Forms of ownership

• Types of organisations- Formal and Informal • Different forms of ownership • Sole proprietorship, Partnership and Companiesa comparison • Impact of forms of ownership

Types of organisations
Formal Organisation – • • • A group of people work towards a common objective/goal The formal groups are a typical part of every organisation The groups are given official status and need o operate within the rules and regulations The job responsibilities and positions are well defined giving clarity on work to be done by every member of the group

Informal Organisation – • It is a network of personal and social relations which arise when people associate with each other It does not take a conscious effort to build an informal organisation It is not governed by any rules and can exist within the formal organisation It is formed due to common interests of the members of the group

Different forms of ownership
Sole Proprietorship

Partnership

Private Ltd. Co.

Companies

Ltd. Co.

Sole Proprietorship
Business owned by one individual for the individual’s profit

Advantages – Ease of formation – Low start-up costs – Owner has direct control and responsibility – All earnings goes to owner

Disadvantages – Unlimited liability – Management limitations – Limited capital – Uncertain life, lack of continuity

Partnership
Association of 2 or more who carry on a business

Advantages – Low start-up costs – More management skills – Shared responsibility – More capital available

Disadvantages – Unlimited liability – Still limited capital – Possibility of disagreement – Divided authority – Death of partner dissolves the firm

Company
• Separate and distinct legal entity • Stable and perpetual existence • Needs to be registered • Two types
– Private company – Public company

Comparison
Proprietorship Minimum No. 1 Partnership 2 Pvt. Ltd. Co. 2

Max. No.

1

10 for Bank / else, 20

50

Formation

No document

Partnership Deed

Memorandum & Articles of association

Proprietorship

Partnership

Pvt. Ltd. Co.

Liability

Unlimited

Unlimited

Limited

Financial Strength

Limited

Pooled

Large

Borrowing Capacity

Limited

Better

Good

Management Control

Self

Partners

BOD

Proprietorship Business Secrecy

Partnership

Pvt. Ltd. Co.

Perfect

Shared

Shared

State Control

None

Very little

Moderate

Transferability

At will

Mutual Consent

Restricted

Stability

Unstable

Less Stable

Stable

Winding up

At will

Mutual Consent

Restricted

Impact of Forms of Ownership
• Access to Funds • Control of business • Distribution of Earnings/ losses • The degree of liability • Potential return and risk

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