Module-5::"Various Forms of Organization": Nature or Type of Business

Module-5::”Various forms of Organization”
 Nature or type of business

 Sole proprietorship is best
 Requires personal skill and attention
 Partnership is best suited for medium scale business
 Financial requirement
 Requires financial resources at starting
 Target at future expansion and also diversification
 For expanding business partnership is the best
NagendraPrasadMBA CMR-CBS 1
Liability
•Every company has to repay its liability to its creditors
•Every entrepreneur liable to creditor at starting of business
•Even in sole proprietorship, the person or company has to
clear his labiality at the time of winding of business
Flexibility
•Sole proprietorship is best for any alterations or decision
making
•In partnership business flexibility is very difficult because it is
depend up on the partners
•So it is maximum in sole proprietorship and minimum in
partnership
Taxation
•Both sole proprietorship and partnership follows
“PROGRESSIVE TAX SYSTEM (PTS)”
•PTS is defined as tax rate increases with increases of income
and decreases with decrease of income
Control
•Every entrepreneur should has control over his business and
also sacrifice on his returns
•It is possible in sole proprietorship and not easily possible in
partnership because board of directors are existed
Survival or continuity
•Every entrepreneur expects continuity of his business
•Without business the company can’t survive
Business secrets
•Maintaining business secrets in sole proprietorship is very
easy and safe where as in partnership it is difficulty and
unsafe
Government rules and regulations
•They are mandatory for running of any company or firm
•Sole proprietorship is very free from all rules and regulations
•Joint company is governed by rules and regulations of
government
Various form of ownership
•Sole proprietorship
•Partnership
•Joint stock company
•Cooperative organisation
I.Sole proprietorship
 Definition: - The individual form of business organisation is an
organisation at the head which stands and individual as the one
who is responsible, who directs its operations and he alone runs
the risk of failure.

 Various features of role proprietorship are as follows:-
 Individual ownership
 Unlimited liabilities
 Free from legal formalities
 Limited scope of operation
 Personal interest
 Freedom to start and to end
 Monopoly on profit
 Business secrecy
Merits of sole proprietorship
Registration of firm is very easy

It does not have any legal formalities
It is costly at initially
It has complete control on entire business
Business secrets is easily preserved
It has maximum tax benefits
It achieves both profits and losses equally
Merits of sole proprietorship
Registration of firm is very easy

It does not have any legal formalities
It is costly at initially
It has complete control on entire business
Business secrets is easily preserved
It has maximum tax benefits
It achieves both profits and losses equally
Demerits
Limited resources
Lack or funds
Chance of unlimited liability
High risk
Sometimes returns should be sacrificed
Limited managerial ability
Lack of specialisation
Chance of uncertainty
Suitability
It is suitable for following cases

Where business is on a small scale
Where capital requirements is very small
Where promptness of decisions is very important
Where customers demand personal attention
II. Partnership
Definition: - partnership is the relation between

persons who have agreed to share the profits of a
business carried on by all or any of them action for all.
Various features of partnership are as
follows
Plurality of persons
Contractual relationship
Existence of business
Profit motive
Principal agent relationship
Unlimited liability
Restriction on transfer of interest
Implied agency
Merits of partnership
Easy formation
More financial resources
Collective decision making
Sharing of risk
Flexibility
Complementary skills
Credit worthiness
Business secrecy
Demerits of partnership
Unlimited liability
Uncertain existence
Limited funds
Transfer of shares

Suitability of partnership
Partnership form of business is suitable in the

following cases
Where financial requirement is moderate
When business need persons with complementary
skill
Where business is to be carried on a medium and
large scale
Where collective decisions are required to be taken
III.Joint stock company
 Definition:-A company is an artificial person created by
law having a separate entity with a perpetual succession
and a common real.
Various features of joint stock company are as follows:-
 An artificial person created by law
 Separate legal entity
 Perpetual succession
 Common seal
 Limited liability
 Representative management
 Right to sue
 Transfererability of shares
Merits of Joint Stock Company:-
 Limited liability
 Diffused risk
 More financial resources
 Transferability of ownership
 Perpetual existence (separate legal for share holders)
 Economies of scale (operating to lead our economy)
 Professional management (ruling by best
professionals)
 Capital formation (mobilising of funds)
De Merits of Joint Stock Company:-
Difficulties in formation (promoters has to spend time

& money)
Lack of personal interest (everybody feel other
partner will do work)
Difficult to maintain business secrets
Delay in decision making and execution
Excessive regulations
Suitability of joint stock company
Joint stock company form of business organisation is

suitable in the following cases:-
When financial requirement is more or business is to
be carried on a very large scale
When project is very risky and promoters are not
prepared to bear the risk
Where due to nature of business professional
management is needed.
IV.Cooperative organisation
Definition:-A society which has as its objectives the
promotion of the interests of its members in
accordance with the principles of cooperation.
Merits of cooperative organisation:-
Economy in cost (goods directly purchased-no
middleman)
Democratic management
Service motive
Government regulations
De Merits of cooperative
organisation:-
Limited financial resources
Political interference
Lack of personal interest
Lack of professional management
Suitability of cooperative organisations:-
Cooperative organisations are suitable in the following

cases:-
Where members individually are not in a position to
safeguard their interests
Where there is willingness amongst members to come
together for the promotion of their common interests
Legal issues

Registration with director of industries:-
It contains two stages for small scale units, they are
 Provisional registration
 Permanent registration
Registering with SSI Unit
Benefits of registering:-
Credit prescription, interest rate

Excise exemption scheme
Exemption under direct tax laws
Statutory support like reservation and interest
delayed
Objectives of registration scheme:-
To serve the purpose of collection of statistics
To create nodal centres at the centre, state and district
levels to promote SSI
Provisional registration certificate
(PRC):-
Given for pre-operative period only
Obtains facilities for accommodation, land, other
approvals etc.
Obtains various necessary NOCs and clearances from
regulatory bodies such as pollution control board,
labour regulations etc.
Permanent registration certificate (PRC):-
Income tax exemption and sales tax exemption as per

state govt. Policy
Incentives and concessions in power tariff
Price and purchase preference for goods produced
Licensing

 According to section-11 industries development and
regulation act (IDR) no industry is to be established
without a license

 According to IDR Act, industrial licence would be
required for:-
 Establishment of new undertaking
 Substantial expansion
 Production of a new product
 Changing the location of an industrial undertaking
Licensing agencies like:-
 Memorandum with Secretariat for industrial

assistance (SIA)
 Carry on business (COB) Licence
 Industrial entrepreneur memorandum (IEM)
 Integration of small & large industries
 State regulations
 Environmental clearance
 Regulation of acceptance of loan(accept deposits from
public)
Factories Act
 Objective:- To ensure healthy and safe working

conditions for workers, the act protects the workers
from being subject to undue bodily strain or manual
labour
 The main provisions of this act are as follows:-
 Definition of factory
 Health
 Safety of workers
 Welfare of workers
 Duties of the employer

Module-5::"Various Forms of Organization": Nature or Type of Business

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Module-5::”Various forms of Organization”

 Nature or type of business

Registration of firm is very easy

Registration of firm is very easy

It is suitable for following cases

Definition: - partnership is the relation between

Partnership form of business is suitable in the

Difficulties in formation (promoters has to spend time

Joint stock company form of business organisation is

Cooperative organisations are suitable in the following

Registering with SSI Unit

Credit prescription, interest rate

Income tax exemption and sales tax exemption as per

Incentives and concessions in power tariff

Price and purchase preference for goods produced

 Memorandum with Secretariat for industrial

 Objective:- To ensure healthy and safe working

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