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Unit VII: Choice of organisation:

• Sole proprietorship, partnership, joint stock co., and co-operatives

Parameter to select the form of business


1. Nature of Business
2. Area of Operations
3. Degree of Control
4. Capital Requirement
5. Extent of Risk and Liability
6. Duration of Business
7. Government Regulation

Proprietorship:-
Sole Trade
Sow, Reap and Harvest the output.
“One man control is best in the world if that man is big enough to manager everything”

Features:-
• One Man ownership
• Mo Separate Business entity
• No Separation between ownership and Management
• All profit and losses belongs to One
• Less formalities

Advantage:-
• Simple form of Organization
• Freedom to take decision
• Highly Secrecy
• Tax Advantage
• Easy Dissolution
Disadvantage:-
• Limited Resources
• Limited Ability
• Unlimited Liability
• Limited life of the Business

Partnership:-
“ a partnership is a form of business where 2 or more person up to a maximum of 20 join
together to undertake some form of business activity” or
“An association of 2 or more person who join together to carry on as co owners a
business for profit.”
Main Features:-
• More Persons
• P&L sharing
• Existence of Lawful business
• Utmost good faith and Honesty
• Unlimited Liability
• Restriction on transfer of shares

Advantage:-
• Easy formation
• More capital available
• Combined Talent, Judgment and skill
• Diffusion of risk
• Flexibility
• Tax Advantage

Disadvantage
• Unlimited Liability
• Divided Authority
• Lack of Continuity
• Risk of Implied Authority

Partnership Deed:- Registration under Indian Partnership Act 1932


Content of Deed….

Dissolution of Firm:-
• By Agreement
• Compulsory Dissolution
o On Expiry of deed time
o Any event which makes business Unlawful
• Due to Contingencies
o Expiration of Deed period and No Renewal
o Business stops generating income
o On death of partner
o On insolvency of One of the Partner or partners
• By Court
o Unsound Partner
o Misconduct of Partner or Business
o Incapability of partners to manage business
o Willful breach of Deed
o Unauthorized transfer of partnership
o At loss if business has been carried out
o Any other reason which forces dissolution
Company:-

ICA 1956 Joint stock co as a company ltd by shares having a permanent paid up or
nominal share capital of fixed amount divided in to shares also of fixed amount, held and
transferable as a stock and formed on the principles of having in its only the holder of
shares or stock and no other person.

Main Features:-
• Artificial Legal Person
• Separate Legal Entity
• Common Seal
• Perpetual Existence
• Limited Liability
• Transferability of Shares
• Separation of ownership from Management
• Number of Members

S
N Basis of
o Difference Private Co Public Co
1 Members Feb-50 7- No limit
2 Director 2 3
Filling of Prospectus or statement in Lieu of
Prospectus with ROC Not necessary before
3 Prospectus company can allot shares Necessary
4 Documents 2 Members to sign MOU 7Members to sign MOU
Allotment of Can Not commence
5 Shares may commence before minim subscription before minim subscription
Commence Can not Commence
ment Of Before Certificate of
6 Business Already Commenced Business Comm of business
Transfer of
7 Shares Restricted Not Restricted
Must file B/S with
8 Filling of B/S Not file Its B/S with the Registrar Registrar
Statutory
9 Meeting Not Required Required
1
0 Director No provisions 3 directors
1 CA required Not Compulsory but can be done to have a better Compulsory CA and Audit
1 and Audit control in 3yrs
Cooperative:-
Indian Cooperative Act 1912 “a society which has its objective the promotion of
economic interest of its members in accordance with Cooperative Principles”

Or
“Co operative organization is an association of person, usually of limited means, who
have voluntarily joined together to achieve a common economic and through the
formation of a democratically controlled business organization, making equitable
contribution to capital required and accepting a fair share of risks and benefits of the
undertaking.”
• Should Be registered with Registrar of Cooperative Societies of State
• Minimum 10 members
• Member are Owners
• Liability of the Member is limited

Main Features:-
• Voluntary Organization
• Democratic Management
• Service Motive
• Capital and Return Thereon
• Government Control
• Distribution of Surplus

Advantage:-
• Easy Formation
• Limited Liability
• Perpetual Existence
• Social Service
• Open Membership
• State Assistance
• Democratic Management

Dis Advantage
• Lack of Secrecy
• Lack of Business Acumen
• Lack of Interest
• Corruption
• Lack of Mutual Interest