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

Private
Enterprises

Co-operative
Sector
Enterprises

Public Sector
Enterprises

Private
Enterprises

Individual
Ownership

Partnership

Joint Stock
Company

Private
Limited
Company

Public
Limited
Company

Co-operative
Sector
Enterprises

Producers
Co-operative
Society

Housing
Co-operative
Society

Consumers
Co-operative
Society

Credit
Co-operative
Society

Public Sector
Enterprises

Government
Department

Statutory
Corporation

Government
Company

Statutory Board
Or
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

companys 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.

Distinction between Individual

Ownership and Partnership
Parameter

Individual
Ownership

Individual
Membership :
Owner

Partnership
Minimum 2
Maximum 50

Formation :

No agreement
is required

An agreement is
required

Capital :

Limited Capital

Large Capital

Registration :

Not Necessary

Risk :

Individual Owner Risk spread

bear risk
among partners

Profit :

Owner enjoys
the profit

Owner manage
Management :
the business

Necessary

Profit is shared
among partners
It is shared by
partners

Secrecy :

Owner maintains Partners may

the secret
reveal secrets

Decisions :

Owner must take Partners can

decisions
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

Companys Act, 1956.

Formation of Joint Stock Company :

The entrepreneurs (promoters) of
company prepare the following documents :

the

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
deptt.

Purchase
deptt.

Accounting
deptt.

Production
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
Companys 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.

Comparison between Private and

Public Limited Companies

Particulars

Private Limited Public Limited

Open to Private Open to general

Membership :
members.
public.
Limits to
Minimum 2
membership : Maximum 50

Minimum 7
Maximum no
limit

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 End with only

Limited
Limited

Number of
Directors :

Minimum 2

Minimum 3

Legal control : Less

More strict

Remuneration
Less
of Directors :

11% of net
profits

Distinction between Partnership and

Joint Stock Company

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.

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

Smooth and efficient
management is difficult. 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
stated it as :

Labour

Organization

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

backbone of a co-operative society.

heart

and

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 selfinterest has secondary importance.

Unity of joint action is the basis for cooperation.

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 nonmembers.

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.

Distinction between Co-operative

and Joint Stock Company

Parameters
Formation :

Co-operative
Society
Under Co-op.
Society Act.

Limits to
Minimum 10
membership :

Joint Stock
Company
Under
Companies Act.
Minimum 2 for
Private Ltd. and
7 for Public
Ltd.

Spirit of
Co-operation.

Spirit of
competition.

Promote selfhelp and mutual

assistance.

No need for unity

of purpose.

Fundamental
Large number of
Principles :
Unity of purpose.
shareholders.
Community
interest.
Socialist bias.

Local or regional Wide spread

Membership :
territory.
membership
Capital :

Limited.

Large capital.

Transfer of
shares :

Shares are not

transferable.

Shares are
transferable.

Liability :

Limited.

Limited.

Maximum
No limit on
dividends on
dividend.
Distribution of shares 12 p.c.
profit :
Not profit motive. Profit motive.
Privileges :

Special
privileges.

No special
privileges.

Democratic with Democratic with

Management : equal voting
unequal voting
rights.
rights.

Contact :
Life :

Good contact.

No such
contact.

Short.

Permanent
existence.

Distinction between Private Sector

and Public Sector

Private Sector
Profit motive is of
primary importance.

Public Sector
Profit motive is of
secondary importance.

Owned and managed by Owned and managed by

individuals.
Central or State Govt.

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 underdeveloped regions.

Wastage of material and Wastage of material and

labour is minimum.
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.

Consumers 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 :
Its 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 :
Its 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.