UNIT 2

LECTURE - 4

CONCEPT OF THE FORM OF BUSINESS ORGANISATION

All legal rights on any kind of thing or property in known to be as ownership. Likewise the ownership of Land and Property, their can be the ownership of business institutions also in the public and non-public sectors. The ownership organization of business institutions is the form of business organization. The form of business institution also depends upon its legal entity.

FORMS OF BUSINESS ORGANIZATION

PRIVATE ENTERPRISE

CO-OPERATIVE SECTOR ENTERPRISE

PUBLIC SECTOR ENTERPRISE

Sole Trader Partnership Company Organization Private Company Public Company

Co-operative Society Co-operative Store

Government Department Government Company

Statutory Corporation
Statutory Board or Commission

PRIVATE ENTERPRISE Private enterprise is concerned with the private business which depends on the economic system and indeed rooted in political philosophy. The system relates to capitalism as an individual believes in private ownership of all agents of production in private sharing of distribution process that determines the functional rewards of each participant and in individual expression of consumers choice through a free market place.

Private business falls in the range between extreme individualism and no government and the acceptance of some state sanctions.

SOLE TRADERA sole trader is a person who carries on business exclusively by himself. The important idea of the concern is that the individual assumes full responsibility for all the risks connected with the conduct of business, he is not only the owner of capital of the undertaking but usually the organizer and manager and takes all the profits or responsibility for losses.

PARTNERSHIP FIRMPartnership results from the desire of businessmen to take advantage of complementary abilities and to rise more capital. Partnership is an association of two or more persons to carry on; as co-owners, a business for profit.

The general partnership is the oldest form of business ownership, it has grown up a body of common laws as well as statutory law. The general partnership was known to the ancient Egyptians, Phoenicians, Grecians and Romans.

COMPANY ORGANIZATION
The word company means a group of persons associated for any common objective as business charity, sports and research etc. Almost every partnership firm having two or more partners may style itself a company e.g. Ram Dass Kalyan Dass & Company. But this company is not a company in the legal sense for the word.

The words & Company simply indicate that there are other persons in their association besides Ram Dass & Kalyan Dass. We use the word company strictly in legal sense i.e. a company incorporated or registered under the companies act, usually have the word limited as part of its name e.g. Cement Corporation of India Ltd., Kolkata, Industrial Finance Corporation of India Ltd., New Delhi etc.

A Company is a body which generally consists of one or more natural or artificial persons established by law usually for some specific purpose or purposes and continued by a succession of members. A company is an artificial person created or authorized by legal statute for some specific purpose.

(A)PRIVATE COMPANY
This company is a compromise between partnership firm and public company because it combines features of both. Like a partnership business, private company can be started with two members. It can take quick decisions and can maintain business secrecy as in case of partnership. The owners of private company can retain direct control and can provide personal motivation to work hard and improve profits.

Like the public company a private company has separate legal entity, united liability, perpetual existence and the capacity to raise larger financial resources. Private company appears to be an ideal form of organization for carrying business on the medium scale and for exercising close control over the affairs of business.

(B)PUBLIC

COMPANY

means a company which is not a private company and must have the minimum prescribed paid up capital of Rs. Five lakes or higher paid up capital. A public company includes a private company which is a subsidiary of a company which is not a private company i.e. a private company which is a subsidiary of public company becomes deemed as public company.

A company is identified as public company which does not have any restriction on the transfer of shares, it does not limit the maximum number of members and can invite public for the subscription of its shares and debentures.

Co-operative Sector enterprise

In technical sense Co-operation means abandonment of competition in distribution and production and elimination of middleman of all kinds. It is a special form of economic organization in which the people work together for definite business purposes under certain definite rules.

Basically, the root of the co-operative idea relates to the relation between business and ethics which indicate the necessary commercial honesty of present industrial system.

Co-operation is something more than a system. It is a spirit which appeals to the heart and mind. It is basically a religion applied to business. So this concept is a gospel of self-sufficiency and service.

(A)CO-OPERATIVE SOCIETY Co-operative society is purely a voluntary association of persons organized to look after their common ends, through mutual co-operation.
This concept is based on the principle one for all and all for one.

CO-OPERATIVE STOREConsumer co-operative store means the cooperative institutions established by general public in order to provide facilities to local society to purchase restive convenience goods on fair prices. Consumers cooperative store may be of both types - wholesale and retail. The purpose of these stores is to eliminate the unreasonable profit earned by middlemen or traders.

These institutions are helpful to the society by protecting the increase in prices of the commodities.

PUBLIC SECTOR ENTERPRISE

It is a kind of business which is controlled and operated by government under the condition that either government is the only owner of the establishment or the majority of ownership is with it.

(A)GOVERNMENT DEPARTMENT
Under this kind of arrangement the establishment is run by some ministry, establishment functions as a government department. Its liabilities are fixed by the concern ministry and also its managerial officials are usually appointed by the ministry.

(B)GOVERNMENT COMPANYmeans any company in which at least 51 percent of paid up share capital is held by the Central Government or by any State Government or Governments or partly by the Central Government and partly by one or more State Government and includes a company which is a subsidiary of a Government company.

Statutory Corporation
This is the most prevailing method to function as a government enterprise. In this regard a special act is constituted by the parliament to convert a private establishment into public corporation for the purpose to do some special activities in the interest of the society. This arrangement is known as public corporation.

The corporation is responsible to prepare the annual budget and its officials are appointed under the provisions of the act.

STATUTORY BOARD OR COMMISSION

Board or commission is another method to manage the government enterprises. This is that form which is used to remove the demerits of departmental organization. The main aim of its establishment is to produce the qualities of elasticity and quick decisions, which are necessary for the establishment of any industrial and business enterprise.

SIZE OF FORMS OF BUSINESS ORGANIZATION

1.Private (Small Scale Business Organization)
(a) Sole Trader (b) Joint Hindu Family Business (c) Partnership

2. Private Large Scale Business Organization

(a) Joint Stock Company

3. Other Forms of Large Scale Business Organization

(a) Co-operative Organization (b) State Enterprises (c) Business Combination

FORMS OF BUSINESS OWNERSHIP

Private Enterprises
Small sector Non-incorporated Large Sector Incorporated Non incorporated Incorporated Departmental Public--

Public Enterprises

1.Sole Proprietorship Private Company 2.Undivided -Joint Family Business 3. Partnership Co-operativeSociety Public Company

Organization

--Corporation
-- Company

Board Organization Government Public Trust Joint-Stock---Company

SOLE PROPRIETORSHIP INTRODUCTION

A sole proprietorship concern is a business owned by a single person. As a sole proprietor, there is no legal distinction between the proprietor and his business. The business can be carried out in any name and style for e.g. M/S ABC Traders of Mr. X .

One can open a bank account in the name of sole proprietorship concern. In case, one wishes to have a trade mark, one can design and use it as a trade mark and may even register a trade mark with the proper authorities.

SOLE PROPRIETORSHIP MEANING

It is a business initiated and operated by one individual who carries all financial and administrative responsibilities and employing assistants as may be required

PROMINENT FEATURES OF SOLE PROPRIETORSHIP

Different striking features of a sole proprietary concern are
1.No special legislation It can be setup easily and in expensively as there is no formal requirement for incorporation.

2.No sharing of profits or loses The proprietor realizes all the profits , bears all the losses and incurs all the liabilities of the business.

3.Freedom in selection of businessAs a sole proprietor one doesnt have do make any legal documents to begin the business except to get permission and compliance of law, which are necessary for the type of business one carries on. For e.g. if a person is a doctor he needs a license to practice etc.

4. No Sharing of risk
The important feature of the business is risk bearing factor, risk is always involved in the business for taking decision regarding change of business, expansion of business, hasty decision related to business, business environment and even investment of funds /capital towards modification of objective of the business.

5. Contribution of owned and/or borrowed capital

Sole proprietor usually contribute the capital itself for the smooth functioning of business activities. The person usually approaches to financial institutions and commercial banks like nationalized bank or non-nationalized banks for long term finance and short term finance for his smooth functioning of the business.

6. Entire Management and Control

An individual establishes a business and contributes his own capital to the business activities, then the person is only responsible to divert his maximum attention towards the best utilization of business resources (Man, Money, Material etc.)

In this regard the person himself manages all the affairs of business and controls over its different activities for the purpose of well utilization of resources in the interest of the society.

7. Limited Area Of Operation

An individual is only responsible for his business to arrange all required resources, and due to lack of adequate finance, managerial capability specializations in different areas and wide area coverage of market, the person generally carries his business in small scale size and within the range of easily reachable areas.

8. Unlimited Liability
In case of sale proprietorship business organization the proprietor enjoys all the profit of the business. But in case of losses, which occurs in business the person is only liable to face losses up the end point.

ADVANTAGES OF SOLE PROPRIETORSHIP

In sole proprietorship business the proprietor has different advantages to establish and easily carry his business as compared to the partnership form of business and company form of business organization-like-

1.Facility of formation
This type of business do not required any formality for established of business, it means any person can start business at any time without preparation of legal documents and obtaining the registration under any specific act.

2. Quick decision & prompt action

This is a favorable point to sole proprietor to take any decision at any time without consulting others related to any change in business, expansion in business and even establishment of new business activity in continuation of existing business.

3. Personal Element
In this business the proprietor is free to contact and engage any person or any party from inside the organization or from outside the organization, for the smooth progress of business activities, without any hesitation.

4. Secrecy
In case of large business like company organization all types of information and documents are open for public. In partnership business, information may also be diverted by any member of partnership to inside and outside persons related to business activities. But in sole proprietorship business organization proprietorship secrets all types of information and documents.

5.Initiative
In this business the proprietor is fee to take any action or any change in business activities at any time on the basis of environmental forces, related to modification in business or even change in business.

6.Flexibility
During the course of business activities the decisions of proprietor are flexible i.e. at one time he can take decision for adding new activities in the existing business and the next time if the person is not in position to carry the activities then he can change his decision accordingly.

7. Lower cost of management

In case of small size of business the proprietor is capable to manage all affairs of the business, generally he is not required to engage for management of business activities, for which the person eliminates the cost of management.

8.Social Significance
The advantage of social significance provides two types of benefits in the society (a) Self Employment- i.e. any person can start some business activity for his livelihood. (b) Diffusion of Labor- means on the basis of experience in business the person can take decision for the expansion of business within the limit.

DISADVANTAGES OF SOLE PROPRIETORSHIP

Sole proprietorship business organization focuses different disadvantages in present time as compared to the partnership business and also the company form of business organization like-

1.Limited CapitalIn case at the time of establishment of business and carrying its activities smoothly the owner of business contributes adequate finance (from own and some %age from the market) but in case expansion, modification and even adding new units in the existing business the person is unable to provide additional finance for the purpose.

2.Limited organization ability & managerial skills

This is another drawback that a proprietor can organize and manage a limited area of operation, the reason is availability of time, capability of persons and arrangement of adequate finance, with these reasons the person can not go beyond the boundary for organizing business activities.

3. Unlimited liability
Proprietor of the business is only concern with the business resultsIncase profit is earned by business, the person does not share with any other person but in case of loss in the business, the person is only liable to pay to the extend to the end point.

4.Absence of legal status

On one hand, the business can be started at any time without any legal formations, but on the other hand, the business is not shows as registered firm under any specific act as it has no separate legal entity under any law. This situation faces different problems like- without registration of business, the firm can not sue a file against any firm or agent of the firm, or any other party cannot enforce for his rights, and even proprietor faces problem in the sanction of loan or advances from open market for business activities.

5.No economy in large scale & specialization

Sole proprietorship business is a small business and it produces a small target output because some types of proprietors are not specialized persons in different areas of sub-system of total business system like- production function, marketing function, research and development function, finance function, personnel function. These generally increase the cost of production in long time.

6.Unsuitable for developed business

Because of lack of techniques, technological ideas, up-to-date information regarding the change in customers taste at national and international level and lack of mechanization, the business is not suitable for developed nations.

LEGAL FORMALTIES
1. If proprietorship is a manufacturing unit, the firm should be registered with Directorate of Industry and Commerce. 2. If proprietorship is a drug shop, the firm should be registered with the drug controller. 3. If the proprietorship is a liquor shop, the firm should be registered with the State Excise.

4. If proprietorship is a fair-price shop the firm should be registered with the department of food and civil supplies.

SUITABILITY OF BUSINESS
On the basis of different facts, the sole proprietor is advised to maintain small business and focus on Local market Personal control Speculative business