SRI RAM SCHOOL OF

COMMERCE
[A UNIT OF SRI RAM SCHOOL PARIVAR]
Since-1996

XI XII B.COM. BBA/BBM

CA/CS/CMA (Found.)
9308467522
KANKARBAGH, PATNA-20
BUSINESS STUDIES
CLASS-11th (All Boards)
ASSIGNMENT
CHAPTER-02
Forms of Business
Organisation
BY: ANKIT SINGH
B.st FACULTY: SRI RAM SCHOOL PARIVAR
▪INTRODUCTION
➢ A business enterprise is an organisation
which is engaged in some business or
commercial activities.
➢Every Business enterprise is a separate and
different unit of business.
➢If any one is planning to start a business or is
interested in expanding an existing business,
then an important decision relates to the
choice of the Forms of organisation.
VARIOUS FORMS OF BUSINESS ORGANISATION

1. SOLE PROPRIETORSHIP
2. JOINT HINDU FAMILY BUSINESS
OR
HINDU UNDIVIDED FAMILY BUSINESS [HUF]
3. PARTNERSHIP
4. COOPERATIVE SOCIETIES, AND
5. JOINT STOCK COMPANY.
❑SOLE PROPRIETORSHIP BUSINESS
➢It refers to that form of business organisation
which is owned , managed & control by a single
individual who is the recipient of all profits and
bearer of all risks or losses.
➢This is evident from the term itself. The word
“SOLE” implies “ONLY” and “PROPRIETOR” refers to
“OWNER”
➢Example: Saloon / Parlour, Medical Shop, General
Store etc.
❑FEATURES / CHARCTERISTICS / NATURE
OF SOLE PROPRIETORSHIP
I. Single Ownership:- The sole proprietorship
firm is owned by single individual only. All
the capital is supplied by the single
individual from his own wealth or from
borrowed fund.
II. Formation and Closure:- There is no legal
formalities required to start and close sole
proprietorship firm. Only in some cases a
license might be required.
III. Unlimited Liability:- In sole Proprietorship firm the
proprietor is personally liable for all the debts of the
business in case of business losses. If the business
assets are not sufficient to meet all business
liabilities, the proprietor may have to sell his
personal property to pay off the liabilities.
IV. No Separate Entity:- A sole proprietorship has no
legal identity separate from that of its owner. Law
makes no difference between the owner and the
business.
V. Lack of Business continuity:- The sole Proprietorship
business is owned & controlled by one person,
therefore Death, Injury, Imprisonment, lunacy, of the
sole trade will have a direct effect on the business.
VI. Control:- The Proprietor is the sole owner of the
firm and has full control over it. Some persons or
manager may be employed to help the owner but
ultimate control lies with the sole trader himself.
VII. Small Size:- A Sole Trader can arrange limited
funds and has limited managerial ability.
Therefore the scale of operations is generally
limited.
❑Merit / Advantages of Sole Proprietorship Firm
1. Quick Decision:- In Sole Proprietorship firm all
the decisions are taken by the proprietor
himself. He is not supposed to consult any one
and waste time.
2. Confidentiality of Information:- A Sole Trader
are not bound by law to publish firms
Accounts. The proprietor always maintain
secrecy related to business operations.
3. Direct Incentive:- In sole proprietorship firm
there is direct relation between the efforts and
rewards. Proprietor is always motivated to
work extra to get extra rewards.
4. Sense of Accomplishment:- There is a personal
satisfaction involved in working for one self.
5. Easy to Formation and Closure:- A Sole
Proprietorship Organisation is easy to form. No
legal formalities are Involved in setting up this
type of organisation. It can be closed by paying
back its debts.
❑Demerits / Limitation of Sole Proprietorship Firm
1. Limited Resources:- In Sole
Proprietorship firm finance is supplied
by the proprietor himself from his
wealth or from borrowing.
2. Limited Life of a Business:- The sole
proprietorship business is owned and
controlled by one person, so death,
lunacy, Imprisonment, Injury, of a
proprietor affects the business and can
lead to its closure.
3. Unlimited Liability:- The sole Proprietor is
personally liable for all the debts. In case of
heavy losses the proprietor will not only
lose all his business assets but he may have
to sell his personal property to pay back his
debts.
4. Limited Managerial Skills:- In sole
Proprietorship firm all the activities are
performed by a single individual. A single
individual cannot be expert in all the fields.
He may be good sales person but not a good
manager.
 JOINT HINDU FAMILY BUSINESS
OR
HINDU UNDIVIDED FAMILY BUSINESS[HUF]
➢It is one of the oldest form of business organisation.
➢It refers to a form of organisation where in the business
owned and carried on by the members of the Hindu
Undivided Family. It is governed by the Hindu Succession
Act, 1956
➢The basis of membership in the business is birth in a
particular family.
➢The business controlled by the head of the family i.e.
eldest member known as “Karta”
➢All other members have equal ownership right over the
property of an ancestor & they are known as Co-parceners.
❑FEATURES / CHARACTERISTICS / NATURE OF
HINDU UNDIVIDED FAMILY BUSINESS
1. Formation:- For the formation of joint Hindu
family business, there should be at least two
member’s in the family and ancestral property to
be inherited by them.
2. Liability:- The liability of karta is unlimited,
whereas liability of all other members of joint
hindu family business is limited up to their share
in the business.
3. Control:- The control of the family business in
hand of karta. He takes all the decision and is
authorised to manage the business.
4. Continuity:- The business continues even after
the death of the karta as the next eldest member
takes up the position of karta.
5. Minor member:- In joint hindu family business a
child becomes a member by birth only, so there is
no restriction for a minor to become a member of
the business.
• Gender equality in the Joint Hindu Family a Reality
▪ According to the Hindu Succession (Amendment)
Act, 2005, the daughter of a coparcener of a Joint
Hindu Family business shall, by birth become a
coparcener. At the time of partition of such a ‘Joint
Hindu Family’ the coparcenary property shall be
equally divided to all the coparceners irrespective
to their gender (male or female). Married daughter
has equal rights in property of a Joint Hindu
Family.
❑Merit / Advantages of Hindu Undivided Family
Business.
1. Effective Control:- The Karta has absolute
decision making power. This avoid conflicts
among members.
2. Continue business existence:- The Death of the
karta will not affect the business as the next
eldest member will then take up the position of
karta.
1. Limited Liability of Co-Parceners:- The Liability of
all the members except the Karta is limited to
their share in the business.
4. Increased loyalty and cooperation:- Since the
business is run by the member of a family, there
is a greater sence of loyalty towards one other
and cooperate each other.
5. Secrecy:- Under the Joint Hindu Family Business
all control in hand of karta, therefore the
competitors business cannot get any important
information.
❑Demerit / Disadvantage / Limitation of
Hindu Undivided Family Business.
1. Limited resources:- The joint Hindu Family
business faces the problems of limited capital as
it depends mainly on ancestral property.
2. Unlimited Liability of Karta:- The karta burdened
not only with the responsibility of decision
making and management of business, but also
suffers from the disadvantages of having
unlimited liability. His personal property can be
used to repay business debts.
3. Dominance of Karta:- The karta individually
manages the business which may at times not be
acceptable to other members. This may cause
conflict amongst them and may even lead to
breakdown of the family unit.
4. Limited Managerial Skills:- Since the karta cannot
be an expert in all areas of management, the
business may suffers as a result of his unwise
decisions. His unability to decide effectively may
result into poor profit or even losses for the
organisation.
PARTNERSHIP BUSINESS
▪INTRODUCTION
➢Partnership is a popular form of business for small-
scale and medium scale business.
➢The inherent disadvantage of the sole
proprietorship in financing and managing an
expanding business certain the way for partnership
as a authentic option.
➢Partnership is an answer to needs of greater
capital investment, varied skills and sharing of risk.
➢The partnership form of business organisation is
governed by the INDIAN PARTNERSHIP ACT 1932
❑DEFINITION OF PARTNERSHIP
➢The relation between persons who have
agreed to share the profit and loss of the
business carried on by all or any one of them
acting for all.
or
➢It refers to that form of organisation in which
two or more than two persons willingly join
and agree to run some lawful business.
❑ FEATURES / CHARACTERISTICS OF PARTNERSHIP
1. Formation:- The Partnership firm of business is
governed by the Indian Partnership Act 1932. It
come into existence by legal agreement between
the partners (Partnership deed). In this
agreement the terms and conditions of partners
the ratio of sharing of profit and losses are
specified.

2. Liability:- The Liability of all the members of a

partnership firm is unlimited.
3. Risk bearing:- The partners of the partnership
firm share the profits of the firm in the ratio
specified in the agreement. In case no ratio is
specified in the agreement then the profit is
divided equally among all the members or
partners.
4. Decision making:- All the partners are allowed to
manage the partnership they may specify the
work area of each partner in the partnership deed
also. Generally day to day management is carried
on by one or two partners whereas, for crucial
decision, all the partners are consulted.
5. Continuity:- Partnership is characterized by lack of
continuity of business since the death,
retirement, insolvency or insanity of any partners
can bring an end to the business however, the
remaining partners may if they so desire continue
the business on the basis of a new agreement.
6. Number of Partners:- The minimum number of
partners to form a partnership firm are two and
maximum as per section 464 of Companies Act
2013 is 100 subjects to the number prescribed by
the Government. At present as per rule 10 of
Companies Act 2014, the maximum number
prescribed by Government is 50.
7. Mutual Agency Relationship:- The definition of
partnership highlights the fact that it is a business
carried on by all or any one of the partners acting
for all. In other words every partners is both an
agent and a principal. He is an agent of other
partners as he represents them.
❑MERITS / ADVANTAGES OF PARTNERSHIP FIRM
1. Easy to form and close:- It is very easy to form a
partnership firm as no legal formalities are
required to be completed even registration of
partnership firm is not compulsory according to
Partnership Act Closure of the firm too is an easy
task.
2. Balanced Decision Making:- In Partnership the
Partners can divide the work according to their
skill and knowledge. The division of work leads to
specialisation and efficiency in management and
other activities of the firm.
3. More funds / Large Financial Resources:- In
Partnership firm all the partners contributes some
amount of capital. As a result the financial
resources of partnership firm are larger than the
sole proprietorship firm or Joint Hindu Family
business.
4. Sharing of Risks:- The risks involved in running a
partnership firm are shared by all the partners.
This reduces the anxiety, burden and stress on
individual partners
5. Secrecy:- A partnership firm is not legally required
to publish its accounts and submits its report.
Hence it is able to maintain confidentiality of
information relating to its operations.
❑DEMERITS / LIMITATION OF PARTNERSHIP FIRM
1. Unlimited Liability:- The Liability of all the
partners is unlimited. In case of losses the
partners will not only lose their business property
but creditors can claim over their personal
property also to get their accounts settled.
2. Limited Resources:- There is restriction on
number of partners so capital investment is not
sufficient for large scale enterprise.
3. Possibility of Conflicts:- Difference in opinion or
suggestions on some issue may lead to disputes
between partners.
4. Lack of Continuity:- The existence of partnership
firm gets affected by the death, insolvency or
incapacity of any one partner.
5. Lack of Public Confidence:- The public has less
trust and faith in partnership firm because the
accounts and annual reports of partnership firm
are not published.
6. Risk of Mutual Agency:- The contract signed by
any one partner is binding on the other partners
due to principle of mutual agency. A dishonest
partner may enter into contract for personal
benefit. In that case all the partners will have to
suffer the loss.
❑Types of Partners
▪ Basically Partners will categorized in six
types.
TYPES OF PARTNERS

ACTIVE PARTNER
SLEEPING OR DORMANT PARTNER
SECRET PARTNER
NOMINAL PARTNER
PARTNER BY ESTOPPEL
PARTNER BY HOLDING OUT
▪ ACTIVE PARTNER:
✓The Active Partner participates in the management
or day to day activities of the firm.
✓He contributes capital in the firm.
✓He gets share in the profit or loss of firm.
✓His liability is unlimited.
▪ Sleeping or Dormant Partner:
✓The partner who does not participate in the
management.
✓He contributes capitals in the firm.
✓He gets share in the profit or loss of firm.
✓The liability of sleeping partner is unlimited.
▪ Secret Partner:
✓A secret partner is one whose association or
relation with the firm is unknown to the general
public or outsiders.
✓He participates actively in the management
✓He contributes capitals.
✓Get share in profit or loss.
✓His liability is also unlimited.
▪ Nominal Partners:
✓A Nominal Partner is one who allows the use of his
name by a firm
✓He does not take part in any management.
✓He does not contributes capitals.
✓Generally does not share its profit or losses.
✓But is liable, like other partners to the third parties
for the repayments of the firm’s debts.
▪ Partner by Estoppel:
✓The persons who accepts that he is a partner in the
partnership firm by his own words, behaviors, way
of talking is known as partner by estoppel.
✓He does not take part in day to day activities.
✓He does not contribute capitals.
✓Does not share profit / losses.
✓But is liable for the debts of the firm because in
the eyes of the third party they are considered
partners.
▪ Partner by Holding Out:
✓The Partner who does not call himself as a partner
in the firm but who does not object or deny when
others call him as a partner in the firm is known as
partner by holding out.
✓He also does not take part in management.
✓He also not contribute any capitals.
✓Does not share profit / losses.
✓Such a person becomes liable to outside creditors
for repayments of any debts.
❑Minor Partner
➢The Partnership Act, 1932 does not permit a minor
to become a partner in the partnership firm.
➢The minor can only be admitted to the benefits of
the existing firm.
➢Generally minor partners do not contributes any
capitals. It is depend on will of minor partner.
➢Minor partners are not allowed to participate in
the management of the firm.
➢A minor can share only the profit and can not be
asked to bear the losses.
➢He can if he wishes, inspect the account of firm.
➢After attaining the age of majority the minor has
to give a public notice within six months of
attaining majority stating whether he will remain
as a partner in the firm or not.
➢If he fails to do so, within the stipulated time, he
will be treated as a full-fledged partner and will
become liable to the debts of the firm to an
unlimited extent, in the same way as other active
partner are.
➢He will also be allowed to participate in the
management like any other active partner.
❑TYPES OF PARTNERSHIP
➢Partnership can be classified on the basis of two
factors:-
1. On the basis of Duration
2. On the basis of Liability
➢ On the basis of duration, there can be three types
of partnership:
1. Partnership at Will.
2. Fixed period partnership.
3. Particular partnership.
▪ Partnership at will:- This types of partnership
exists at the will of the partners and comes to an
end whenever partners desire. If any partner can
give notice of dissolution or withdrawal from
partnership will come to an end.

▪ Fixed period Partnership:- The partnership formed

for a specific period of time, say 3 years or 5 years
etc, is known as fixed period partnership. This type
of partnership firm automatically gets terminated
on expiry of that specified time period.
▪ Particular Partnership:- The partnership which is
formed to carry to a particular work or contract is
known as particular partnership. This type of
partnership comes to an end automatically on
completion of that work or contract.
▪ Example:- If two or three persons jointly get a
contract for build the building then these three
persons may form a partnership to build the
building when building gets builded and is ready
then the partnership automatically comes to an
end.
➢On the basis of Liability, there can be two types of
partnership
1. General Partnership
2. Limited Liability Partnership

▪ General Partnership:- In general partnership, the

liability of partners is unlimited and joint.
Registration of the firm is optional. The existence
of the firm is affected by the death, lunacy,
Insolvency or retirement of the partners.
▪ Limited Liability Partnership[LLP]:- The partnership
firm in which liability of all the partners except one
partner is limited to the extent to their share in the
partnership firm is known as limited partnership.
In India Limited Partnership was introduced by
enacted Limited Partnership Act 2008.
▪ The main features of Limited Liability Partnership
are:
I. The Liability of at least one partner must be
unlimited.
II. The Liability of all other partners can be limited
to the extent of their capital contribution in the
partnership firm.
III. The Partner with limited liability are called
special partners or limited partners.
IV. The special partners is not allowed to participate
in the management of the firm.
V. The special partner has the right to inspect the
accounts.
VI. The special partner can withdraw his partnership,
whenever he desires.
VII.The death, insolvency or incapacity of special
partner does not affect the existence or
partnership business or firm.
❑ Formation of Partnership Firm
➢ A partnership firm is formed when two or more
persons enter into an agreement to form a
partnership firm.
➢ This agreement can be oral or written.
➢ To avoid disputes in future it is always advisable
to have a written agreement.
➢ After signing the agreement the partnership firm
comes into existence.
➢ It is not compulsory to get the firm registered but
partners of the firm prefer to get the firm
registered because a registered firm gets some
benefits which unregistered firms do not gets.
▪ Partnership Deed
➢The document containing the terms and conditions
of the partnership agreement is known as
partnership deed.
➢It is a stamped paper on which the rules,
regulations and terms & conditions of partnership
are written.
➢It also contains the rights and duties of the
partnership firm
▪ The common contents of partnership deed are:-
I. Name of the firm.
II. Names and addresses of the partners.
III. Nature of business the firm will carry on.
IV. Place of business (address of business).
V. Capital contributed by each partners.
VI. Profit sharing ratio of partners.
VII.The rights and duties of the partners for the
management of the business.
VIII.The mode of maintaining accounts.
IX. The rate of interest payable to partners on their
capital.
X. The rate of interest to be paid by partners on
amount withdrawn by them.
XI. The amount of salary payable to partners.
XII.Provision regarding retirement and dissolutions.
XIII.Methods of solving disputes.
XIV.Whether interest is payable on the loan provided
by partners etc
▪ Registration of Partnership Firm
➢ Legally, it is not compulsory for a partnership firm to
get itself registered but then also partners prefer to
get the firm registered because an unregistered firm
suffers from the following serious problems:
consequences of Non Registration:
▪ A partner of an unregistered firm cannot file a case
against the partnership firm.
▪ A partner of an unregistered firm cannot file case
against any other partner of the unregistered firm.
▪ An unregistered firm cannot file a suit against any
third party or outsider for recovery of claim.
▪ The unregistered firm cannot file a case against any of
the partners.
▪ The Procedure for Registration of the Partnership
Firm.
➢A partnership firm can be registered any time, that
is at the time of formation or later on whenever
partners desire to get it registered. To get the firm
registered the partners have to apply to the
REGISTRAR in a prescribed form along with the
registration fees. Along with application the
following information must be supplied.
▪ Name of the firm.
▪ The principal place of the business of the firm
(Address of the Head Office)
▪ The name of any other place where firm will be
carrying on the business (Address of branch office)
▪ Date of admission of the partners in the firm.
▪ Names and permanent address of all the partners.
▪ Duration of the firm.
➢The application must be signed by all the partners.
The registrar will verify the above said-information
and if satisfy with the authenticity of the
information he will issue a certificate of
registration.
➢The certificate of registration is an evidence of
existence of firm and firm get benefits of a
registered firm.
➢After registration if any changes are made in the
information submitted with registrar then the
same change must be communicated to registrar.
 CO-OPERATIVE ORGANISATION
OR
CO-OPERATIVE SOCIETY BUSINESS
❑CONCEPT AND DEFINITION OF CO-OPERATIVE
SOCIETY
➢The word cooperative means working together
and with others for a common purpose.
➢The cooperative society is a voluntary association
of persons, who join together with the motive of
welfare of the members.
➢Cooperative organization is a society which has its
objectives for the promotion of economics interest
of its members in accordance with cooperative
principles.
➢A minimum of 10 adult persons are required to
form a cooperative society.
➢The capital of cooperative society organization is
contributed by the members in the form of share
capitals.
➢The cooperative organization can raise loan also
from the banks.
➢The cooperative society is compulsory required to
be registered under The Cooperative Societies Act,
1912.
❑Features / Characteristics of Cooperative Society.
1. Voluntary membership:- The membership of a
cooperative society is voluntary. A person is free
to join a cooperative society, and can also leave
any time as per his desire. Although procedurally
a member is required to serve a notice before
leaving the society.
2. Legal status:- It is compulsory for a cooperative
society to get it self registered under the
cooperative societies act. After registration, the
cooperative organization gets a separate legal
entity, which means the cooperatives society is
considered separate from its members.
3. Continuity:- The death, insolvency, incapacity of
any members does not affect the existence of
cooperative society.

4. Limited Liability:- The Liability of members of

cooperative society is limited to the extent of
amount contributed by them as capital.

5. Control:- In cooperative society the power to take

decision lies in the hands of an elected managing
committee. The committee is elected through
voting by members.
6. Service Motive:- The main motive of cooperative
society is to provide service to its members and
not to earn profit. Earning profit is the secondary
motive and not the main motive of cooperative
organization.
7. Equal voting rights:- The cooperative societies
work with democratic principle of “one man-one
vote” all the members get only one voting right
irrespective of capital contributed by them. The
rich members by taking more shares cannot
dictate their terms. A person who has 1000 share
and a person who has 10 share will get one voting
right only.
❑MERITS OF COOPERATIVE ORGANISATIONS.
1. Equality in voting status:- The cooperative
societies work with the democratic systems. They
are based on the principle of one-man-one-vote.
2. Limited Liability:- The liability of members of
cooperative organisation is limited to the extent
of their capital contribution in the cooperative
organisation.
3. Stable existence:- The cooperative society has a
separate legal existence. The death, insolvency,
or incapacity of any members does not affect the
existence of society. The cooperative organisation
has a stable and continuous life and exists for a
long period of time.
4. Economical Functioning:- The operation of
cooperative organisation is quite economical. As
most of the activities are performed by the
members themselves and while purchasing goods
or raw materials, middlemen are eliminated, so
they can get the raw materials and goods at low
cost. The cooperative organisations do not
maintain large stocks. Due to cash trading there
are no bad debts.
5. Support from Government:- The cooperative
organisation get various benefits from the
government. The government provides various
concessions and rebates in taxes. These
organisations can get raw materials etc. at
subsidised rates. Government offers loan at lower
rate of interest and on easy terms and conditions
to cooperative organisations.
6. Easy to Form:- The formation of cooperative
organisation is a very simple process. Only 10
adult members having common interest are
required to form it. The registration procedure for
cooperative organisation is very simple and does
not involve any legal formalities.
7. Open Membership:- Any person having common
interest can become the member of a cooperative
organisation. There is no restriction on the basis
of caste, religion. The person can join and leave
the cooperative organisation whenever they
desire so.
❑ DEMERITS/ DISADVANTAGES OF COOPERATIVE
ORGANISATIONS
1. LIMITED CAPITALS:- The cooperative organisation is
formed by the people who have limited resources
and there is no compulsion to contribute some
minimum amount of capital to become a member.
The principle of one-man-one-vote also discourages
people to invest more.
2. INEFFICIENT MANAGEMENT :- The cooperative
organisation is managed by its members only.
Generally, all the activities are performed by the
members only. These members are not professional
experts. The cooperative organisation cannot afford
to pay high salary to professional and qualified
people.
3. LACK OF SECRECY :- In cooperative organisations
there are open discussions in the meeting by
members so it is difficult to maintain secrecy
about operations of cooperative society.
4. EXCESSIVE GOVERNMENT CONTROL:- As
cooperative organisation get various concessions
and benefits get various concessions and benefits
fro the Government, in return there is excessive
Government regulation and control by the
Government. It is essential for a cooperative
organisation to get its accounts audited by the
auditors of the cooperative department and to
submit its account with the registrar.
5. DIFFERENCE OF OPINION OR CONFLICT AMONG
THE MEMBERS:- Quite often, the disputes arise
among the managing committee and members in
cooperative organisation. The members are from
different sections of society. They may have
difference of opinion and is any member follows
rigid attitude it can lead to conflict and disputes.
Generally; the selfish motive of members starts
dominating and they forget the service motive.
❑ TYPES OF COOPERATIVE ORGANISATIONS
➢On the basis of nature of activities performed the
cooperative organisation can be classified into
following categories:-
1. Consumer’s Cooperative Society.
2. Producer’s Cooperative Society.
3. Cooperative Marketing Society.
4. Cooperative Credit Society.
5. Cooperative Farming Society.
6. Cooperative Housing Society.
1. CONSUMER COOPERATIVE SOCIETY:-
→ This society consists of consumers who join together
to eliminate the middlemen.
→ The consumer cooperatives societies purchase goods
directly from manufacturer and sell them to the
members at reasonable price.
→ The profit will distributed among all the members as
dividend on capital.
➢ The main objectives of Forming Consumer
Cooperative are:-
i. To supply of essential Goods on regular basis.
ii. To supply the goods at reasonable price by
eliminating the profit margin of middlemen.
iii. To supply the goods and services of high quality.
2. PRODUCER’S COOPERATIVE SOCIETY:-
→ This society consists of small producers who
individually find it difficult to procure the inputs
and get the machinery and latest technology.
→ There are two types of producer’s cooperatives:-
a. The one which provides raw material, inputs,
machinery etc. So that producer can concentrate
on production.
b. The one which sells the goods produced by these
producers.
→ The profit of producer’s cooperative is
distributed in proportion to the goods sold by
each member of the society.
→ The main objectives of Producer’s Cooperative
Society are:-
a. To ensure steady or regular supply of raw
material, input etc. at reasonable price.
b. To improve latest machinery and new technology
of production.
c. To ensure smooth distribution and sale of goods
produced by members.
d. Helping the producers to concentrate their
attention on production of goods.
3. COOPERATIVE MARKETING SOCIETY:-
→ The cooperative marketing society consists of
small producers who find it difficult to sell their
product at profit.
→ The output of all the small producers is brought
together and sold at the best price.
→ Such a society helps to improve the bargaining
power and competitive position of its members.
→ It performs various marketing functions such as
transportation, warehousing, packaging, grading etc.
→ The profit are distributed among the members
according to their respective shares in the common
sale.
→ The main objectives of Marketing Cooperative
Society are:-
a. To ensure a steady and favorable market for the
output of its members.
b. To ensure the best price for the output.
c. To provide facilitate transportation, ware housing,
packaging etc., which individually cannot be
afforded the members.
d. To ensure honest trading practices in weighing,
measuring and accounting.
e. To eliminate the middlemen and have direct
dealing with the customers.
4. CREDIT COOPERATIVE SOCIETY:-
→ Credit cooperative societies are established for
providing easy credit and loan on reasonable terms
to the members.
→ The funds of these societies consist of share
capital contributed by the members and deposits
made by members.
→ The aim of such societies is to protect the
members from the exploitation of lenders who
charge high rates of interest on loans.
→ The credit cooperatives formed by farmers in
known as Rural Credit Cooperatives. Credit
cooperatives formed in Urban areas are known as
Urban Banks.
→ The main motives of Credit Cooperative
Organisation are:-
a. To protect the members from the exploitation of
Money lenders.
b. To provide loans on easy terms and low rate of
interest.
c. To develop the habit of saving among the
members.
5. COOPERATIVE FARMING SOCIETY:-
→ These societies are established to protect the interest
of farmers by providing better inputs at a reasonable
cost.
→ The members comprise or include farmers who wish
to jointly take up farming activities.
→ The aim is to gain the benefits of large scale farming
and increase the productivity.
→ Such societies provide better quality seeds, fertilizers,
machinery and other modern techniques for use in the
cultivation of crops.
→ This helps not only in improving crops or the yield
and returns to the farmers, but also solves the problems
associated with the farming on fragmented land
holdings.
6. COOPERATIVE HOUSING SOCIETY:-
→ These societies are formed to provide residential
accommodation to their members. These societies
purchase a big plot of land, construct flats on that and
sell these flats to its members on installment and easy
terms. Some housing cooperatives provide loans to their
members of building houses. These societies are very
popular in urban areas. The main objectives of housing
cooperative societies are:
i. Providing residential accommodation to their
members
ii. Helping members to purchase houses at lower cost
iii. Providing civic amenities such as roads, parks,
streetlights, parking etc.
JOINT STOCK COMPANY
❑MEANING AND DEFINITION OF COMPANY
➢A Company is an association of persons formed for
carrying out business activities and has a legal
status independent of its members.
➢A Company is an Artificial person, having a
separate legal entity, perpetual succession and a
common seal.
➢The Company form of organisation is governed by
The Companies Act, 2013.
➢The capital of the company is divided into smaller
part called ‘SHARES’. Which can be transferred
freely and on easy way from one Shareholder to
another person [except in a private company].
➢The shareholders are considered as the owners of
the company.
➢Company is managed by BOD ‘Board of Directors’
elected by shareholders.
❑CHARACTERISTICS / FEATURES OF COMPANY.
1. Formation:- The formation of a company is a time
consuming, expensive and complicated process .
It involves the preparation of several documents
and compliance with several legal requirements
before it can start functioning.
2. Artificial person:- A company is a creation of law
and exists independent of its members. Like
natural persons a company can own property,
incur debts, borrow money, enter into contracts,
sue other and can be sued but unlike them it
cannot breathe, eat, run etc. This all operations
are performed by BOD.
3. Registration:- It is legally compulsory for a
company to get itself registered under the
companies act, 2013. without registration no
company can come into existence.
4. Perpetual succession:- A company has continuous
existence independent of its members. A
company is created by law and only law can bring
an end to its existence. The death, insolvency or
incapacity of any members does not affect the
existence of company. Members may come and
members may go but the company goes on
forever. The life of the company can come to an
end through legal procedure called winding up.
5. Common seal:- A company may or may not have a
common seal. If a company has common seal, it
must be affixed to the documents such as
agreements of a company. If a company does not
have a common seal then the person signing the
document should be authorized by a board’s
resolutions.
6. Limited Liability:- The Liability of members of the
company is limited to the extent of their share
capital contributed in the company.
For example:- If Aditya has purchased 5000 shares
of value Rs. 20 each, then his liability is limited
upto Rs. 1,00,000/- only.
7. Control:- The company form of business is owned
by the shareholders. These shareholders elect
their representatives who are called directors of
the company. The director manage and control
the activities of the company by appointing
professional experts. BOD of the companies are
directly accountable to the shareholders for the
working of the companies. The shareholders
however, do not have the right to be involved in
the day by day activities or management.
8. Transferability of Shares:- The capital of the
company is divided into shares. The shares of the
company are freely transferable by its members.
A shareholder is free to withdraw his membership
from the company by selling his shares. The
shares of private limited companies cannot be
easily transferred.
9. Risk bearing:- The risk of losses in a company is
borne or carried on by all the share holders. The
risk of loss thus gets spread over a large number
of shareholders.
❑MERITS / ADVANTAGES OF JOINT STOCK COMPANY
1. Limited Liability:- The liability of members of the
company is limited to the extent to their share
capital contribution in the company. The limited
liability attracts many people to invest their
money in company form of business.
2. Transfer of Interest:- The share of the company
can be easily bought and sold in the market. If the
owner of shares is in need of cash, he can easily
sell the shares and get cash.
3. Perpetual Existence:- The company form of
business enjoys perpetual succession. As it has
separate existence, it is formed by law and can
end by legal procedure of winding up only.
4. Growth of Expansion:- In company form of
business there is more scope for growth and
expansion. The company has large financial
resources and their rate of profit is also high.
5. Professional Management:- A company can afford
to pay higher salaries to specialists and
professional. It can, therefore, employ people
who are experts in their area of specializations.
6. Large Amount of Capital:- The biggest advantage
of company form of business is that it can collect
a large amount of capital by issuing of shares to
general public. The people having small savings
can also buy the shares of company because the
value of a share is very small.
❑DEMERITS / LIMITATION OF A COMPANY
1. Complexity in Formation:- The formation of a
company requires greater time, effort and
extensive knowledge of legal requirements and
the procedures involved. As compared to sole
proprietorship and partnership form of
organisations, formation of a company is more
complex.
2. Lack of Secrecy:- The companies Act requires each
public company to provide from time to time a lot
of information to the office of the registrar of
companies. Such information is available to the
general public also. So its difficult to maintain
secrecy about operations of company.
3. Impersonal Work Environment:- Company is not
managed by owners but it is managed by the
professional managers. The large size of a
company further makes it difficult for the owners
and top management to maintain personal
contact with the employees, customers and
creditors.
4. Numerous Regulations:- The company form of
business has to comply with various legal
formalities at different stages and there is penalty
if the company fails to meet any of the
formalities. A company has to file return and
annual reports with the registrar.
5. Delay in Decisions:- In company organisation all
the important decisions are taken in the board
meeting or after consulting various persons. And
once decisions are taken, these have to be
communicated to every one which is again a
lengthy process as a large number of people are
working in company at different levels. So taking
and implementing decisions is a lengthy process
in a company.
6. Oligarchic Management:- Although we say that
there is a democratic set-up in the company form
of business but this democratic set-up exists only
on paper. In real practice, company is in hand and
control of a few people i.e. the directors. The
directors have complete control over the
company. These people take all the decisions
keeping in mind their personal interest and
benefits, ignoring the interest of share holders
and the company.
7. Conflict in Interest:- There may be conflict of
interest amongst various stakeholders of a
company. The employees, for example may be
interested in higher salaries, consumers desire
higher quality products at lower prices, and the
shareholders want higher return in the form of
dividends. These demands pose problems in
managing the company as it often becomes
difficult to satisfy such diverse interests.
❑TYPES OF COMPANIES
▪ On the basis of ownership, the companies can be
classified into following categories:

1. Private Ltd. Company

2. Public Ltd. Company
3. One Person Company
▪ Private Ltd. Company
➢Private Company as per section 2 (68) of Indian
Companies Act, 2013 Private company means a
company which by its articles:
I. Restricts the right to transfer its shares.
II. Has minimum 2 and maximum of 200 members,
excluding the present and past employees.
III. Prohibits any invitation to the public to subscribe
for any securities of the company.
IV. It is necessary for a private company to use the
word private limited (pvt ltd) after its name.
▪ Public Ltd. Company
➢A public company is company which is not a
private company. As per the companies Act, a
public company is the one which:-
I. Has minimum 7 members and maximum no limit.
II. Has no Restriction on transfer of securities.
III. Not prohibited to invite general public to
subscribe its securities.
▪ Privileges or Benefits of Private Company over
Public Company:
➢A private company can be formed by only two
members whereas seven people are needed to
form a public company.
➢There is no need to issue a prospectus as public is
not invited to subscribe to the shares of a private
company.
➢Allotment of shares can be done without receiving
the minimum subscription. A private limited
company can start business as soon as it receives
the certificate of incorporation.
➢A private company needs to have only two
directors as against the minimum of three
directors in the case of public company. However
the maximum number of directors for both types
of companies is fifteen.
➢A private company is not required to keep an index
of members while the same is necessary in the
case of a public company.
 CHOICE OF FORM OF BUSINESS ENTERPRISE
1. NATURE OF BUSINESS:- The type of business
activity is the most important factor for selecting
the form of business. If the business requires
personal attention and direct contact, sole
proprietorship and partnership is preferred. The
firms involving rendering services prefer
cooperative organisations. Firms requiring heavy
investment prefer company form. For example,
tailoring shops, beauty parlours, small retailers
prefer sole proprietorship due to demand of
personal attention; professionals like CA, lawyers
etc. prefer partnership; departmental stores, basic
industries prefer company form.
2. CAPITAL CONSIDERATION:- Another important
factor which helps in deciding the form of business
is amount of finance required. Business requiring
less amount of finance prefer sole proprietorship
and partnership form, whereas business activities
requiring huge financial resources prefer company
form.
3. DEGREE OF CONTROL:- If the businessman desires
complete and independent control over the
business, then he has to prefer sole proprietorship
firm. If businessman don’t mind sharing the
control then they can go for partnership or
company form.
4. LEGAL FORMALITIES:- If businessman want to
avoid legal formalities and prefer easy formation
then the most suitable form is sole proprietorship
and partnership, whereas there are many legal
formalities involved in company form and
cooperative form of business organisation.
5. LIABILITY:- Another important factor which helps
in selecting the form of business enterprise is the
degree of risk involved. For low risk mindset
entrepreneur always prefer for company form of
business or cooperative organisation because
liability of members is limited to the extent of the
share contributed in capital. Because of unlimited
liability people avoid sole proprietorship and
partnership form of business. These forms are
suitable for less risky ventures.
6. MANAGEMENT ABILITY.:- The business ventures
requiring efficient management have to select
company form of business. As for efficient
management, professional experts have to be
hired and they charge big salary and generally only
company form can afford it.
7. FLEXIBILITY OF OPERATION:- The business which
requires high degree of flexibility should prefer
sole proprietorship or partnership firm, whereas
making changes and taking decisions takes a long
time in company form of business.
8. CONTINUITY:- Temporary and ad-hoc business
should prefer sole proprietorship and partnership
form as these are easy to form and dissolve.
Enterprises set up for long run and of permanent
nature should prefer company form so that they
can arrange large funds and expand and grow.