Forms of Business

Organization

Legal Aspects of Business

Unit I
Forms of Business Organizations
Sole Trader
Partnership
Hindu Undivided Family
Joint Stock Company
Cooperatives
Government in Business
Departmental
Public Corporation
Government Companies
 Sole Trader

Oldest form of Organization

Features :
One man Ownership and Control
Capital Contribution
Unlimited Liability
Enjoyment of Entire Profit
No separate Legal Entity
 Sole Trader

Merits
Easy Formation
Flexibility
Quick Decision
Demerits
Limited Capital
Lack of Specialization
 Partnership Firm

Acc. to Sec. 4 of Indian Partnership

Act, 1932, “Partnership is the relation
between persons who have agreed to
share the profits of a business carried
on by all or any of them acting for all”
 Partnership Firm

Features :
Agreement
Sharing of Profits
Unlimited Liability
No separate Legal Entity
Non-Transferability of Interest
Registration
Agency Relationship
 Partnership Firm

Merits
Flexibility
More Credit Standing
Quicker and Better Decisions
Sharing of Risk
Demerits
Unlimited Liability
 Hindu Undivided Family

Unique in India
Based on Hindu Law
Head of family : ‘Karta’
Members : ‘Coparceners’
System is declining as the current
concept is Nuclear Families.
 Joint Stock Company

Haney : “A company is an
incorporated association; It is an
artificial person created by law,
having separate identity, with a
perpetual succession and a common
seal.”
 Joint Stock Company

Features
Separate Legal Entity
Perpetual Succession
Common Seal
Limited Liability
Easy Transferability of Shares
Professionalism of Management
Economies of Large Scale
 Joint Stock Company

Merits
Availability of Credit
Easy Expansion
Demerits
Separation of Ownership and Control
Not Flexible
Neglecting Minority Interest
Delay in Decision Making
 Cooperative Society
Principles :
Voluntary Organization
Equality
Democratic Management (1 person- 1 vote)
Pooling of Resources
Spirit of service
Membership : min. 25 & max. no limit
Registration Compulsory (Cooperative
Societies Act, 1912)
Separate Legal Entity
Limited Liability
 Cooperative Society

Merits
Easy Formation
Limited Liability
Social Benefit
Demerits
Inefficient Management
Limited Capital
Non Transferability of Interest
 Government in Business
Objectives
Helping all round industrialization
Developing Basic Industries
Establishing Enterprises requiring heavy
investment
To provide Necessities
To run Monopoly sectors
For Balanced Economic growth
Making Full Employment
To Increase Government Resources
 Forms

Department of the Government

Separate Corporation
Joint Stock Company
 Departmental Organization
Eg. Railways, Post & Telegraph,
Defense
Features
Wholly dependant on Government
Management in Govt hands (Minister is
responsible & answer to Parliament)
Financed through Budget
Legal Immunity (action not taken without
Government permission)
Employees are civil servants
Departmental Organization
Merits
Complete Govt Control
Source of income for Government
Secrecy
Demerits
Excessive Govt Interference
Delay and Red-tapism
Inefficiency
Tax Burden on Public
Political Changes
 Public Corporation
Autonomous body created by a
special statute of a State or Central
Government.
Features :
Separate Legal Entity
Perpetual Existence
Government Investments wholly
Management (Board of Directors)
Service Motive
Accountability (to Parliament)
Employees not civil servants
 Public Corporation

Examples
Life Insurance Corporation of India
Provident Fund
Employees State Insurance Corporation
Food Corporation of India
 Public Corporation

Merits
Internal Autonomy (Free from Govt.)
Protect Public Welfare
Demerits
Difficulty in making changes
Misuse of powers
Inefficient
Lack of Interest (Ownership & Control in
different hands)
 Government Companies
Company in which not less than 51%
of shares are held by Central or State
Government and registered under
Companies Act, 1956.
Started in fields where investment is
heavy and also take over private sick
units
Eg. Air India, Tamil Nadu Newsprint
and Papers Ltd., BSNL
 Government Companies

Merits
Participation with public
Technical know-how
Flexibility (like a Company)
Demerits
Return on Investment is low
Operational Efficiency