire to keep control over the business
within a limited circle and maintain the privacy of their business.

Advantages

 Continuity of existence

 Limited liability

 Less legal restrictions

Disadvantages

 Shares are not freely transferable

 Not allowed to invite public to subscribe to its shares

 Scope for promotional frauds

 Undemocratic control

Partnership Firm
Partnership is defined as a relation between two or more persons who have agreed to
share the profits of a business carried on by all of them or any of them acting for all.
The owners of a partnership business are individually known as the "partners" and
collectively as a "firm". Its main features are :-

 A partnership is easy to form as no cumbersome legal formalities are involved.

Its registration is also not essential. However, if the firm is not registered, it
will be deprived of certain legal benefits. The Registrar of Firms is responsible
for registering partnership firms.
  The minimum number of partners must be two, while the maximum number
can be 10 in case of banking business and 20 in all other types of business.

 The firm has no separate legal existence of its own i.e., the firm and the
partners are one and the same in the eyes of law.

 In the absence of any agreement to the contrary, all partners have a right to
participate in the activities of the business.

 Ownership of property usually carries with it the right of management. Every

partner, therefore, has a right to share in the management of the business firm.

 Liability of the partners is unlimited. Legally, the partners are said to be

jointly and severally liable for the liabilities of the firm. This means that if the
assets and property of the firm is insufficient to meet the debts of the firm, the
creditors can recover their loans from the personal property of the individual
partners.

 Restrictions are there on the transfer of interest i.e. none of the partners can
transfer his interest in the firm to any person(except to the existing partners)
without the unanimous consent of all other partners.

 The firm has a limited span of life i.e. legally, the firm must be dissolved on
the retirement, lunancy, bankruptcy, or death of any partner.

A partnership is formed by an agreement, which may be either written or oral. When

the written agreement is duly stamped and registered, it is known as "Partnership
Deed". Ordinarily, the rights, duties and liabilities of partners are laid down in the
deed. But in the case where the deed does not specify the rights and obligations, the
provisions of the THE INDIAN PARTNERSHIP ACT, 1932 will apply. The deed,
generally contains the following particulars:-

 Name of the firm.

 Nature of the business to be carried out.

  Names of the partners.

 The town and the place where business will be carried on.

 The amount of capital to be contributed by each partner.

 Loans and advances by partners and the interest payable on them.

 The amount of drawings by each partner and the rate of interest allowed
thereon.

 Duties and powers of each partner.

 Any other terms and conditions to run the business.

Advantages

 Ease of formation

 Greater capital and credit resources

 Better judgement and more managerial abilities

Disadvantages

 Absence of ultimate authority

 Liability for the actions of other partners

  Limited life

 Unlimited liability

Partnership is an appropriate form of ownership for medium sized business involving

limited capital. This may include small scale industries, wholesale and retail trade;
small service concerns like transport agencies, real estate brokers; professional firms
like charted accountants, doctors' clinic, attorney or law firms etc.

Choosing a Form of Business Organisation:

Co-operatives

Co-operative organisation is a society which has as its objectives the promotion of the
interests of its members in accordance with the principles of cooperation. It is a
voluntary association of ten or more members residing or working in the same
locality, who join together on the basis of equality for the fulfillment of their
economic or business interest. The basic feature which differentiates the co-operatives
from other forms of business ownership is that its primary motive is service to the
members rather than making profits.

There are different types of cooperatives like consumer co-operatives, producer's co-
operatives, marketing co-operatives, housing co-operatives, credit co-operatives,
farming co-operatives etc. The aim of all such co-operatives is to promote the welfare
of their members. Its main features are :-

 It is a voluntary organisation as a member is free to leave the society and

withdraw his capital at any time, after giving a notice.

 The minimum number of members is 10, but there is no limit to the maximum
number of members. However, the members must be residing or working in
the same locality.
  Registration of a co-operative enterprise is compulsory. A co-operative society
may be registered with the Registrar of Co-operatives Societies.

 After registration a co-operative enterprise becomes a body corporate

independent of its members i.e. a separate legal entity.

 It is subject to the provisions of the Co-operative Societies Act, 1912 or State

Co-operative Societies Acts. It has to submit annual reports and accounts to
the Registrar of Societies.

 The liability of very member is limited to the extent of his capital contribution.

 The shares of co-operative society cannot be transferred but can be returned to

the society in case a member wants to withdraw his membership.

 Being a separate legal entity a co-operative enjoys continuity of existence

which is not affected by death, insolvency, retirement, etc. of the members.

Advantages

 Greater amount of capital

 Reasonable price, good quality or better service

 Better conditions of service to employees

 Continuity of existence

 Limited liability
Disadvantages

 Inability to collect sufficient capital

 Inability to provide efficient managerial services

 Organisational limitation

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Choosing a Form of Business Organisation:

Public Limited Company

A public limited company is a voluntary association of members which is

incorporated and, therefore has a separate legal existence and the liability of whose
members is limited. Its main features are :-

 The company has a separate legal existence apart from its members who
compose it.

 Its formation, working and its winding up, in fact, all its activities are strictly
governed by laws, rules and regulations. The Indian Companies Act, 1956
contains the provisions regarding the legal formalities for setting up of a
public limited company. Registrars of Companies (ROC) appointed under the
Companies Act covering the various States and Union Territories are vested
with the primary duty of registering companies floated in the respective states
and the Union Territories.

 A company must have a minimum of seven members but there is no limit as

regards the maximum number.

 The company collects its capital by the sale of its shares and those who buy
the shares are called the members. The amount so collected is called the share
 capital.

 The shares of a company are freely transferable and that too without the prior
consent of other shareholders or without subsequent notice to the company.

 The liability of a member of a company is limited to the face value of the

shares he owns. Once he has paid the whole of the face value, he has no
obligation to contribute anything to pay off the creditors of the company.

 The shareholders of a company do not have the right to participate in the day-
to-day management of the business of a company. This ensures separation of
ownership from management. The power of decision making in a company is
vested in the Board of Directors, and all policy decisions are taken at the
Board level by the majority rule. This ensures a unity of direction in
management.

 As a company is an independent legal person, its existence is not affected by

the death, retirement or insolvency of any of its shareholders.

Advantages

 Continuity of existence

 Larger amount of capital

 Unity of direction

 Efficient management

 Limited liability

Disadvantages
  Scope for promotional frauds

 Undemocratic control

 Scope for directors for personal profit

 Subjected to strict regulations

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Choosing a Form of Business Organisation:

Joint Hindu Family Business

Joint Hindu Family Business is a distinct type of organisation which is unique to

India. Even within India its existence is restricted to only certain parts of the country.
In this form of business ownership, all members of a Hindu undivided family do
business jointly under the control of the head of the family who is known as the
'Karta'. The members of the family are known as 'Co-parceners'. Thus, the Joint Hindu
Family firm is a business owned by co-parceners of a Hindu undivided estate. Its
main features are :-

 It comes into existence by the operation of Hindu law and not out of contract.
The rights and liabilities of co-parceners are determined by the general rules of
the Hindu law.

 The membership of this form of business is the result of status arising from the
birth in the family and its legality is not affected by the minority. Originally,
only three successive generations in the male line ( grandfather, father and
son) constituted the membership of this organisation. By the Hindu Succession
Act, a female relative of a deceased member or a male relative of such a
female member was made eligible for a share in the interest of the related
member ( called co-parcener) at the time of his death. There is no legal limit to
the maximum number of members.
  Registration is unnecessary, but the rights of its members to sue third parties
for claims of debt remains unaffected.

 It is managed generally by the Karta. He has the authority to obtain loans

against the family property or in other ways. Other members have no right of
management nor to contract loans binding on the joint-family property.

 The manager or the Karta has the last word in the formulation of all policies
and in their execution. He has unquestioned authority in the conduct of the
family business.

 The Karta has unlimited liability while the liability of the other members is
limited to the value of their individual interests in the joint family.

 The firm enjoys continuity of operations as its existence is not subject to the
death or insolvency of a co-parceners or even of the Karta himself. Thus, it has
a perpetual life like the public limited company.

Advantages

 Ease of formation

 Continuity of operations

Disadvantages

 Confined to Joint Hindu families

 Relatively limited capital

 Limited managerial talents

  Unlimited liability of the Karta

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Business Services

Exportersindia provides a database containing a wide range of business services like :

advertisement agents, interior decoration, packaging, printing, employment etc. There
are many types of businesses and there are many divisions and subdivisions of
business. Service businesses offer intangible goods or services and typically generate
a profit by charging for labor or other services provided to other businesses or
consumers. Organizations ranging from house painters to consulting firms to
restaurants are types of service businesses. There are various range of business
services that are offered ranging from advertisement, printing, packaging, matrimonial
matchmaking service to travel & hotel related services. Exportersindia maintains a
database of manufacturers, exporters, wholesalers, suppliers and retails of different
business services.

A commercial bank is a type of financial intermediary and a type of bank.

Commercial banking is also known as business banking. It is a bank that provides
checking accounts, savings accounts, and money market accounts and that accepts
time deposits.[1] After the Great Depression, the U.S. Congress required that banks
engage only in banking activities, whereas investment banks were limited to capital
market activities. As the two no longer have to be under separate ownership under
U.S. law, some use the term "commercial bank" to refer to a bank or a division of a
bank primarily dealing with deposits and loans from corporations or large businesses.
In some other jurisdictions, the strict separation of investment and commercial
banking never applied. Commercial banking may also be seen as distinct from retail
banking, which involves the provision of financial services direct to consumers. Many
banks offer both commercial and retail banking services.

Exporters India, an online business directory offering a comprehensive database of

companies providing Banking Services services.

insurance, in law and economics, is a form of risk management primarily used to

hedge against the risk of a contingent loss. Insurance is defined as the equitable
transfer of the risk of a loss, from one entity to another, in exchange for a premium,
and can be thought of as a guaranteed small loss to prevent a large, possibly
devastating loss. An insurer is a company selling the insurance; an insured is the
person or entity buying the insurance. The insurance rate is a factor used to
determine the amount to be charged for a certain amount of insurance coverage, called
the premium. Risk management, the practice of appraising and controlling risk, has
evolved as a discrete field of study and practice.

Communication is the process whereby information is imparted by a sender to a

receiver via a medium. Communication requires that all parties have an area of
communicative commonality. There are auditory means, such as speaking, singing
and sometimes tone of voice, and nonverbal, physical means, such as body language,
sign language, paralanguage, touch, eye contact, by using writing. Communication is
defined as a process by which we assign and convey meaning in an attempt to create
shared understanding. This process requires a vast repertoire of skills in intrapersonal
and interpersonal processing, listening, observing, speaking, questioning, analyzing,
and evaluating. if you use these processes it is developmental and transfers to all areas
of life: home, school, community, work, and beyond. It is through communication
that collaboration and cooperation occur.[1

A warehouse is a commercial building for storage of goods. Warehouses are used by

manufacturers, importers, exporters, wholesalers, transport businesses, customs, etc.
They are usually large plain buildings in industrial areas of cities and towns. They
come equipped with loading docks to load and unload trucks; or sometimes are loaded
directly from railways, airports, or seaports

In economics, the private sector is that part of the economy which is both run for
private profit and is not controlled by the state. By contrast, enterprises that are part of
the state are part of the public sector; private, non-profit organizations are regarded as
part of the voluntary sector.

The public sector is the part of economic and administrative life that deals with the
delivery of goods and services by and for the government, whether national, regional
or local/municipal.

Examples of public sector activity range from delivering social security,

administering urban planning and organising national defenses.

The organization of the public sector (public ownership) can take several forms,
including:

• Direct administration funded through taxation; the delivering organization

generally has no specific requirement to meet commercial success criteria, and
production decisions are determined by government.
• Publicly owned corporations (in some contexts, especially manufacturing,
"state-owned enterprises"); which differ from direct administration in that they
have greater commercial freedoms and are expected to operate according to
commercial criteria, and production decisions are not generally taken by
government (although goals may be set for them by government).
• Partial outsourcing (of the scale many businesses do, e.g. for IT services), is
considered a public sector model.

A borderline form is
 • Complete outsourcing or contracting out, with a privately owned corporation
delivering the entire service on behalf of government. This may be considered
a mixture of private sector operations with public ownership of assets,
although in some forms the private sector's control and/or risk is so great that
the service may no longer be considered part of the public sector. (See
Britain's Private Finance Initiative.)

In spite of their name, public companies are not part of the public sector; they are a
particular kind of private sector company that can offer their shares for sale to the
general public.

The decision about what are proper matters for the public sector as opposed to the
private sector is probably the single most important dividing line among socialist,
liberal, conservative, and libertarian political philosophy, with (broadly) socialists
preferring greater state involvement, libertarians favoring minimal state involvement,
and conservatives and liberals favoring state involvement in some aspects of the
society but not others.

Departmental Undertakings of Forms of Organisation and management Under this

form of organisation, a public enterprise is run as a department of the Government. It
is organised, financed and controlled like any other Government department. A
departmental undertaking is self-contained but it is under the overall control of the
departmental head and the ministry concerned.

Statutory corporation
A statutory corporation is a corporation created by statute. Their precise nature
varies by jurisdiction thus they might be ordinary companies/corporations owned by a
government with or without other shareholders, or they might be a body without
shareholders which is controlled by national or sub-national government to the (in
some cases minimal) extent provided for in the creating legislation.

government-owned corporation, state-owned enterprise or government business

enterprise is a legal entity created by a government to undertake commercial or
business activities on behalf of an owner government. There is no standard definition
of a government-owned corporation (GOC) or state-owned enterprise (SOE), although
the two terms can be used inter-changeably. The defining characteristics are that they
have a distinct legal form and they are established to operate in commercial affairs.
While they may also have public policy objectives, GOCs should be differentiated
from other forms of government corporation or entity established to pursue purely
non-financial objectives that have no need or goal of satisfying the shareholders with
return on their investment through price increase or dividends.

Multinational Companies in India

 The post financial liberation era in India has experienced huge influx of
'Multinational Companies in India' and propelled India's economy to greater
heights.

Although, majority of these companies are of American origin but it did not take too
long for other nations to realize the huge potential that India Inc offers.
'Multinational Companies in India' represent a diversified portfolio of companies
representing different nations. It is well documented that American companies
accounts for around 37% of the turnover of the top 20 firms operating in India. But,
the scenario for 'MNC in India' has changed a lot in recent years, since more and more
firms from European Union like Britain, Italy, France, Germany, Netherlands,
Finland, Belgium etc have outsourced their work to India. Finnish mobile handset
manufacturing giant Nokia has the second largest base in India. British Petroleum and
Vodafone (to start operation soon) represents the British. A host of automobile
companies like Fiat, Ford Motors, Piaggio etc from Italy have opened shop in India
with R&D wing attached. French Heavy Engineering major Alstom and Pharma
major Sanofi Aventis is one of the earliest entrant in the scene and is expanding very
fast. Oil companies, Infrastructure builders from Middle East are also flocking in
India to catch the boom. South Korean electronics giants Samsung and LG
Electronics and small and mid-segment car major Hyundai Motors are doing excellent
business and using India as a hub for global delivery. Japan is also not far behind with
host of electronics and automobiles shops. Companies like Singtel of Singapore and
Malaysian giant Salem Group are showing huge interest for investment.