CHAPTER sak Spectrum of Business Activities [cuarTER OUTLINE | 1.1 Concept of Business | 1,2 Nature and Characteristics of Business 1.3 Industry and Its Types 1.4 Concept of Commerce 1.5 Role of Commerce 1.6. Trade and Its Types 1.7. Auiliaries to Trade “““="1'8' Inter-Relalionship Between Industry, Commerce and Trade 7° Summary ‘© Test Questionsve 4 BUSINESS ORGANISATION AND MANAGEMENT Business is all around us and it is the mainspring of modern life. But very few _ People understand its true nature and its role in society. The'study of business is ~ | essential for training oneself for a career. Study of the principles and practices of ~ business organisation helps in understanding events in their right perspective and * in tackling the problem of satisfying human wants through the use of available resources. 1.1 Concept of Business Literally the term ‘business’ implies ‘busyness’ or the state of being busy. But this is not the proper concept of business as it covers every human activity. Business is an economic activity as it is concerned with earning money and acquiring wealth. It is the human activity directed towards the acquisition of wealth through the production and exchange of goods and services. A business enterprise is an economic institution as it is engaged in the production and/or distribution of goods and services in order to earn profits and acquire wealth. According to Wheeler, “Business is an institution organised and operated to provide goods and services to society under the incentive of private gain.”! 1.2 Nature and Characteristics of Business All business enterprises irrespective of the size (Tata Steel or the vendor outside a college gate) and nature of business (Hotal Ashok or Hindustan Unilever Ltd.) have the following features: _ : 1. Sale, Transfer or Exchange. The formost characteristic of business is the exchange or transfer of goeds-and services for-prive-or valle: Production or purctiase of goods and Seryices for personal use or for presenting as gifts to others does not constitute business as no salé or transfer for value.is involved. For example, a farmer’ . ‘who keeps cows to obtain milk for his family is not running a business. But if he’ ~ keeps a number of cows to sell the milk obtained from them it becomes business provided the other conditions are also satisfied. Business is different from church, army, etc. because it sells something, “Any organisation that fulfils itself through marketing a product or service is a business. Any organisation in which marketing is either absent or incidental is is a en irene upon exchange in buying lies the essence of 1eSS. e wh Bee caesar Services. Dealings in goods and services is another oF feature of business. Every business enterprise comes into existence 3 to provide goods or services to society. The goods or services may be procured by an enterprise through production and/or purchase. The goods may be consumers ‘goods such as bread, rice, cloth, shoes, etc. or producers’ goods like'tools, components, machinery, Faw materials, etc: ‘The.consumers’ goods are mieant for direct. consumption in the original or processed form. Producers’ goods or capital goods Sere ey 25. | BRO, Wheeler, Business: An Introductory Analysts, p. og Drocker, The Practie of Management, p. 38. :follows: SPECTRUM OF BUSINESS ACTIVITIES : 1S are used for producing other goods. Services are intangible and invisible like * electricity, gas, insurance, transportation, banking, etc. 3, Regularity in Dealings. Dealing in goods and services constitute business only when they are carried on regularly. A single transaction like sale of old newspaper bya housewife or the sale of one’s old scooter is not business though the seller gets money in exchange. But the Hindustan Times Ltd. arid Bajaj Auto Ltd. are business concerns because they are regularly dealing in the same article. Recurring sale rather than an isolated deal is-the hallmark of business. Usually no‘businessis'set Up for liquidation after a single transaction. & - 4, Profit Motive. Every business is carried on with the purpose ofearning money and acquiring wealth. It is the hope of making money that induces people to go into business. No business can survive for long without earning profits. Even government enterprises are expected to carn profit or surplus. However, the exchange should be for the mutual advantage of both the seller and the buyer. Profits must be earned through legal and fair means or by serving society and not by exploiting it. It is because of this reason that making of money through gambling, cheating, smuggling and black marketing cannot be called business. . g. Risk or Uncertainty: Risk iniplies the uncertainty of reward or the possibility ofloss. The element of risk is present in almost all economic activities but it is more significant in business. Though businiess aims at profits, Josses are quite possible and common: Before an activitycan be called business there must, therefore, exist not only the goal of profit but the risk of loss. Risk or uncertainty arises because the future is unknown and business has practically no control over several factors affecting profits. Business is exposed to several types of risks, some of which are as (a) Changes in consumers’ tastes, fashions and demand. (b) Changes in technology resulting into obsolescence of plant, machinery and techniques of production. E (c) Changes in the degree of competition in the market. {d) Changes in Government policies. (e) Shortage of raw material, power, fuel, ete. (f) Deterioration in industrial relations leading to strikes, lock-outs, gheraos, etc. (g) Faulty managerial decisions concerning the use of capital and other resources. Y (iJ Fire, theft, and natural calamities which-can be insured against, In view of thé above-mentioned characteristics, business may be defined as an economic activity concerned with the regilar produetion and/or exchange of ‘goods and services with the objective of earning profits through the satisfaction of human. wants and involving an element of uncertainty or risk, Business includes all activities” concerned with the production and:distribution of goods and services and the activities incidental thereto. oe a 516 BUSINESS ORGANISATION AND MANAGEMENT Various business activities may be classified into two broad categories — (a) industry, and (b) commerce. Industry is concerned with the production of goods While commerce invdlves their distribution. According to Haney, “On the one hand, - business rests on the technical process of manufacture: on the other hand it looks to the market. At tlic junction stands the businessman, either directing the technical Process of production or gauging the market, or doing both; but always engaged in buying and selling for the purpose of gain."! Industry and commerce may be further subdivided as shown in Figure. [Dizeet services Internal }> Wholesale ‘> Retail International Classification of Business Activities. 1.3 Industry and Its Types The term industry is used to refer to the processes by which useful things are extracted from the environment arid transformed, processed, fabricated and mulfiplied into other products. Industry is.of the following types: 1, Extractive Industries. These industries extract or draw ‘out various products from natural sources such as earth, soil, water; air, etc. The: products raised by these industries are provided by nature and collected by human beings. Agriculture, mining, hunting, fishing, | lubmering, oil exploration, quarring; etc.’are examples of: extractive industries. The prodticts of such industries are used by manufacturing nd construction industries. 1.LH. Haney, Business Organisation and Combinations, p. 2. i| . industries constitute. Secondary industry, SPRCTRUM OF BUSINESS ACTIVITIES M7 2, Genetic Industries, Genetic implies heredity or parentage, Genetic industries involve breeding or reproduction of plants and animals, Plantbrdeding nu‘series, cattle breeding farms, poultry farms, fish hatcheries and commercial kernele are examples of genetic industries, " 8. Manufacturing Industries, These Industries are concerned with the conversion or transformation of raw materials and semblinished products into fuished products, Such industries, therefore, ereate ‘form uillity’, Manufacturing industries supply most of the products for'daily use: Goods ‘supplied by these industries are known as factory production, Manufacturing industries are of the following types: {a) Analytical. In an analytical manufacturing industry, a basic raw material is analysed or separated into a number of proslucta, or instance, an olf refinery separates crude oil into kerosene, gasoline, diesel oll, lubricating oil and petrol. 3 i (0) Synthetical. In these industries, two or more materials are combined or mixed together to manufacture a new product, Soaps, plastics, cement, paints, cosmeties, fertilizers, ete, are the products of synthelical industries, (c) Processing. These industries are engaged in the processing of raw material through different stages of production, Examples of processing industry include textiles, sugur, steel, ete, (@) Assembling, In this case, various components or parts are brought together to produce a finished product, Manufacture of bicycles, radios, _televisions, watches, automobiles, are the typical examples’ of assembling industry. ogee) ie 4. Construction Industries, These industries are chgaged it the erection or construction of buildings, bridges, roads, dams, canals, ete, Construction industries use the products of extractive industries, €qg., stone, marble, wood, etc, and also the products of manufacturing industries such as cement, iron and steel, wires, etc, Thee industries create the basic infrastructure for develop ment, The distinguishing feature of these industries is that their products are made or fabricated at fixed sites. Their products are not carried to the market for sale, Sometimes, industries are classified into primary industry and secondary industry. Primary industry consists of extractive and. Genetic industries which supply basic raw materials for further production. Manufacturing and constructive Accor to scale of operations, industries maybe classified as large scale industryand. Eatin Sey this requiring ‘huge investment and sophisticated technology, e.g., ship-bullding, tron and steel, Petroleum refining, ete, are known as heavy industry, while light Industry which requires small investment and simple technology consists of sugar, paper,18 BUSINESS ORGANISATION AND MANAGEMENT textiles, ete. But all such classifications are relative rather than absolute water-tight categories, =. Z 7 1.4 Concept of Commerce : Commerce embraces all those activities which ensure a free and smooth flow of goods and services from Producers to consumers. It consists of trade and the activities which facilitate trade. According to Stephenson, “Commerce is concerned with the exchange of goods; with all that is involved in the buying and selling of goods af ary ” stage in their progress from raw materials to finished goods in the customers’ hands. Itcovers not only the functions of buying and selling and handling goods but also the many services which must be provided to finance, insure, store and transport goods in the course of these exchanges."! Commerce is thus an organised system for the exchange of goods and services between the members of the business world. It serves as a link between producers and consumers. 1.5 Role of Commerce The process of exchange is beset with several hindrances. The principal functional of commerce is to remove these hindrances so as to ensure a free and uninterrupted ! flow of goods and services from producers to consumers. These hindrances have been described below: j 1, Hindrance of Person. The manufacturers and ultimate consumers of, ‘goods are often unknown to each other. They are not always situated at the same place. Therefore, certain persons called traders are required to bridge the gap between them. Various types of traders such as wholesalers, retailers and mercantile-agents~ ~j help to remove the hindrance of persons. Trade plays an important role in the fidd of conimerce-by establishing a Jink between sellers and buyers, ~ :. *2, Hindrance of Place. Very often goods are produced at places faraway form - the points of consumption. Various means of transport remove this barrier of distance and help to establish a link between the two. Packaging of goods to protect them from damage and pilferage in the course of transit also helps to remove the hindrance of and thereby creates ‘place utility’. 3. ice of Time. These days goods are produced in anticipation of sdemapd) fore, it becomes necessary to store them and make them available as and when i¢ consumers demand them: Warehouses perform this function of storage thereby i the time lag between production and consumption. They help to create ‘timejutility’. 4, Bin of Risk. During trangportation and storage, goods are subject to several types of risk. Goods may be stolen or damaged. Fire, flood, earthquake, storm, and other calamities may result in the destruction of goods. Insurance removes “ this hindrance by covering the risk offass, or damage to goods. Insurance also helps in the safe transportation and storage of goods. a 1. James Stephenson, Principles and Practice of Cammerce, p. 1 eSSPECTRUM OF DUSINESS ACTIVITIES 1 6, Hindrance of Exchange, Large scale exchange or sale of goods requires gate and economical arrangements for the payment of rec, Money serves as the anediun of exchange and thereliy removes the hindrance of exchange, Banks facilitate exchange by providing credit In various forms, Banking ts, therefore, ap infportant "+. part of commerce and banks are weft commercial Institutions, Payments for yoda ‘and services cay be made easily and safely Uirough the banks, 6, Hindrance of Knowledgo. Iexchange of goods can take place only when the eller brings his products to the notice of proapective buyer. Advertiatng and publicity provide the necessary information to prospective buyers about the ulllity, and features of varlous products, In this way, they help to remove the hindrance of knowledge, ‘To sum wp, commerce Is the sur total of thowe activites oF processes which are engaged tn the removal of hindrances of person (through (rade), place (through transportation), Lime ((hrough storage), risk (through Insurance), exchange (through banking), and knowledge (through advertising and publicity), 1.6 Trade and Its ‘Types ‘Trade ts that branch of commerce which 1s concerned with the sale, transfer or exchange of goods and services. I involves the buying and selling of goods and services, Trade 1s the nuclas of commerce because all commerctal services Ike transportation, slorage, | ¢, banking, packaging, adverUsing, ete, revolve around trade, The super-structure of commerce {8 built upon the foundation of trade, Trade 1s of the following types: 1, Internal or Home Trade, It implics the buying and selling of goods within the boundaries of a country. Payment for the foods sold 18 made In national currency elther In cash or through the banking system. Such (rade 44 also known as.domestic trade or Inland trade, Internal trade may be further classified into {wo calegorles as {bllows: * ete coe : * (a) Wholesale Trade. Il refers to (hie purchase and sale of goods of a specific varlely in bulk. A wholesaler buys goods in large quantities directly from manufacturer(s) and sells them in comparatively small quantities to the retailers, Wholesale trade constitutes a link between the producers and the retailers, ; (b) Retail Trade. It involves the sale of goods to the ultimate consumers, A retailer buys goods from wholesaler or manufacturers and aclls them to the final consumers, He serves as the last link in the chain of distribution, Retail trade {s carried on in’ several forms, eg., departmental stores, mulliple shops, mail-order hous¢s, super bazars, clc. Small-scale traders like hawkers, pedlars, street stall holders, pavement dealers and neighborhood stores also carry on retall trade: i 2. International or Foreign Trade. It consists of the exchange of goods-and services between persons or organisations operating in two or more countries. International (rade is also known as external trade. It Involves the use of foreign currency and international means of transport such as shipping and airways,110 MMVI OMLSINSAEKOM WD MAMACAMESEY Tnernational (rade t8 alno carried on between the ppvernmnents of diferent conntrles, International trade may be further classified tnto the Slowing, categories, {a) Inport Trade, it involves purchase of goods from Sorelgy conmtsies Sor use, or wale tis the domestic market, For cranyle, India Imports machines from Germany, , = (b) Export Trade, 11 1 concerned with the sale of domestic puis to Sorelgn , buyers or in foresgn markets, For example, India export tea to UK, (c) Entrepot Trade, Entrepot or re-export trade involves the import A orega foods with a view to re-export them, Por crample, India may buy petrcd from fran and well a part of It to Sri Lanka, 17 Auxillaries to Trade In addition to trade, commerce Includes several andilary services which facilitate exchange of goods and services, These aundiiary services or aids to trade are described below: _ 1, Transportation, Transportation carries goods from producers to traders and finally to‘consumers, It bridges the Beopraphical distances and thereby performs 4 useful function in commerce, It makes for speed and efficiency in exchange, ‘Transportation provides the wheels of commerce, It is because of transportation that a producer can sell his goods in different parts of the world, It creates ‘place ulllity’, 2, Warehousing or Storage. It refers to the holding and preservation f goods until they are finally consumed, Goods have to be stored at every stage in the process of exchange. Warehousing performs a useful function by matching supply with the demand, It helps to make avaflable the seasonally produced goods throughout the year, In the absence of warehousing, a producer will have to dispose off the goods as soon as they are produced, Warchousing creates ‘time utility, z ao “3, Insurance, It facilitates trade by providing a cover against the loss or damage to goods in the proceés of transit and storage. By getting their goods insured, producers and traders can avoid the risk of Joss due to fire, theft, pilferage, etc. Packing alap helps to protect thy goods during transit and storage. 4, Banking. Banks are traders of money and credit. They help in the buying and selling of goods by proyidinga it and safe mode of payment. Bank also grant credit to businessmen wi they can carry on larger volume of trade. products, With the help of such kn , consumers can obtain better value for _thetr money, Marketing research helps to know and understand the requirements of 1.8 Inter-Relationshtp Between Industry, Commerce and Trade There is a close inter-relationship between the different branches of business described above. One cannot function without the support of others. Commerce .SPECTRUM OF BUSINESS ACTIVITIES. MAL _ helps industry before and after production through the purchase of materials and the sale of finished products, Production of goods and services 18 meaningless unless” they are distributed among the consumers, Trade, involving buying and selling of goods, maintains a smooth flow of commerce and thereby supports industry. At the same time, Industry provides the goods and services for distribution and thereby gives rise to commerce. As industry develops, trade and commerce also grow, Industry, commerce and trade are closely related to each other, For example, industry provides goods and services which are distributed through commerce, Nocommerclal activity Is possible in the absence of industry and production, Sound industries base and infrastructure facilitate trade, At the same tlme Industry and production cannot survive unless the goods and services are distributed among consumers through commerce, Therefore, industry and commerce are Anterdependent. Industry provides the base for commerce and commerce serves as the backbone of industry, None of them can exist in isolation as each ts essential for the other, ‘Trade Involves buying and selling of goods. It fs the nucleus of commerce because all business activities revolve around transfer or exchange, Trade provides the solid foundation upon which the superstructure of commerce has been raised, It provides necessary support to industry and maintains a smooth flow of commerce, This Inter relationship is shown in following Figure, INDUSTRY. + MInter-Relationship Between, Branches of ‘Business. ‘ Hehe : i ‘Trade helps industry in determining what to produce, when to Produce and for whom to produce. It facilitates procurement of raw materials for industry and sells the output of industry. Higher the volume of trade, higher will be the need for output of industry and allied services. Comparison Between Industry, Commerce and Trade Basis of Comparison. Industry > Commerce Trade 1, Meaning Extraction, reproduction Activities Involving dis- Purchase and sale of conversion, proceismig and tribution of goods and goods and services construction of useful pro: services ducts, 2. Scope Consists of all activities Comprises trade and Comprises exchange of Involving conversion of auxiliaries to trade - goods and services materials and semifniShed ie products into Anished goods’ p “ 3. Capital Generally large amount of Need for Capital is Capital needed to main- 3 capital is required comy credit less tain stock and to grantBUSINESS ORGANISATION AND MANAGEMENT 142 * Basis of Comparison Tndustry ‘Commerce ‘Trade “4. Risk Risk involved 1s usually hgh Relatively less risk Is Relatively less risk 1s é tnvolved Involved : 5. Side It represents supply side of* ft represents demand Itrepresents both supply goods and services side ofgoods and ervices and demand 6. Utilty creation It crates form uttlity by Itcreates place utility by It creates possession changing the form or shape moving goods from utility through exchange of materials producers to consumers SUMMARY Business refers to production and distribution of goods and services with the object of earning profits by satisfying human wants. Business differs from other economic activities such as profession and employment. Sale, regular dealings, profit motive and risk are the main features of business. Business comprises industry and commerce. Industry involves production. Industry is of four types — extractive, genetic, manu- facturing and construction, + Commerce includes distribution of goods and services. It comprises trade and auxiliary activities like transportation, warehousing, insurance, banking arrd advertising, Trade involves buying and selling, Trade is of two types — internal trade and international trade. Pep 2 = TEST QUESTIONS What is Business? How does it differ from profession and employment or service? Define business and discuss its essential characteristics. Differentiate between Trade, Commerce and Industry, explaining the main characteristics ofeach.” ; ae : "Commerce ig thé sum total of all those activities. which are engaged in the removal of hindranees of person, place, time and exchange.” In the light of this statement, discuss the nature and role of commerce. Classify and explain the spectrum of business activities with the help of flow chart. err 5. 6. Define commerce and explain its main components. Now does trade constitute the nucleus of commerce? ° 7. Discuss various obstacles in the exchange of goods and low does commerce remove these obstacles? al 8, Explain the interrelationship between industry, commerce atl trade. 9, “Business includes both industry and commerce.” Elaborate. 10, “Commerce facilitates exchange of goods and services with the felp of trade and aids to trade.” Comment. 7 IL. How are industry and commerce inter-related? Explain, E [2006] 12. What do you understand by spectrum of business activities? Draw a flow chart showing such spectrum. : 4 . (20071 13, Explain the nature of business and industry and throw light on the inter-relationship between industry and commerce. 201} 14. What are different ancillary servicts which facilitate exchange of goods and set Explain the interrelationship between industry and commerce. eS aCHAPTER _8- Forms of Business Organisation ——————— CHAPTER OUTLINE | basilar litiaieeeant 8.1. Sole Proprietorship 8.1.1 Salient Features 8.1.2 Merits of Sole Proprietorship 8.1.3. Demerits of Sole Proprietorship 8.1.4 Suitability and Survival 8.2. One-Person Company (OPC) 8.2.1 Features 8.2.2 Merits 8.2.3. Demerits 8.3 Joint Hindu Family Firm 8.3.1 . Features of Joint Hindu | Family Firm 8.3.2 Merits of Joint Hindu Family Firm 8.3.2 Demerits of Joint Hindu Farhily Firm 8.4 Partnership Firm Essential Characteristics or Tests of Partnership “Merits of Partnership . 2 Demerits of Partnership ‘6.5-" Limited Liability Partnership (LLP) 8.4.1 Features 8.9.2 Mertis 83:3 Demerits : : 86 Private Company bec i . 8.6.1 Merits . 8.6.2 Demerits 8.6.3 Suitability 8.64 Privileges "-84 BUSINESS ORGANISATION AND MANAGEMENT 8.7 Public’ Company 8.7.1 Sallént Features of a Public Company’ 8.7.2. Distinction between Company, Partnership and LLP 8.7.3 Merits of Public Company y 8.7.4 Demerits of Public Company 88 Cooperative Society 8.8.1 Characteristics (or Principles) of Cooperatives 8.8.2 Distinction between Cooperative Organisation and Company 8.8.3 Merits of Cooperatives 8.8.4 Demerits of Cooperatives 88.5 Suitability 8.9 Choice of Form of Business Organisation * Summary © Test QuestionsFORMS OF BUSINESS ORGANISATION 85 Ownership 15 a legal concepi that bestows certain rights and liabilities, upon the owners. The rights and liabilities vary according to the form of owiership: Forms of- ‘pusiness ownership are legal forms in which a business enterprise may be organised |A private business firm may be owned by one person or by a group of persons. When itis owned by one person, it may be sole proprietorship or one person company. ‘A group of persons may collectively own and operate a business in the form of joint Hindu family firm, partnership firm, joint stock company and cooperative society. ‘There are, therefore, several forms of private business ownership as described below: Sole Proprietorship One Person Company (OPC) Partnership Private Company Public Company Cooperative Society. Sole proprietorship, joint Hindu family firm and partnership are non-corporate forms while others are corporaic entities. 8.1 Sole Proprietorship Sole proprietorship or individual proprietorship is a form of business ownership under which a single person supplies the capital, uses his own skill, receives all the profits and bears all risks of business. He may borrow money and may employ (LLP) Sn ove eye workers but he alone owns and controls the business. According to Wheeler, “the. : sole proprietorship is that form of business ownership which is owned and controlled by a single individual. He receives all the profits and risks all of his property in the success or failure of the enterprise.”! The sole proprietor is not only the exclusive owner of the business, but also its founder and controller. Sole proprietorship is the ownership. 5 exclusively by and for himself. a = (iii) No Separate Legal Entity of the Firm. A sole proprietorship firm has no legal exisience separate from its owner. The proprietor owns everything the firm ~ 1, BLO. Wheeler, Business —An Introductory Analysis, p: 101.ae HUSINESS ORGANISATION AND MANAQEMEN’ awn and he owee everything the frm owes, No distinction Is made betweert the jawaola and lalition of the owner ane! those of the firm, ‘Phe proprietor and the firm ‘ave one and the same in the eyes of law, . (iv) Undivided Riek, ‘The profits and losses of sole proprietorship belong oxoluaively to the proprietor, He gaina all and risks all, Nobody shares his profits or Jonaea, (v) Unlimited Liability, ‘The lability of the sole proprietor extends beyond the capital fuvested in the ent, Mis private property may be attached in case the firm faila (o meet the claims of tte creditors, (vl) Pull Frocdom from Government Control, Sole proprietorship s free from Joyal fovmalitics and regulations, 8.1.2 Morita of Solo Proprietorship Sole proprietorship has the following advantages: 1, Base of Formation, Sole proprietorship ts castest to form as no legal formalities are required for starting it, No agreement is to be made and registration of the firm is nol essential, However, a formal licence may be required from the municipal corporation or Health Department in some cases, e.g., liquor, drugs, ete, Similarly, asole proprietorship can be dissolved easily without any legal formalities, ‘Thus, little time and expense is Involved in the formation and dissolution of a sole proprietorship, i 2, Direct Motivation, The proprictor has sole claim on profits and is not required to share them with others, There 1s direct relationship between effort and reward a0 that the proprietor ismotivated to give his best effort to the firm, 8, Mlexibility in Operations, The,sole proprictorship is the simplest to operate, “Pho proprietor can easily change'the native and strategy of his busingss: °° * 4, Absoluté Control, The sole proprietor has complete control on the alfatrs of hia firm, He ts free to prepare any plans and to execute them without interference from any quarter, Freedom of centralised direction and personal control makes for uniformity of action and coordination of operations, - ‘ 8, Quick Decisions. Sole proprictor is his own boss and need not consult othe with regard lo business decisions, Therefore, he can take action with maximum of speed and minimum of friction, Quick decisions and prompt actions enable the proprietor to take full advantage of the opportunities which may arise in business from time to time, f 6, Business Secrecy. A sole proprietor can keep his affairs to himself. There is no body to share his business secrets and no reports are to be published. 7, Porsonal Touch. A sole proprietor can keep intimate personal contacts with his customers and employees, Personal attention to customers results in high sales and goodwill of the firm, Pergonal contacts with eniployees help in improving theit abs ih And fficlency. Ifthe proprictor hag adequate resources, his credit standing high, oP 5FORMS OF BUSINESS ORGANISATION 87 . 8, Minimum Government Regulations. The proprietary concern is.subject to minimum control by the Government. The proprietor has net to render reports to the government and there is no interference in the day-to-day affairs of bysiness. Under the Incorne Tax Act, a sole proprietor must get his/her accounts duly audited in case annual-sales turnover or gross receipts exceed % 40 lakh in case of business and & 10 lakh in case of profession. _ 9. Social Utility. In addition to its economic benefits, sole proprietorship 1s’ socially desirable on the following grounds: 3 __{a) Independent Living. Sole proprietorship provides an independent and honourable way of life to those who want to be their own boss and take pride in ownership and control of their own business. “~" (b) Diffusion of Economic Power. Sole proprietorship helps in reducing concentration of economic power in a few hands through wider distribution of business ownership. It also promotes decentralisation of industry. (c) Development of Personality. Sole proprietorship provides opportunity for the development of personal and social virtues like self-reliance, initiative, responsibility, independent judgment, étc. These virtues develop in the sole proprictor because he has to face all challenges and problems of business single handed. 8.1.3 Demerits of Sole Proprietorship Sole proprietorship suffers from. the following limitations: (i) Unlimited Liability, A great drawback of sole proprietorship is its unlimited liability or high personal risk. The sole proprietor has to bear the entire risk of his business. If the business fails due to errors of judgment or adverse economic conditions, the proprietor has to lose everything. Unlimited fiability discourages the expansion of business: . sae “a sit cn iia . (ii) Limited Financial Resources. The financial resources which a proprietary firm can raise are limited to the personal funds and borrowing capacity of the owner. The financial capacity of an individual is usually limited so that business cannot be operated on a size enough to achieve the economies of scale. (iii) Unbalanced Management’ The sole proprietor Who is the sole judge of his business cannot be an expert in all the areas of purchasing, production, marketing, financing, etc. He has to handle awide range of manageria) perational problems and, therefore, it is usually not possible to employ trained p) ‘ofessional managers. As a result, benefits of specialisation and expertise are not avpilable. (iv) Uncertain Duration. There is little continuity of gperations in a sole proprietorship because the firm is linked with the life of ‘the prdprietor. The business may come to a sudden end with the death or physical incapacity of the proprietor. The business sinks and swims with its owner. : {v) Limited Scope for Growth. Due’ to limited financial and, managerial resources and uncertain duration, the expansion or growth of the firm is restricted. _ The ease of formation and dissolution may discourage serious thought and action resulting in premature death of the business. 3_ have been prescril e BUSINESS ORGANISATION AND MANAGEMENT ‘8.14 Suitability and Survival Thus, the one-inan control is the best in the world, ifthat one man Is big enough to manage everything But such a person does not exist. Due to its ‘unique characteristics, the proprietorship organisation is particularly suitable to the following types of business: : : 1. Where the risk involved is moderate, e.g., automobile repair shops. 2, Where small financial and managerial resougces are required, e.g., a retail shop, a'small bakery, etc. : Where personal attention to individual tastes and preferences of-eustomers is necessary, e.g., tailoring, and beauty parlours, cosmetics dealers. Where expert personal skills and Pronfipt decisions are essential,.e.g., stock brokers and doctors, lawyers and other’ professional services. 5. Where demand is temporary, seasonal and local, eg., laundry, vegetable and fruit sellers, etc. 6. 3. 4. Where fashions change quickly, e.g., art goods, hair dressing saloons. etc, Sole proprietorship has its own area of operations and continues to exist despite the growth of joint stock enterprise. It accounts for the largest number of business concerns in India. 8.2 One Person Company (OPC) ‘The Companies Act, 2013 allows the formation of one ‘Suggests, a oné person company has o1 carry a suffi: © person company. As the name nly one shareholder: The company’s name will ix ‘OPC’. The process of setting up an OPC is the same as that for a Private limited-company: Since: the-company is ‘owned-by @singlé person, he must nominate someone to take charge of it incase of his death or disabitity. Thenominee must give his consent in ‘writing which has to be filed with the Registrar of Companies. An OPC is exempt from certain procedural formalities, such as coriducting annual general meetings, general meetings, extraordinary general meetings. No provisions ibed on holding board meetings if there is only one director, but two meetings need to be organised every year if there is more than one director. Any Tesolution passed by the sole member must be communicated to the. company and entered in the minutes book. There is, however, no relief from the provisions of audits, financial statements and accounts, which are applicable to private companies. ’ * 8.2.1 Features The concept of ‘one person company’ has the following characteristics: (a) OPC may be registered as a Private.company with one member. (b) Adequate safeguards in case of death/disablity of the sole owner are ‘provided. oe : : (c) OPC will have a corporate entity of its’ own. (d) The owner of an OPC shall be liable only to the extent of its capital. If the _ activities are carried out in a mala fide manner the liability of the owner extends to his personal Property, - eeFORMS OF BUSINESS ORGANISATION . (e) An OPC may be managed by the owner or his representative. . 4) An OPC will get its annual accounts audited and file a copy of the same with * the Registrar of Companies, + (g) A minimum share capital may be preseribed for on OPC, (h) Every OPC shall have at least one director, ae (0) The one person shall have to indicate the name of the person who in the event of the subscriber's death, disability, etc. becomes the member of the company. 8.2.1 Merits () OPC will enable small entreprencurs and professionals, e.g., chartered accountants, lawyers, doctors, etc. to avail the benefits of companies, (t) The procedure for forming the OPC is very simple, (a) Running an OPC Is casy as it does not require compliance with many legal formalities. (wv) As the risk is limited to the value of shares held by one person, small entrepreneurs have not to fear litigation and attachmeat of personal assets. (v) There is no need to share business information with any other person, therefore, business secrecy is ensured. : (vl) The motivation and commitment of the owner’ are high due to absence of profit sharing. ‘ (vil) Quick decisions can be taken due to complete control by the owner. There is freedom of action. (viii) OPC would provide the start up entrepreneurs and professionals the much i ou sneeded flexibility in setting up business without losing control. 8.2.3 Demerits ae Ping rad ‘ * + (i) The life of OPC is uncertain and instable.: - : ee o4 5 (ii) The concept of OPC makes mockery of the corporate concept becat company means more than one person. (iit) A company should operate as a democratic institution with discussion and decision by voting, But in an OPC there is no demecracy. (tv) An OPC has to be incorporated. It has also to comply with some I 69 formalities. Sega Comparison Between Proprietorship and OPC Basts of Comparison Proprietorship OFC 1. Legal status The firm and the owner are one It 1 a separate legal entity a 2. Registration Reg/siration is not compulsory ‘It must beregitered 3. Liability of the owner Liability ofthe owner is unlimited Liab ofthe onner is limited +4, Setingup - ‘Mt Is easy to set up; minimum ~ “It Is dificult to‘set up, involves, paperwork is involved . ” more paperwork. It Is a Ume consuming process 5. Formalities - No legal formalities involved’ Formalites concerning board + meetings, audif, etc. make difficult to runconcerning their formation and functioning has not been , 5 made clear, Hence, the Provisions Concerning OPC require a retook and redrafting -8.3 Joint Hindu Family Firm The joint Hindu family firm comes into existence by the operation of Hla Law ene The firm is jointly owned by the members ofthe family who i ateite Thus, the oat uate es of the fanily are knoan as of a Hindu undivided estate, : wo reres There are two schools of Hindu Law in India, namek: (0) Dayabhaga A inheritance which, Drevails in Bengal and Assam. Technteally, ot Hinde boot, business is not possible under this system. (i) Mitakshara system which is Land in the rest of India. Under this system of inheritance, joint Hindu family comsiets ofall Persons including thetr wives and unmarried daughters lineally descended from a common ancestor. But only those persons constitute the firm who acquire ty birth aco-parcenary interest in the joint ancestral property. Such interest belongs to three successive generations in the male line who can inherit an interest in the ancestral Property immediately on their birth in the family. Thus, the property inherited by 4 Hindu from his father. grandisther and great gandtather ts regarded as ancestral property. A son, grandson, and gect grandson become joint owners of the property by reason of their birth in thé family. According to the Hindu Succession het, 1A, a female relative (and a mak relative claiming through such female reattre) of 2 deceased male co-parcener will have a share in the co-parcenary interest after the death of the co-parcener in question. The business of a joint Hind family ts managed by the senior sacs! male mesaber on fathes. He is known as the Varta, os Manages. As the bead of the joint tanaily, the Karta has full control over the affairs of the family business and serves 2s the custodian of the firm's assets. Other members of the joint family cannot question his jidgment, the only remedy avaiizble to them is to demand partition of the axrstrall property. Family business is considered apart and parcel of the ancestral property aod, therclore, the family business is the subject-matter of oo-pascenary ietexest Aoconding to the Hindu Suocssion (smendment) Ac. 2005 dangpters kam ome Tight A inheritance and exjoy the same rigats and liabilities tm the ovgarcenary propaty 2s 2 son. * : 83.1 Features of Joint Hindu Family Firm “The main charactestotics oh feet Hida Candy frm axe 2s follows: © : ‘iter A bes cashes oA the Lanily bastaess 28_ FORMS OF BUSINESS ORGANISATION 8.11 aresult of his birth in the family. Every mnie has an ‘equal share in the family firm irrespective of age. 2, Male and Female Members. Both sons and daughters have co-parcenary interest in the family business. Female relatives of a deceased co-parcener can also claim a share in the family property. 3. Management by Karta. The Karta 0 or the head of the family alone has the right to manage the business and other members do not take part in the management of the firm. The Karta has implied authority to raisé loans forthe family business. Only Karta has the authority to make contracts on behalf of the firm. Other members of the family cannot ask for an account of past profits and losses but they may demand partition of the ancestral property. 4. Fluctuating Share. The share of each-member in the family property and business keeps on changing. A member's interest decreases on the birth of a new co-parcener and it increases by the death of an existing co-parcener. There is no restriction on the number of co-parceners. 5. Liability. The liability of the Karta is unlimited and it extends to all that he owns as his private or separate property. But the liability of all other members of the joint Hindu family is limited to the value of their individual interests in the Joint ancestral property. 6, Continued Existence. The death or insolvency of a co-parcener or even that of the Karta does not affect the existence of the joint Hindu family firm. The firm can be dissolved through mutual agreement among all the co-parceners. ‘7. Minor.Members. A person born in the family automatically becomes member ~...-in.a joint Hindu family firm, 8, Governed. by Hindu Law. The Tights a and duties of members ofa joint Hinda. famnily.firmt are governed by the Hindu Sticcession Act, 1956. ‘ ee 8, Registration Not Necessary.- Itis not com pulSory to get a. joint Hindu fami firm registered. i . Distinction between Joint Hindu Family Business and Sole Proprietorship Basis of Distinction Joint Hindu Family Business Sole Proprietorship 1. Number of owners ‘Two or more “Only one 2. Membership By birth 5 By one's initiative 8. Management ofthe frm By the Kara on behalf all owners. By the proprietor 4. Sharing of profits ‘Sharing among the members No sharing of profits 5, Liability Liability of Karta is unitmited Ltd oe ability sty of the proprietor is 6, Regulating Statue ‘The Hindu Succession Act “The geneeral law Goa ma raeaee pag " : () Easy Formation. {joint Hind : Lu firm conies of law. No legal fornialities are requ ard ™~ eee mi co red to establish it.”a = Vth, ORGAN (i) Bquitable Dieteibution: Ivory COPACOHEE * proilts of the family business trrespeetive of hig sony 48 assurg Ae, Wouk members of the family, ie. eldren, Wider 01 fate well protected against contingenctes, OWS, Stok 4 Wi) Sharing of Knowledge and Kxperionge, ¥ Mayet Ug wet the benefit of the arowtedye act experience of gear Member Mben 's Howledge anc expertence enables the youngey 6 UF Meee caters and quickly, bho Membors tg i. Sia Ba ly (to) Freedom of Action. ‘The Karta exjoys fl es “alee oe of the business without interforence by ather Membery ae ol quick decisions and prompt action, Centralised mage : Re unity of direction and business seereey, There Isno an rN ts (v) Limited Liability, AN co-parceners: XCEL the K Maras Hy Unutted Hability, Untinitted Hability of the Karta ospites t AC EY tor the suecess of the family business, MU to nag i a ee eee ake benellls of g¢¢ ation dividing the total work among the co-parceners tu ea iuowege and capability, : WeOR dance with th = (ol) Tneuteation of Finer Vales offi Meret op att uuitedly for the overall welfare of the family as g Whole, ott hy Nal qualities of sacritee, discipline, uty ete, BVH Minor ate ere, (vitd) Secrecy. ‘The secrets of the business renain conte Meme (ix) Stability, A joiut Hindu family tent hoy chai Ned to ts, existence 18 not subject to the death or tnsalvengy of, ae or ery ra, (x) Greditworthiness, A ott Unda fay ty ggg PE, long a, * “than a sole proprietorship, 8 MN eel yg af . 8.3.3 Demerits of Joint Hindu Kunily Arm Thies, 1, Limited Resources, The fnanctal and man, - Umited, The capital and borrowing capadtly of the fanity tees of ty lone cannot be equally expert tn all areas OF business t Lint, ade nt + Se sdope for the grawth and diversification of the bustuegs hete ig, then the Rate Nerefgy Ba . Lack of Motivation, As the profs oft eg, Selony, TN | Irreqpective oftheir contributions, there ts no thceiting ts ‘ted by eo, no direct relationship between efforts and reward, Work )) a han of bRsiness Irrespective of efforts made Induces lagi, he to eae eee 8, Scope for Misuse, ‘The Karta has une : he bay Py) ve Lean business, He may misuse this freedom for his nebo tox, “eter Important catise of the disintegration of joint Hing tail i or Ring ae te 4, Unfair to Co-parceners, Since the Karta bas an ‘i mM, M Nis ea] management of the business, other coxparceners ge Hs as 06 Initiation and Judgment. POttUns813 FORMS OF BUSINESS ORGANISATION : 5. Fear of Disintegration. Disputes and quarrels among the co-parceners on controversial matters inay lead to breakup of the family business.” . Joint Hindu family firm is gradually losing way to other firms of ownerShip due to decline of the joint family system under the pressure of industrialisation. 8.4: Partnership Firm As a business grows beyond the capacity of sole proprietorship and joint Hindu family firm, it becomes necessary to form a partnership. Partnership thus grew out ofthe limitations of one-man business in terms of limited financial resources, limited managerial ability and concentrated risk. In a way, it ts an extension of sole proprietorship. generally, when a proprietor finds it difficult to handle the problems of expansion, he takes a partner. Partnership represents the second stage in the evolution of ownership forms. A partnership ts an association of two or more individuals who agree to carry on a business together for the purpose of sharing profits. According to Section 4 of the Partnership Aet, 1932 partnership ts “the relation between persons who have agreed to share the profits of a business carried om by all or any one of them acting for al.” In the words of Prof. Haney, “Partnership is the relation existing between persons, competent to make contracts, who have agreed to carry on a lawful business in common with a view to private gain.”! Persons who enter into partnership are, known individually as ‘Partners’ and collectively as ‘firm’. The name in which the partnership business is carried on is called ‘firm’ name. The partners enter into an agreement to lay down the terms and conditions of partnership. This-agreement is known as the ‘Partnership-Deed'- The partners contribute capital and they share managerial responsibility and profits/losses as per. the agreement. press 8.4.1 Essential Characteristics or Tests of Partnership Following are the essential features of a partnership firm: 1. Two or More Persons. At least two persons are required to constitute a partnership. The Partnership Act does not lay down maximum limit on the number of partners. But the Companies Act, 2013 lays down that any partnership or association of more than 50 persons is illegal unless registered as a joint stock company. 2. Contractual Relationship. A partnership isacontractual relationship arising out of an agreement among the partners. Since partnership is the outcome of a contract, persons who are incompetdiit to enter intoa contract, e.g. minors, lunatics, insolvents, etc. cannot become partners. ‘The partnership agreement may be oral, writen or implied but it is always desirable to make an agreement in writing. The partnership agreement must satisfy all the requirements of a yalid contract. 1. LM. Haney. Op. cit..p. 3.“84 BUSINESS ORGANISATION AND MANAGEMENT 8. Lawful Business, The agreement between partners must be to carry on some lawful business. Joint owners of a properly do not form a partnership without carrying on a lawful business. An agreement to carry on an llega activity cannot be called partnership. 4, Sharing of Profits. The agreement must provide for the sharing of profits and losses of the partnership business. A charitable or educational institution is not partnership as no sharing of profits is involyed. However, sharing of profit is only prima facie and not a conclusive proof of partnership. Employes and-creditors who share profits of the firm cannot be called partners unless there fs an agreement of partnership with them. 5, Implied Agency. Each and every partner is considered to be an agent of the firm as well as that of other partners. Unless otherwise agreed, every partner is entitled to take part in the management of the firm and to represent the firm and other partners in dealing with outsiders. The acts done by a partner in good faith and on behalf of the firm may be carried on by all the partners or by any one of them on behalf of all. It is not essential that every partner takes active part in the management of the firm. 6. No Separate Legal Existence. The partnership firm is a voluntary association and it has no separate legal entity of its own. The firm and the partners are one and the same’in the eyes of law. Management and control of the firm vests with the partners who are the owners also. ‘The above mentioned features are the crucial tests for determining the existence of a.partnership. In addition to these essential features, partnership has following characteristics: (a) Unlimited Liability. Every partner is liable jointly and severally for all debts and obligations of the firm. In case the assels of the firm are insufficient to meét claims of firm's'creditors the: private property of the partners can be atfached to satisfy theirclaims. The creditors are entitled to realise their entire dues from any one partner, The partner from whose property the dues are recovered is legally gntitled to receive ible contributions from the other partners of the firm. (b) Restriction or\Transfer of Interest. None of the partners can transfer his interest in the firm to erson (except to the existing partners) without the unanimous consenf offal yther partners, The restriction ‘on transfer of interest is based on the principle that’, partner being an agent of the firm cannot delegate his authority unilaterally to outfiders, (c) Utmost Good Faith. A partnership is founded upon mutual trust and confidence among the fartners. Each and.every partner is supposed to act with honesty and fairness to all partners in the conduct of the business of the firm. 8.4.2 Merits of Partnership ‘The partnership form of business ownership. enjoys the following advantages: “1, Ease of Formation. A partnership is easy to form as no cumbersome legal formalities are involved. An agreement is necessary and the procedure for registrationFORMS OF BUSINESS ORGANISATION 8.15 ‘isvery simple. Similarly, a partnership can be dissolved easily at any time without undergoing legal formalities. Registration of the firm is not essential and the . partnership agreement need not essentially be in writing. : Distinction Between Proprietorship and Partnership Basis of Distinction + Proprietorship Partnership 1. Number of owners Only one Minimum : 2 Maximum : 50 2. Basis of formation No agreement Agreement is essential 3. Division of Profits No division of profits ‘Division of profits among the All profits for the proprietor _partners in agreed ratio 4, Capital contribution By one person By two or more persons 5, Secrecy Higher Lower 6. Stability Lower Higher 7. Implied agency Question does not arise Every partner implied agent of due to single ownership the firm and of other partners. 8. Ownership and control In the hands of the proprietor Jointly owned and controlled by alone the partners 9. Risk bearing. All risks born by the proprietor Risks shared by the partners *2.. Larger Financial Resources. As anuiber of, Persons or partners contribute to the capital of the firm, it is possible to collect Jarger financial resources than is possible in sole proprietorship. Creditworthiness of the firm is also higher because every partner is personally and jointly itable for the debts of the business. There is greater scope for expansion or growth of business.-New-partners-may-be-admitted - to raise further capital: : ; y : _ __8. Specialisation and Balanced Approach. The partnership form enables the pooling of abilities and judgment of several persons. Combined abilities and judgment result in more efficient management of the business. Partners with complementary skills may be chosen to avail of the benefits of specialisation. Judicious choice of partners with diversified skills ensures balanced decisions. Partners meet and discuss the problems of business frequently so that decisions can be taken quickly. 4. Flexibility of Operations. Though not as versatile as Proprietorship, a partnership firm enjoys sufficient flexibility in its day-to-day operations. The nature can be altered and new partners can be admitted whenever necessary.. The agreement. can be altered and new partners can be admitted whenever necessary. Partnership is free from statutory control by the Government except the general law of the land. 5. Protection of Minority Interest, No basic changes in the rights and obligations of partners can be made without the unaninous consent of all the partners, Incase a partner fepls dissatisfied, he can easily retire from the firm or he may apply for the dissolution of partnership. Rae e 6, Personal Incentive and Supervision. There is no divorce ‘between ownership and management. Partners share in the profits and losses of the firm and thereis motivation to improve the efficiency of the business: Personal control by the partners ©8.16 BUSINESS ORGANISATION AND MANAGEMENT. increases the Possibility of success, Unlimited on the part of partners. Fear of unlimited lability di: action and motivates the partners to Put in their best efforts, “7. Capacity for Survival. The survival Capacity of the partnership firm is higher 8. Better Human.and Public Relations, (Partners) of the firm, it is possible to devel customers, government and the general public, help to enhance the goodwill ofthe firm and pave the way for steady progress of the business. Due to a number of representatives 8. Business Secrecy, It is not compulsory for a partnership firm to publish and file its accounts and re Ports. Important secrets of business remain confined to the pariners and are unknown to the outside world, Distinction Between Joint Hindu Family Firm and Partnership Basis of Distinction 1. Formation Joint Hindu Family Firm Partnership It comes into existence the family 2. Number of members There is no maximum limit on Maximum number is 50 Aumber of members 3. Position of minor A minor becomes a member on A minor cannot become a member birth in the family but can be admttted into the benefits of the partnership 4. Liabllty of members Liability of Karta ts unlimited while Liability of partners is unlimited Mabllty of other members is limited 5. -Mar of business Only Karta can manage thebusiness All partners can take active-part in nagement age management 6. Dissolution Death or insolvency of a coparaner The frm is usualy dissolved on the does not dissolve the firm death or insolvency of a partner 7. Governing statue ‘The Hindu Succession Ach 1956 The Partnership Act, 1982 — 8.4.3 Demerits of Partnership ome 1. Unlimited Liability, Every partner is Jointly a severally liable for the entire debts of the firm. He has to suffer not only for his}own mistakes but also for the lapse and dishonesty of other partners. 2. Limited Resources. There is a limit to the lum number of partners in a:firm. Therefore, it is not Possible to coll lect huge financial resources, Borrs capacity of partners is also limited. A partnership firm may not Provide the required technical and administrative skills, 3,2 3. Uncertain Life/lack of Continuity, Partnership business suffers from instability. Insolvency, insanity, retirement and death ofa partner: may cause an abrupt end to the’business. Any partner can Give a notice for dissolution of Partnership,8.17 FORMS OF BUSINESS ORGANISATION 4,, Conflicts. Lack of confidence, unity.and haimony among partners may lead to delayed decisions and inefficiency. Chances of conflict are high because: every partner has an equal right to take part in the management of the firm. 5, Risk of Implied Authority. Every partner is an agent of the firm. A dishonest . Aner may cause a great loss to the firm. All the partners may suffer due to the negligence or dishonesty of one partner. ‘ 6. Lack of Public Confidence. A partnership does not enjoy the trust of the public. The reason for this is that the affairs of a partnership are not'given publicity. No reports are published by a partnership concern and it is free from government regulations. Therefore, the general public regards it as a group ofpersons who have come together to carn easy and quick profits. 7. Blocking of Capital. A partner wanting to withdraw his capital from the firm cannot do so unless the other partners agree to it. He cannot transfer his interest to outsiders without the approval of the other partners. He may, therefore, be deprived of a higher return on his capital outside the partnership. 3 ‘Thus, the partnership form of business organisation is useful for a medium- sized business, It is the most appropriate form when a business is too big to be run by a sole proprietor but not big enough to be incorporated into a company. 8.5 Limited Liability Partnership (LLP) Meaning. According to the LLP Act, 2008, a LLP is a body corporate formed and incorporated under this Act and is a legal entity separate from that of its partners. 1 Distinction between Partnership and Limited Liability Partnership Basis of Distinction Partnership Limited Liability Partnership ~ “Maximum riumber of 50 ? No: limit : members a : z 2, Type of members Fody corporate cannot bea “Body ‘corporate can be a a en Ee en member anes 3. Registration Registration Is riot compulsory Must be registered under the limited Liability Partnership Act, 2008 4, Lidgllity of members ® Unlimited Limited $._Sq I entity No legal entity separate ftom Separate legal entity indepen- . members, Le., tot a body —_dentof its members, (.e., a body corporate, corporate 6. Perpetua] succession No perpetual sticcession Has perpetual succession 7. Governidg statue ‘The Partnership Act, 1932 ‘The Limited Liability Partner- bee ; ship Act, 2008 8.5.1 Features © (i) ALLP must be incorporated under the LLP Act, 2008. (i) Itis a body corporate having its own separate identity.” (id) It has perpetual succession. Any change in its partners does not affect its existence, rights and liabilities, :8.18 _ BUSINESS ORGANISATION AND MANAGEMENT (iv) Any individual or-body corporate,can be a partner in a LLP me : -(v) Every LLP must have at least two partners, There is nolimit on the maximum, number of partners. -(vi) Every LLP must have at least two designated partners who are individuals and at least one of them must be a resident in India... (vit) Every LLP must file with the Registrar the Designated Partner Identification Number (DPIN) and other details of designated partners. 5. Low Operating Costs. The administrative expenses of a cooperative society are usually low. Many members provide honorary management services and there is no need for advertising or publicity. Sales, if any, are generally on cash basis so that bad debt losses are eliminated. 3 a 6. Internal Financing. Due to compulsory ploughing back of at least 25 per cent of profits and statutory limitation on the rate of dividend, the financial strength