BU-EDP-Moudule-5 B Module-5::·Various forms of Organization· 1.

Factors affecting selection of ownership form: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
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

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BU-EDP-Moudule-5 B 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
1. 2. 3. 4. 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

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BU-EDP-Moudule-5 B 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 Z Z Z Z 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

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BU-EDP-Moudule-5 B 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

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BU-EDP-Moudule-5 B 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 d o 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 requiremen t 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

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BU-EDP-Moudule-5 B

De Merits of cooperative organisation:Z Limited financial resources Z Political interference Z Lack of personal interest Z 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 .

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BU-EDP-Moudule-5 B 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

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BU-EDP-Moudule-5 B

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