presentation on business organization
DESCRIPTION
Salient features of various forms of Ownerships.TRANSCRIPT
A firm is an ownership organization which combines the factors of production (men, material and machines) in a plant for the purpose of producing goods or services and selling them at profit.
The type of ownership selected depends upon the following factors :
Size and nature of the business to be started.
Technical Difficulties.
Market Competition and scope of the articles in the market.
Capital required to start the business and means to collect the funds.
Limitations and restrictions put forth by the Government in connection with grant of loans, foreign exchange and such other things.
Types of
Ownership
PrivateEnterprises
Co-operative Sector
Enterprises
Public SectorEnterprises
PrivateEnterprises
IndividualOwnership
PartnershipJoint StockCompany
Private Limited
Company
Public Limited
Company
Co-operativeSector
Enterprises
ProducersCo-operative
Society
HousingCo-operative
Society
Consumers Co-operative
Society
CreditCo-operative
Society
Public SectorEnterprises
GovernmentDepartment
Statutory Corporation
GovernmentCompany
Statutory BoardOr
Commission
Individual Ownership
In this type the individual entrepreneur supplies the entire capital. He organizes and manages the business himself and takes the entire risk and so it is called one man business.
Legal Liability :
His legal liability covers all his possessions.
The credit can collect his personal property.
Applications :
For small scale business requiring small capital which can be spared by one man.
Where the risk covered is not too heavy.
Where management by one man is possible.
Where local market is available.
Advantages :
Simple and Easy.
Least Legal Formalities.
Quick Decisions and Prompt Actions.
Quality Production.
Better Labour Relationship.
Personal Attention to Customers.
Small Capital.
Maintenance of Secrecy.
Incentive.
Flexibility.
Disadvantages :
Limited Capital.
Unlimited Liability.
Personal Limitations.
Small Income.
Cannot Compete with a big business.
Short Life.
Division of Labour is not possible.
No Economies of Large Scale.
Partnership Organization
According to Indian Partnership Act 1932, Partnership is defined as, “the relation between two or more persons who have agreed to share profit of a business, carried on by all or any of them acting for all.”
Formation :
Partnership can be formed either verbally or by written agreement. The written agreement is known as “Partnership Deed”.
The Partnership Deed contains :
The terms and conditions relating to the partnership.
The regulations governing its internal management.
The rights and duties of the partners.
The Partnership Deed should have the following details :
Name of the firm.
Nature of business.
Date of starting partnership.
Duration of partnership.
Rate of interest on capital invested.
Money contributed by each partner.
Allotment of managerial functions among partners.
Share of profit and loses.
Salary allowed to managing partners.
The basis for the inclusion of any new partners.
The amount which can be withdrawn by each partner.
The aim of partnership.
Accounts of the firm and authority.
Provision for arbitration for settling the disputes that may arise in future.
The partners have to prepare a statement which will have the following particulars :
Name of the firm.
Place of business.
Name and address of partner.
Date of joining the firm.
Duration.
Types of Partners :
General Partners :
All the partners who participating in the working of the firm and are responsible to joint with other partners, for all liabilities, obligations and defects of the firm are the general partners.
Limited Partners :
The liability for debts of the limited partners is limited to the extend of their contributed capital.
Active or Managing Partners :
Active partners are those who take active part in the management and formulation of policies.
Sleeping and Silent Partners :
They do not take any active part in the business. They simply contribute their capital in the business and get their share in the profit of the firm.
Nominal Partners :
They lend their reputed name for the company’s reputation. They do not invest money and do not take any active part in the management.
Minor Partners :
Minor partners are those whose age is below 18 years and associated with the business. Such partners can be allowed only with the consent of other partners. Their liability is limited to their investment.
Advantages :
Easy Formation.
More Capital.
Diverse Talent.
Less Possibility of Error of Judgment.
Prompt Decisions.
Large Economics.
Personal Factors.
Divisions of Labour.
Simple Dissolutions.
Cautious and Sound Approach.
Disadvantages :
Unlimited Liability.
Short Life.
Insufficient Capital.
Disagreement.
Less Secrecy.
Non-Transfer of Partnership.
No direct relation between efforts and rewards.
Lack of Public Confidence.
ParameterIndividual Ownership
Partnership
Membership :Individual Owner
Minimum 2 Maximum 50
Formation :No agreement is required
An agreement is required
Capital : Limited Capital Large Capital
Distinction between Individual Ownership and Partnership
Registration : Not Necessary Necessary
Risk :Individual Owner bear risk
Risk spread among partners
Profit :Owner enjoys the profit
Profit is shared among partners
Management : Owner manage the business
It is shared by partners
Secrecy :Owner maintains the secret
Partners may reveal secrets
Decisions :Owner must take decisions
Partners can take decisions
Suitability :Small scale business
Small and Medium scale
Division of labour :
Not possible Possible
Joint Stock Company
Joint Stock Companies are formed and registered under the Indian Companies Act, 1956.
The joint stock company is a legal business owned by the shareholders having limited liability and managed by an elected “Board of Directors”. The shares are transferable.
Characteristics of Joint Stock Company :
A company is created by registering or incorporating an association of persons under the Company Act.
It has a separate legal existence as distinct from its members.
Artificial personality enabling it to exercise certain legal powers.
Perpetual life and a very stable existence.
It has a common seal on which its name is engraved and this seal acts as its signature.
There is a complete separation of ownership from management.
Liability of shareholders is limited.
Lower tax liability.
Easy transferability of shares.
There is a wide distribution of risk of loss.
Large membership.
Statutory regulations as provided in the Indian Company’s Act, 1956.
Formation of Joint Stock Company :
The entrepreneurs (promoters) of the company prepare the following documents :
Memorandum of Association.
Articles of Association.
A List of persons who have consented to be the Directors of the Company.
A declaration by an advocate to the effect that all the requirements of the Act have been fulfilled.
Name and address of promoters.
The memorandum of association contains :
The name of the Company.
Its aim and objectives.
The location of head office.
The amount of share capital.
The kind and value of each share.
A declaration that the liability is limited.
Articles of Association contains :
Rules and regulations governing the internal management of the company.
Rights of shareholders.
Duties of shareholders.
Powers of Directors.
Regulations regarding rights to vote.
Issue of capital.
Raising Finance :
Funds can be taken from banks and finance corporations etc. in the form of loans, or by selling shares and debentures.
Managing the Business :
The shareholders elect the directors to manage the business on their behalf. The board of directors only lays down the general policy and discusses major issues.
The day-to-day business is carried on by the salaried manager or the Managing Director.
Organization Structure :
Share holders
Board of Directors
Auditor Executive Committee Bankers
General Manager
Sales Purchase Accounting Productiondeptt. deptt. deptt. deptt.
Types of Joint Stock Company :
Private Limited Company
Public Limited Company
Private Limited Company :
It can be formed by two or more members. The maximum number of members is limited to 50. The company is registered under the Indian Company’s Act, 1956.
It enjoys a separate legal status, continuity of life, benefits of limited liability. Large capital raising power, business secrecy to certain extend.
Public Limited Company :
The membership is open to general public. The minimum number of persons is seven and no upper limit.
It is subjected to greater control and supervision of the government which protect the interest of the shareholders and the members of the public.
Advantages :
Economies of Large Scale.
Limited Liability.
Huge Capital.
Share Transferable.
Economies Administration.
Democratic.
Permanent Existence.
Legal Control.
Risk spread out.
Mobilization of Scarce saving.
Accelerated economic growth of the country is possible through industrialization.
It creates huge employment possibilities.
Disadvantages :
Dishonest directors may exploit the shareholders.
Large Complexities.
It is democratic in theory only.
Delay in Decisions.
Favourisms.
Difficult labour relations.
Lack of initiative and personal interest.
Concentration of economic power and wealth in a few minutes.
Misuse of internal information.
Particulars Private Limited Public Limited
Membership :Open to Private members.
Open to general public.
Limits to membership :
Minimum 2 Maximum 50
Minimum 7 Maximum no limit
Comparison between Private and Public Limited Companies
Election of Directors :
Not required Required
Resale of shares :
Not possible Possible
Audit of Accounts :
No legal provision
Legal provision
Minimum capital :
Start with any amount
Need minimum capital
Name :End with “Private Limited”
End with only “Limited”
Number of Directors :
Minimum 2 Minimum 3
Legal control : Less More strict
Remuneration of Directors :
Less11% of net profits
Partnership Joint Stock Company
Liability of members is limited.
Liability is limited to the value of shares.
Minimum number of partners is 2, maximum is 20.
Minimum number of shareholders is 2, maximum is 50.
Distinction between Partnership and Joint Stock Company
It has no separate legal entity.
It has a legal existence.
Limited Capital.Large amount of capital is needed.
Managed by the partners.
Managed by the elected board of directors.
Shares are not transferable.
Shares are transferable.
It has short life.It has permanent existence.
It has simple legal procedures.
It has large legal procedures.
Smooth and efficient management is difficult.
Smooth and efficient management is easy.
It is governed by Partnership Act,1932.
It is governed by Indian Companies Act, 1956.
Definitions :
A simple definition can be stated as, “A co-operative society is a voluntary association of economically weak persons who work for achievement of their common economic objectives on the basis of equality and mutual service.”
The International Labour Organization stated it as :
“A Co-operative organization is an association of persons who have voluntarily joined together to achieve a common economic end through the formation of a democratically controlled organization, making equitable contributions to the capital required and accepting a fair share of risks and benefits of the undertaking”.
Mr. N. Barrow defined Co-operative Society as :
“A voluntary organization of persons with unrestricted membership and collectively own funds. Consisting of wage earners and small producers, united on democratic basis for the establishment of enterprises under joint management for the purpose of improving their household or business economy”.
Co-operative spirit is the heart and backbone of a co-operative society.
“Each shall work for all and all for each” is the motto of co-operation.
Its main object is to promote self help and mutual assistance among men of moderate means and income, having needs and interest in common.
The five pillars of a co-operative organization are :
Mutual Trust.
Mutual Supervision.
Self-reliance.
Spontaneity.
Equality.
Distinctive Features / Characteristics :
It is a voluntary organization.
There is no limit to its members.
The management is based on democratic lines of equality.
Its objective is to promote self-help and mutual assistance.
Service has primary importance and self- interest has secondary importance.
Unity of joint action is the basis for co-operation.
The members come together to fulfill their common interest.
A co-operative society has to be registered under separate legislation.
Aim and Objectives :
To purchase and supply raw-materials, tools and equipment to members.
To secure contracts and execute them with the help of members.
To market the finished goods of members.
To purchase machinery for giving on hire to members.
To borrow funds from members and non- members.
To grant loans and advances to members on the security of raw-materials and finished goods.
To secure materials and social progress of all members.
To safeguard the interest of the poorer sections against exploitation by the capitalists.
Types of Co-operative Societies :
Producers Co-operative Society.
Consumers Co-operative Society.
Housing Co-operative Society.
Credit Co-operative Society.
Producers Co-operative Society :
In this form, the workers wish to be their own masters. They elect their own managers. They are their own employees.
The profit goes to the actual workers. There are no strikes and lock-outs.
Examples :
Agricultural Industries.
Cottage Industries.
Shortcomings :
Inadequate capital.
Inefficient management.
Lack of discipline.
Consumers Co-operative Society :
The consumers living in a particular area combine together. Each contributes a small capital.
A store is opened in which articles of common use are stocked and sold at reasonable prices. Such stores are found in colleges and schools.
Advantages :
Much capital is not needed.
The management is simple and honorary.
There is legal control and inspection.
Disadvantages :
They offer very little selection for consumers.
The honorary office bearers do not take much pains, they are sometimes dishonest.
Housing Co-operative Society :
These are formed for the purpose of getting plots or constructing house for the needy persons. Government provides great facilities for this purpose.
Credit Co-operative Society :
Its object is to finance the poor cultivators by providing loans at low rate of interest for the development of land, purchase of agricultural machinery, fertilizers etc.
Advantages :
It protects the interest of the weaker section of the community as under :
• Provide better methods and tools of production to small manufacturers and craftsmen.
• Help the farmers in farming and marketing their products efficiently.
• Provide financial assistance at moderate rate of interest.
• Opening of super bazaar types of stores gives relief to the weaker section of the society.
Elimination of middlemen.
Services motive.
Democratic nature.
Sense of co-operation.
Socially neglected class.
Disadvantages :
Lack of Co-ordination.
Chances of undue advantages.
Favourism.
Limited Capital.
Inefficient Management.
Political influence.
ParametersCo-operative
SocietyJoint Stock Company
Formation :Under Co-op. Society Act.
Under Companies Act.
Limits to membership :
Minimum 10
Minimum 2 for Private Ltd. and 7 for Public Ltd.
Distinction between Co-operative and Joint Stock Company
Fundamental Principles :
Spirit of
Co-operation.Spirit of competition.
Promote self-help and mutual assistance.
No need for unity of purpose.
Unity of purpose.Large number of shareholders.
Community interest.
Socialist bias.
Membership :Local or regional territory.
Wide spread membership
Capital : Limited. Large capital.
Transfer of shares :
Shares are not transferable.
Shares are transferable.
Liability : Limited. Limited.
Distribution of profit :
Maximum dividends on shares 12 p.c.
No limit on dividend.
Not profit motive. Profit motive.
Privileges :Special privileges.
No special privileges.
Management :Democratic with equal voting rights.
Democratic with unequal voting rights.
Contact : Good contact.No such contact.
Life : Short.Permanent existence.
Private Sector Public Sector
Profit motive is of primary importance.
Profit motive is of secondary importance.
Owned and managed by individuals.
Owned and managed by Central or State Govt.
Distinction between Private Sector and Public Sector
Limited capital. Large capital.
Limited Capital.Large amount of capital is needed.
It causes concentration of wealth.
Equitable distribution of wealth and income.
Face competition in the market.
Absence of competition.
It dominates in the production of consumer goods.
It dominates in the production of producer goods.
Chances of exploitation of general public.
Protect people from exploitation.
It does not undertake risky ventures.
It undertakes risky ventures.
It leads to unbalanced growth of industries.
It encourages industrial growth of under-developed regions.
Wastage of material and labour is minimum.
Wastage of material and labour is maximum.
It has to play a key role to accomplish quick industrialization and rising standard of living of the people through developing key and basic industries.
Objectives :
Equitable distribution of wealth and income.
Balanced economic development through dispersal of industrial location.
Adequate employment opportunities.
Speedy agricultural and industrial development without the growth of monopolies.
Self-sufficient of the nation in modern technology.
Government Undertaking :
Its also called State Ownership. It is the business organization which is owned, managed and run by the government.
The social benefit is of primary importance while profit motive is given a secondary consideration.
Advantages :
Profits go to the Govt. and are utilized for the benefit of the society.
Purity of supply is guaranteed.
Govt. has ample funds and can borrow more, if needed, in the money market at low rates.
The best talent is attracted towards Govt. service.
Govt. can afford to wait long for an enterprise to yield profit.
Consumer’s interests are properly safeguarded.
Govt. enterprise is subjected to greater control.
Disadvantages :
Govt. officer behaves like a big boss and a respectable citizen receives no courtesy.
Govt. servants do not work hard because here promotion is by seniority and not by merit.
Frequent transfers of Govt. servants are harmful to the success of the enterprise.
The Govt. business is all routine and there is little initiative. So economic progress is slow.
There are no shareholders to question the directors in the annual meeting.
Public Corporation :
It’s a body created by a Law of Parliament with its powers, duties and liabilities defined in the written law.
Public corporations try to combine the public interest of the Govt. body and the autonomous management of the public sector.
Characteristics :
It is created by the separate act passed by the Parliament or State Legislative Assembly.
It is owned by the Govt.
It is managed by the board of directors nominated by the Govt.
It enjoys complete internal autonomy and is free from political control.
It enjoys financial freedom and can raise financial resources independently.
The employees of the public corporation are not treated as the Civil servants of the Govt.
Its primary objective is to serve the public interest.
Disadvantages :
It is suitable only for the management of very big enterprises.
It needs special legislation.
It is a rigid form of organization as any change in its constitution will require amendment of the special act.
The autonomy of the corporations are only on papers.
Public corporations possess monopoly.
Joint Venture :
It’s a typical form of foreign collaboration. It is adopted by a multinational company to expand its business in foreign countries, particularly developing countries.
Forms of Joint Venture :
Mixed companies with equal contribution in equity share capital as partners.
Joint ownership provides factory premises, buildings, raw-materials, power and labour while foreign country supply capital, machinery, technical know-how and skill.
Jointly operated enterprise in which a foreign company supplies capital goods and the debtor company repays the loan in the form of export of output.
CHOICE OF FORM OF ORGANIZATION :
While launching a new business enterprise, the following factors must be considered for selecting the form of ownership :
Nature of business.
Scale of operations.
Degree of direct control desired by the owners.
Amount of capital required initially and for expansion.
Degree of risk and liability and willingness of owners to assume personal liability for debts of business.
Division of profits among the owners.
Length of life desired by the business.
Relative freedom from Govt. regulations.
Scope and plan of internal organization.
Comparative tax liability.
Comparative Evaluation of Different Forms of Business Ownership
FormsIndividual Ownership
PartnershipPrivate
Ltd.Public
Ltd.
Co-operative Society
Ease of
formation :
Easiest, No legal
formalities.
Easy, an agreement is needed.
Not easy
Very diffic-
ultEasier
Registration:
Not necessar
yOptional
Compulsory
Compulsory
Compulsory
Membership:
Single
Minimum 2
Maximum 20
Minimum 2
Maximum 50
Minimum 2
Maximum no limit
Minimum 10
Legal status:
No separate legal status
No separate
legal status
Separate
legal status
Separate legal
status
Separate legal
status
Liability of
members:
Unlimi
ted
Unlimi
tedLimited Limited Limited
Capital: LimitedModer
ateLarge
Very large
Limited
Suitability:
Small scale
Small and
medium scale
Medium scale
Large scale
Small and
medium scale
Transferability of interest:
At willWith
mutual consent
Restricted
Freely transfera
ble
Restricted
Capital: LimitedModer
ateLarge
Very large
Limited
Stabil
ity:Short
lifeLess
stable
Permanent
existence
Permanent
existence
Comparatively
short life
Business
secrecy:Perfect
Limited to
partner
Shared by
members
Shared with
public
Limited to
members
Capital: LimitedModer
ateLarge
Very large
Limited
