1

Forms of Business
Organisation
1.1. INTRODUCTION
In broad sense, business includos industry, commorce and trade. Its main aim is to increase
wealth. Industry moans a place whero matorials are oxtracted or converted into finished or
somi-finished products. "Trade moans a procoss of buying and selling of commodities, while
commerce relates to financial, transportation, insuring and allied activities. The form of
organisation will be decided by various factors, such as:
1. Size and nature ofthe business to bo started;
2. Tochnical difficulties;
3. Market conditions (i.e. competition and scope ofthe article in the market);
4. Capital required to start the business and the means to collect the funds;
6. Limitations and rastrictions put forth by the government (i.e. grant of loan, licence,
foreign exchange and other such things).

Definitions of Business
Business may be defined as "'an activity, in which different persons exchange something of
value whether goods or service for mutual gain or profit."
It may also be dofined as "an enterprise engaged in production and distribution of goods for
sale in market or rendering services for a price."

Business Characteristics
(i) Business activities are directly or indirectly concerned with the transfer or exchange
of goods and services for value.
(i) Business consists of dealings in goods and services.
(i) Business means exchange of goods and services undertaken continually or at least
recurrently.
(iv) Business is a human activity directed towards the acquisition of wealth.
(v) Element of risk, that is possibility of loss arising out ofthe uncertainty that goes with
the profit expected from a business activity.

3
 ECONOMICS
INDUSTRIAL ORGA
GANISATION AND ENGINEERING

Classification of Businesss
is a business
the
activity which concerns itself with
production
andustry.
ing or This
brication of products. The industries pro
may be either of these 4 types: Extractive (Esg.
farms, selling of horticulturhing,
mining, agriculture etc.). Genetic (breading farms, poultry
etc.). Construction(buildings, bridges, roads, dams, canals etc.), and Manufacturing indants
k e analytical, synthetic, processing and assembly line industries etc. dustries
0) Commerce. Commerce is an activity whereby goods are transferred to those who

them. bd

(c) Tradle
Objectives of Business
() Organic Objectives. To try for survival, and then to gain prestige and wi
win recogniti
from the society and thus try to grow.
(ii) Economic Objectives. To earn as much profit as possible.
LL) Social Objectives. Business must fulfill its obligations to socicty, by way of supplu
and
yof
quality goods, avoidance of profiteering and antisocial practices, providing em
ployment.
ofhuma
(U Human Objectives. These are (a) fair deal to employees, (6) development nan
resources, (c) participation, and (d) job satisfaction.
National Objectives. Thes a r e (a) ensuring social justice, (6)
development of small
U enterprises, (c) production according to national priorities, (d) self' sufticiency and
export development and (e) development of skill of personnel.

1.2. TYPES OF BUSINESS ORGANISATIONS

Several types of business organisations are existing in order to satisfy various social, eco
nomic and human requirements. Following are the main types of business organisaions:
(A) Private Soctor:
1. Individual Ownership or Sole Proprietorship
2. Partnership Organisations 3. Joint Stock Companies
4. Co-operative Organisations 5. Joint Hindu Family Firm.
(B) Public Sector (State Ownership and Control):
1. Departmental Organisations
2. Public Corporations (or Statutory Companies)
3. Government Companies.
(C) Joint Sector:
Ownership and control shared by private enterpreneur, state and public.

1.3. PRIVATE SECTOR ORGANISATIONS

1.3.1. Private Companies (Individual Ownership)
The businessman invests
As the namesuggests, such type of business is owned by o n e man.
and simplest form of business
capital, employs labour and machines. This is the oldest
the capital needed to run the organisation. He
organisation. In such business owner supplies all alone enjoys the
help of his o w n land, capital and labour. Hence owner
produces only with the losses decide
profits and suffers the in his business. Therefore, he is the supreme authority to
 FORMS OF BUSINESS
ORGANISATION 5

of action within
Intoditterent matters concerning to his business and has unlimited freedom
legal jurisdiction.
administation and worTk-
Overall control in single hand helps him in quick decision, efficient
valuable advice and guidance
obtain
l s ype oforganisation, owner must be anxious to
from other sources.
liabilities. Hence creditor
can
In such organisations owner himself is responsible for all the
to have this of
type business it is
collect the money even from the personal property. Therefore, enthusiasn,
not the money alone of the debtor that is necessary to start but also the zeal,
courage and faith of the person.
cases
Applications. This form of organisation is most satisfactory in the following the one man
I n small enterprises requiring small capital which can be spared by
(owner).
involved is very
2. Where risk required is not too heavy. Because in this system risk

high.
3. Where management by one man is possible.

Advantages.
Following are the advantages of this form of organisation:
to run and at the same
1. Such individual enterprises can easily be formed and simple
time owner is free from all legal restrictions.
the business.
2. His (owner's) interest, careefficiency directly effects the profit in
and
Hence efforts and rewards are directly related.
and hence can know their
3. In this system owner himself is in touch with customers

likings. and prod-

the overheads are very less
4. Since it is supervised by the proprietor himself,
ucts can be sold cheaply.
because of certain secrecy in their function-
5. Most of the business have their monoploy
such secret functions are performed by the
owner
ing. In this form of organisation else. Therefore, he has the greatest
himself and he does not disclose it any bodyforms of organisation, there are little
to
In other
possibility of running business well.
secret for a longer period.
chances of keeping such activities
under
hence such persons who do not want to serve
6. It offers full freedom for work and show their talent.
or with any body can get
the chance to work independently and can
Thus they can enjoy free life.
decision to be taken, he can act promptly.
If at
7. As he has not to seek direction for any
without any
some work, he can act quickly
time he feels some benefit in doing
any
advice and can avail the benefit.
body's
Disadvantages.
disadvantages
This type of organisation has the following
modern factory cannot be
that can be invested is limited, therefore,
1. Amount capital
of
run with this system of organisation.
engineering
2. Owner cannot be the master
2. of all techniques like management, sales,
suffers.
processes etc. Hence work
Due to unlimited liability owner cannot
take risk to start a big industry.
3.
 AND ENGINEERING ECONOMICs

6 INDUSTRIAL ORGANISATION

are removed in tho.

1.3.2. Partnership Organisations

shi e of the above mentioned

drawbacks of private
companies

ing a busi
of starting
artner.
ship organisation upto some extent. desirous

b e t w e e n the
persons
1.e. capital, Ilabour,
skill a n s ana
Partnership is the relati
ership dependsincease
upon mutual
their confidence, understanding, co-opr abili
resources, and
invite together to
other's view,
n ar
The success of partners. and appreciate each to earn gro of th
accommodate work nard

adjustment of the members to

and he
should

partner should realise that it is his

business and
greater profit. Act 1932. As "the rols.
Partnership
been defined by the Indian concern
carried on by nshi
ship
nership has
business
share profit of
a
between persons who have agreed to
twenty persons
in case of n o n b a n k i n o O a r any
one of them acting for all". When two
and upto ten in case of banking business
and upto
enter into a contract
to carry on a business
be
alSne
business allowed by
partnership is said to Tored.
W , WIth the object of making profit,
a
other partners
of
in that busine
thatbusina.
for the acts To
Every partner is liable and responsible constitution of the company may be writtas.n an
avoid at a later stage the should not be more #l
any complication partners
the number of
partnership and experiosix,
form. For the best
Breement that persons
with a good idea
the lesser the etter. It generally happens Thus money
and knowledge both
make partnership with moneyed people. com-.
Dusiness
bined to earn profit.
Advantages. advantages:
This type of organisation has the following important
formalities and
without heavy expenditue
1. It can be formed without much legal ure of
organisation and stamp duty.
more freedom and is not subject to strict governm..
2. This type of organisation enjoys nent
supervision. that can be collected
amount of capital
3. Due to more number of owners the
than that in the case of sole trade organisation.
4. In this type of organisation persons possessing different
abilities and skills are cho
and brought together. Therefore, the managerial ability of the firm as a whole wol
trader.
be much greater than in case of a sole
5. The affairs of firm can easily be kept secret.

Disadvantages.
Following are the disadvantages or limitations of the partnership organisation:
Due to unlimited liability risk involved is more.
2. After the death or retirement of any one partner, the partnership organisation may
come to an end.
3. It can raise much less capital in comparison to the joint stock company. It is, there.
fore, unsuitable for modern industries, because they require huge capital and a large
number of managerial abilities.
Sometimes, due to some misunderstanding, friction may arise between the partners,
which effect adversely on the efficiency and expansion of business.
5. All the partners are jointly and severally liable for the acts of the partner, who is
placed incharge of management. Thus sometimes mistakes of one partner may caus
a big loss to all the partners.
 ORGANISATION7
FORMS OF BusINESS

In conclusion, though partnership firm can reduce the limitations of sole trade organisation
arna,
it has more less all the limitations of sole-trade organisation
to some extent, yet or a

therefore, suffers the same fate.

Types of Partners
ways and their extent of
Members of this type of organisation may be associated in different
common. These members
can be
involvement may be also different, although their interest is
classified in the following ways
(a) General Partners. All the partners who are in the partnership known as general part
ners.
6) Active Partners. These are those partners who take active part in the management

and help in the formulation of policies. These are also known

as working or managing
partners.
and do not take any
CSleeping and Silent Partners. Partners, who just
invest money
or silent partners.
Such members
part in the management are known as sleeping to share the profits or to
after contributing their share of capital, wake up only either
liquidate the business.
in the
Nominal Partners. Partners, who do not invest money and do not take part
(d) are
their name for the company's reputation
management, but they lend reputed
however, associate them-
known as nominal partners. The nominal partners may,
business.
selves only after ascertaining the soundness of the
nowhere
These partners take part in the management secretly but
e) Secret Partners.
their names appear.
of 18 years and associated
) Minor Partners. A person who has not attained the age
allowed only with
aminor partner. Such partner can be
with the business is known as to investment only (i.e. limited
the consent of other members. His liability limited
is

liability).
Formation of Partnership
to avoid the possibil-
either verbally or by written agreement but
Partnership can be formed it is desirable to
and further troubles which can arise at a later stage,
ity of misunderstanding agreement is known as "Partnership Deed".
enter into a written agreement. This written
1.3.3. Joint Stock Companies forms
financial resources and heavy
burden of risk involved in both of the previous
Limited
stock companies. These have limited liability.
of organisation has led to the formation of joint
It is voluntary associa-
is contributed by a large number of persons.
In this system capital different val-
capital divided into transferable shares of
tion of individuals for profit, having a

ues. the shares

selling shares of different values. Persons who purchase
by
The capital is raised elected by these
shareholders. The managing body known as "Board of Directors" is
are called financial and
of directors is responsible for policy making, important
shareholders. The board
of an enterprise.
technical decisions and efficient working
of a shareholder is
limited to the extent of the amount
In this form of organisation liability
from the responsibility of the
debts and claims on the
him and he is free
ofshares held by value of shares. Because of this advantage all sections of people are en-
company beyond the shares are transferable.
couraged to contribute for the company. These
 INDUSTRIAL ORGANIs TION AND ENGINEERING
ECONOMIcs

Characteristics of Joint Stock Company :

stock company a r e
ome of the important characteristics of joint registering or incorporating an
asso.
**Joint stock company can be created by
2.
persons under the Company Act.
A very stable existence.
ciation of
as distinct from its members,
AA company has a separate legal existence
* conmpany has a common scal and acts as its signature. It is affixed on allin

legal documents and contracts.

comlete separation of a ownership from management.
is a
mportant
nere
6. Liability of share holdors is
limited.
7. Lower tax
liability.
8. Easy
transferability of shares.
9 Risk of loss is widely distributed.
10. Large number of members.
Types of Joint Stock Companies
There are two main
types of joint stock companies
(a) Private Limited Company. (6) Public Limited Company.
a) Private Limited Company. This type of company can be formed by two or
mo
noreper
Sons. The maximum number of membership is limited to 50. In this, transfer of shares
ited to members only and
general public cannot be invited to subscribe the shares
shares.
i
Normall lim-
members of such a company are friends and relatives. the
A private limited company neednot make the prospectus,
open to the public. The members only are entitled to receive a accounts and other particula
copy of the balance sheet
auditors' report. The government also does not interfere in the and
working of the company. In thi
system persons who want to take advantage of limited liability and at the
business as private as possible, can subscribe.
same time to keen th
(6) Public Limited Company. It is one whose membership is
open to general public as its
name indicates. The minimum number
no upper limit.
required to form such a company is seven, but there is
Such companies can advertise to offer its shares to
These public limited companies are
general public through a prospectus
ment. This control is necessary to
subjected greater
to control and supervision of the
govern-
protect the interest of the shareholders and the members
the public. Shares are transferable in of
part or full without requiring any prior approval. The
affairs of the company are
managed by an elected body, known as Board of Directors'. The
number of members in the board of directors is limited to
seven.

Liquidation
Itbecomes difficult to run the company if
liability becomes much more than assets and
when creditors press for payments of loan etc. At this time the company has to be dissolved or
wind up. This is known as
liquidation.
Liquidation may be compulsory or voluntary or under the
sources do not permit the supervision of court. If the re-
payment, then the assets of the company have to be sold and then the
amount is paid to the creditors in
distributed among the shareholders.proportion. If some amount is left after payments then it 1s
 ORGANISATION 9
FORMS OF BUSINESS

Amalgamation
efficient
An Amalgamation is ajoining together of two business. It usually results in more

operation because of economics of large sales, administrative, and marketing etc.

Clearly both parties in a proposed amalgamation will have some existingassetsand

es wch could be set out in a balance sheet or statement of affairs at the date of amagan
ation.
The existingwill
conditions may or may not be acceptable to the proposed partner
of objections
y
SODe &0usments be made to one or both of the balance sheets to take account
raised by the other party.
Raising Finance for Joint Stock Companies
Money is necessary to start and to keep the business running. It is also needed to meet

expansion, replacement and alterations. The required capital is supplied by individuals, societ
in the torm
es and
assOCiations. Funds can also be taken from banks, finance corporations etc.,
ofloan. Following are the sources from where money can be taken for an enterprise
is collected in the form
.1ssue
of Shares. A portion ofthe money required for enterprise
of shares.
required
the finance through
2. lssue of Debentures. When company desires to raise
issued. In this way it is advanta-
loans instead of sale of shares, then debentures are
inter-
claim for ownership and he is to be paid
geous because debenture holder cannot
for initial needs of enterprise or for devel
only. Debentures may be issued either
est
opment and extension.
financial institutions, like L.I.C. and
U.T.I.
3. Loan advances from banks, and other
In-
State Finance Corporation or through
4. State loans from Industrial Corporations,
dustrial Development Corporation.
Advantages. over the previous two forms of
Following are the advantages of the joint stock company
businessorganisation shareholder bear no risk and, therefore,
more and
1. The liability being limited, the amount of capital can be
to invest capital. Thus more
more persons are encouraged
collected to run modern industries. even an
loss is divided. Therefore,
2.
2. Because of large number of investors, the risk of
hesitation.
average person
capital without much
can contribute
different groups of persons;
the stock companies the work is divided among
3. In joint
hence better work can be done. and other
the good managing agents, chief manager
4. It can bear the high
salaries of
Thus administration is better.
managers etc. of the shareholders.
retirement
5. Joint stock companies are not
by the death or
affected

6. It has great potentialities

for expansion.

Disadvantages.
the joint stock company
Following are the main disadvantages of of the salaried managers because there is no
interest on the part
leads to inefficiency and
waste.
1. Lack of personal them and this
income for
relation between effort and members of
suficient scope to the directors and other
2 This form of organisation offers Because they have intimate knowledge
of
their personal profits.
the management for or sell the shares
the company, therefore, they can purchase
the financial position of
 10 IND S T R I A L ORGANISATION AND
ENGINEERING
ECONOMCS

3.
accordingly there a r e
hundreds of investors
from different
rts of th
ne

this form of bussiness savings but very rarely come to atttend the e
gene
contry who invest theireffective check. Such persons offer unlimited se a br
meetings or exercise any and deceive the innocent shO Ca
tious pers
ers.
sons to secure control over companies
re-hold-
be observed.
equires a large number oflegal formalities to
. Tt is difficult to preserve secrecy in these companies
1.3.4. Co-operative Societies
and joint stock companies w
With the study of individual ownership, partnership
seen that they neglect the interest ofconsumers and employees in the concern. This is thave
of general public. These coost
democratic form of busi organisation for the betterment
tive societies hel to protect the interests of the consumers, small and independent proda
and of the Workers while fighting against the monopolists and capitalists. Members sunns,
capital, manage the business and share all its profits and losses. These have been develo the
veloped
agriculture to a largeextent. In economicfield, these do not have the idea of earning profitsh
s but
to benefit the
members.
Co-operative society is an association of individuals formed for the purpose of obtainin
goods, specially the:articles of daily use at rates lower than that of market. Thus, it is a m. ing
to level the inequality of wealth which had come into existence as a eans
r e s l t of private individhs
form of ownership. The idea of co-operative society is to benefit the shareholders who are #
consumners or producers.
the
Mr. N. Barow defined co-operative society, as voluntary organisation" of persons with nm
restricted membership and collectively owned fund, consisting of wage earners and small Dr
ducers, united on a democratic basis for the establishment of enterprises under joint mana
ment for the purpose of improving their household or business economy. ge
The main object of co-operative society is to promote selfhelp and mutual assistance amone
men of moderate means and incomes having needs and interests in common. Such men ar
industrial workers, small artisans, agriculturists and members of the middle class. In thissvs
tem liability of shareholders is limited.
To start a co-operative society an application is submitted to the registrar of co-operative
societies. The officials of this department will attend the first general body meeting in
which
bye-laws are framed to govern the society and the directors are elected by the shareholders
Then if the authorities are satisfied about its soundness, a licence will be issued by the
registrar
and thus the company is formed. Board of
Directors meet at least once in every three months.
The Indian Government to protect the interests of small consumers, is encouraging the co-
operative movement and provides loans through financial corporations, banks etc. The accounts
of the enterprise are audited by state government. It can be formed by minimum of 10 members
and should be registered with the registrar of co-operatives. The government of India has tried
to introduce co-operative societies in many fields since long but it has not met with much su
cess. Although co-operative movement is very conducive for Indian economy but has failed to
achieve the objectives.
Main objectives
Main objectives of the co-operative societies are following
1. Itis a voluntary organisation. A member can continue his membership as long as he
 PORMS OF nUsINE8N ORaANIBATION 11

es,ant ean by giving a notico, withdraw his eapital and coawe to be a member
The is no imit to its membership. Pace vahie of one share ia generally kept as Ra.
Thus small value of share makes it possible to onroll a large number of permons
becuse even a poor man ean atord this
much amount.
manawmnt is based on demoeratie basis of equality. Therefore, every member
aN cast
only one vote, whatsoever the number of shares he has.
. lts objeet is to serve the
members and to earn profit.
Types
The various
types of co-operative soeieties in our country are :

ta) Producers' or Manufacturers'

co-operativesociety.
6) Consumers'
co-operative society. (c) Housing co-operative society.
d) Co-operative farming. (e) Co-operative credit socicty.
Consumers' and housing co-operative societies are gaining popularity in our country.
a) Producers' Co-operative Society. This is the form of assoeiation in which persons
combine together to form a soeiety for the purpose of manufacturing goods. Although it is a
democratic management of industrial production, this is useful where neither large capital is
necessary nor much technieal and expert knowledge of management is needed. In India, this is
applied to agricultural and cottage industries. This has largely succeeded in countries like Den-
mark, United State of America, Sweden, Israel etc. In India some of the Sugar mills, Rice mills
and Ginning mills are running under this formation.

(6) Consumers' Co-operative Society. This type has got some popularity. Its object is
to
eliminate the middleman's profit by directly purchasing things from manufacturers and distrib-
reasonable prices. This can be of retail or whole-
uting among the members and non-members at
sale type.
all the important cities have been
These are also named as "co-operatives". Super Bazars in
rates. These have achieved good
established so as to make available the things at cheaper
success in the very beginning
but latter on it is found that due to mismanagement, corruption
and lack of experience some of them are not functioning
satisfactorily.
These societies are formed for the purpose of gotting
(c) Housing Co-operative Societies. facilities.
houses for the needy persons. For such purpose government provides great
plots or
the
is not popular in India. The object is to enlarge
(d) Co-operative Farming. This type It will thus make
the co-operative group of cultivators.
size of agriculture land by forming which in turn
science and technology in agriculture
the use of modern implements,
possible
increase the yield.
is to finance the poor
cultivators by advancing
(e) Co-operative Credit Society. objectof machinery etc.
Its
and purchase
loans for the development of land
Advantages.
co-operative oraganisations:
Following are the advantages of to spend on advertisement
and
as money required
1. It sells the products cheaper ;
publicity is not needed. are kept minimum,
as
auditing and management task
2. Expenses for book keeping,
service for such tasks.
members provide honorary
reasonable conditions of service.
offers to its employees better wages and
3. It
 12 INDUSTRI ON AND
ENGINEERING
ECONOMICS

hoarding and ng type,

black marketing
type of ovils
4. There of profiteering,
r is no question
e 1s q the community.
aim is to serveprofit
ddeman's is eliminated as purchasing is directly made from nmased
as thethe
5. Middleman's profit is eliminatea as ing
It suits well to Indian cultivators in improving
the problems of mechanio.actun.
the problems mechanised r eacturer.
6.
warehousing and credit etc. ial causes
for social causes and dev
farming,
7. Profits are shared equally and, the balance goes
t y such as medical aid,
education, playgrounds lopment
a n d children gardenePment

8. It tries to equalise money distribution.

9. It benefits
general public. members.
Ppromotes a sense of co-operation among the
11. It is possible to take large amount of capital in the form of loans((say upto 8
s the
subscribed capital) from the governmen.
Limitations.
t has its own limitations, some ofthem are listed beloW:
class and middle clas, its can.
A s its members c o m e mostly from the isworking
raise capital is limited. Therefore, it
suitable for small and medium siz sized acity
und
to
takings only.
2. Due to limited financial resources services of highly qualified persons cannot ha.
lized.
uti.
8. Although it trades for the benefit of members only but at the same time it .
t
possible to refuse to trade with non members.
4. Mostly inefficient management and sometimes found that management is inexpe
enced and corrupt.
kperi.
5. Members usually try to make undue advantage.
6. It requires better and strict supervision.
7. There are chances of excess officialization.
1.3.5. Joint Hindu Family Firms
Ancestral property inherited by a Hindu from his great grandfather to grandfather, and b
grandfather to father, and by father to him. Therefore after the death of a Hindu, his business
i sjointly owned by the living male issues. Such firm is known as Joint Hindu Family Firm. The
female members or their relatives do not have any claim in the firm.

Advantages:
(i) These are not dissolved on the death of a member.
(i) It has no binding of company's Act 1956.

Draw backs:
() Continuity of the firm depends upon the continuity of the joint family itself.
(i) Resources are limited compared to joint stock company.
(ii) Since the management of this type of firm is in the hands of eldest male member,
there is generally lack of management skill or adequate business knowledge.
(iv) Business is looked after by the active member{s), but the profit is shared by all. This
affects his interest and efforts for the growth and efficient running of the firm
Joint Hindu Family Firm v/s Partnership Firms
()This is a creation of Hindu law, hence there is no contract. Partnership firm is formed
 FORMS OF BUSINESS
ORGANISATION 13

under the contract.

but ceases it
( This is a continuous firm and do not dissolve on the death of a member,
dissolved in the event of
tne joint family breaks down. Whereas partnership firm gets
death of a partner.
have female
members, whereas partnership firm
can
(ii) nis does not have female as
partners.

1.4. STATE OWNERSHIP (PUBLIC SECTOR ORGANISATIONS)

companies. This form is most
Such ownership is only serious competitor to the joint stock
industries, because of facilities
like
Suitable forthe establishment and development of modern
power, transport, credit, insurance etc. are easily available to them.
The private ownership and the joint stock company gave rise to exploitation of labour and ot

ownership. The former system of ownership neglected

the consumers. This gave idea of state whole.
the well-being of workers and the welfare of the community as a
industries to prevent the eco
Government either starts or nationalises (acquires) certain tendencies. It
nomic unbalance in the nation. It serves as a means
to obstruct the monopolistic
for welfare of the people.
helps for the betterment of the community and the
state owned. Ship-building, steel industry,
The railways, post and telegraph are completely the
engine manufacture etc. are owned by
electricity generation, fertiliser production, railway
stock companies.
government and also by joint cannot be handled like
drawbacks in above mentioned state ownership is that they
Main certain confidence
In private enterprises, the employees are believed and The
private enterprises. achieve the maximum benefit for the undertaking.
to
is placed in them, therefore, they try or inefficiency or indiscipline,
etc.
tolerate any bad workmanship
employers do not

Forms of Public Sector Organisations 2. Public Corporations.

1. Departmental Organisations.
3. Government Companies.
rganisations
1.4.1. Government Departmental departments. These are
man-
Government
like any other
The organisations are organised
agedin two ways: the officials ofthegovern-
the concerned ministry. It is managed by and
()Management through concerned. The examples are Posts
of the secretary of the ministry
ment under the charge Industries, Broadcasting etc.
Defence,
Telegraphs, Railways, Committee or Board. In
certain organisations co-op-
Inter-department committee of representatives
(i) Management by Therefore, a board or
several ministries. may
eration is required from co-operation, consultation and quick decisionsIndia
is formed so that Chambal Control Board,
All
from concerning ministries Hirakund Control Board,
be taken. Bhakra
Control Board,
by interdepartmental committee
managed
Handloom Board are few examples of organisations
or board. essential
characteristics:

organisations have following exchequer.

(6) Revenue go public
All the governmental to
government budget.
(a) Financed out of
and regulations of government are applicable.
(c) All the rules
concerned ministry.
(d) Direct control ofthe
servants.
(e) Employees are government
 14
NDUSTRIAL ORGANISATION AND ENGINEERING
ECONOMICS

Merits
1. Because of the gover control, it is easy to achieve its eco
social objectives.
conomical, political, and
2. Such
organisations suitable for public
are utility services and lefence indust
defence ind
3.
3. Beca.
Because of the government control, complete secrecy is possible like in .
facto
factories etc.
Demerits dinance
ecause
2. of bureaucratic control, generally timely decisions are not taken.
Government officials prefer to work according to certain rules andand regulation.
regulation
thus it becomes difficult to bring about major modifications and innovation eete. nd
3. Because of red-tapis1 officers discouraged from taking quick and
dependent
are
decisions.
4. Lack of initiative
because promotions a r e seniority based rather than merit ased.
1.4.2. Public Corporations
olly owned by the Government-Centre or State,
State. It is
sually
prescribes
by a Special Act of the Parliament with internal
its man autonomy. Special statutob
by thenagement
is provided pattern, powers, duties and jurisdictions. Though the totalo als
Government, they have separate entity and enjoy 1ndependence in matapital
elated to appointments, promotions etc. These corporations have no pront motive and tters
maximisation of social welfare. wor for
Merits
These are supposed to be better managed. These are expected to provide
better wo-
ing conditions to the employees and cheaper and better products to the consuma
22. Quick decisions can be possible, because of absence of red- tap1sm and ers.
control. bureaucrati.
atic
3. More flexibility as compared to departmental organisations.
4. Because of the absence of profit motive, these are most suitable for
utilities at a reasonable cost to the managing publie
5.
people.
Since the management is in the hands of
agers, these
experienced and capable directors and man.
are managed more efficiently than that of government departments,
Demerits
1. Any alteration in the power and constitution of corporation requires an
nent in the particular Act, which is difficult and time amend-
2. The autonomy of the
consuming.
corporations are only on papers whereas in reality, there are
lot of interference by the
political leaders and government officers. Therefore,
they do not enjoy real freedom in their working.
3. Public corporations possess monopoly and in the absence of competition, these
are interested in
not adopting new techniques and in making improvement in
their working.
1.4.3. Government Companies
A state enterprise can also
be organised in the form of a Joint Stock
Company under Comn
panies Act. A government company, according to Indian Companies Act 1956, is any company
 FORMS OF BUSINEss ORGANISATION 15

in which not less than 51% of the share capital is held by the central government, or by any
state
government or governments or partly by the central government and partlyby one
or
more state governments. This form of organisation is becoming very popular in recent times. It
.is created by an executive and not a legislative decision and is managed by nominated b0ard of
directors which may include private individuals. These are accountable for its working to the
Concerned ministry or department and its annual report is required to be placed every year on
the
table of the Parliament or state legislature alongwith comments of the government or con
cerned department. Auditors are appointed on the recommendations of the comptroller and
not civil its
Auditor General ofIndia. The employees,
it is free from
excluding deputationists are
servants. In
day-to-day working government interference, however, Bureau of Public Enter-
prises can issue guidance and directions.
Merits
1. It is easy to form.
2. The directors of a government company are free to take decisions and are not bound
by certain rigid rules and regulations.
3.
They always try to satisfy their customers because otherwise they might loose to their
competitors.
4. More efficiency.

Demeritss
1. Misuse of excessive freedom cannot be ruled out.
2. Inadequate accountability.
3. The directors are appointed by the government, so they
spend more time in pleasing
their political masters and top government officials, which results in inefficient man-
agement.