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Forms of business
organisations
A business organisation is an industrial and/or commercial enterprises
which undertakes activities mainly to earn profits

Pure industrial enterprises undertake Trading activity

Only production activity only

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Definition of business organisation

An enterprises
Undertakes activity of
Production distribution
Of goods and services
With the main aim of earning profits

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Business organisation

private sector enterprises Public sector enterprises

Sole trading concerns statutory corporations

Jt. Hindu family firm departmental undertakings
Partnership firm govt. companies
Joint stock companies
Cooperative society

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Sole proprietorship
Sole trading concern is the oldest form of commercial organisation.
Sole means one. So a sole trading business is carried on by one person.
The person who conducts the business is called

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Definition (the encyclopedia of business and commerce)

A sole trading concern is
a form of business organisation
In which an individual invest

Only his capital uses his own skill intelligence

In the management of its affairs
Is entitled to earn all the profits
Solely responsible for all the risk of ownership

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Meaning of Joint Hindu Family Business

1) the business which is jointly owned by

Member of a JHF

Is called as joint Hindu family business

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2) Three successive generations

Inherit the business by virtue of their birth in the Hindu family

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3) The business manage by

Most senior member of the JHF
Is known as karta

4) Other member are called

As co- parceners
Who assist the karta in the working of firm

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Partnership firm
A partnership firm is a form of commercial organisation
In which two or more person contribute their capital and services
And share the profits and losses in an agreed proportion

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Definition of partnership (sec 4 of the Indian partnership Act,1932)

Partnership is the relation
between person
who have agreed to share the profits of a business
carried on by all or any of them acting for all

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Joint stock company

Joint stock company is a voluntary association of members formed for
the purpose of undertaking a business.
It is called a joint stock company
A joint stock company undertakes different business activities like
manufacturing, marketing and servicing.
the funds required by the company are contributed by its members
called shareholder, the share in the profits of the company in the form
of dividends
The company is managed by board of directors

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Sole proprietorship
Features: (mar.15,16, july.16)
Merits: (oct.14, 15)
Limitation: (oct.14, 15)
Distinguish between:
Sole trading v/s partnership firm (mar.14, 17)
Sole trading v/s JHFB (oct.14)

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Features: (mar.15,16, july.16)

1) Single ownership
2) Suitability for certain Business
3) Operation cost are low
4) Unlimited liability
5) Limited capital
6) Local area business
7) Business Secrecy
8) Complete Control Over Business
9) Direct contact with employees and customers
10) Effort- reward relationship
11) Flexibility in operations
12) Government control is limited

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Single ownership of business:

Sole trading concern is the oldest form of commercial organisation.
Sole means one. So a sole trading business is carried on by one person, and often
referred as one man show.
The sole trader owns all the assets and property of the business.
A sole trading concern is a form of business organisation In which an individual
invest Only his capital uses his own skill intelligence In the management of its
affairs is entitled to earn all the profits Solely responsible for all the risk of
ownership
Suitability for certain Business:
Suitable for those businesses which required personal attention of the owner and
limited amount of capital
e.g. stationery shop, grocery stores, beauty parlours, chemist shops, restaurants

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Operation cost are low:

OC are low as compared to other forms of business organisations.
This is because; a sole trader employs limited number of employees, rent and
electricity charges are low

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Unlimited liability:
The liability of sole trader is unlimited.
The sole trader is solely responsible for the debts of the firm.
There is no distinction between the private property and business property.
In case business property is not sufficient to pay debts to the creditor, the private
property of sole traders is used to pay the debts.

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Limited capital:
Sole trader can operate the business with limited amount of capital. The capital can
be generated from personal savings.
He can also obtain loans from relatives and friends. At time, he may obtain a small
loan from a bank.

Local are business:

A sole trader conducts business in a local area because
of limited size of his business. However, there are sole
traders who may cater to regional and national markets.
Sole traders may also undertake foreign trade.

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Business Secrecy:
The sole trader can maintain complete business secrecy. He need not publish any
accounts and records. Competitors cannot easily get business secrets and
information of the sole traders activities.
Complete Control Over Business:
Sole trader enjoys complete control over his business. All decisions which are vital
to business are taken by the sole trader himself. If there are some problems, he can
immediately take corrective steps. The sole trader may take the advice of a
professional consultant to solve certain business problems.
Direct contact with employees and customers:
The sole trader can develop close contacts with his customers. He regularly deals
with local customers and as such he can develop personal contacts. Also he can
develop personal contacts with his employees.

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Effort- reward relationship:

The sole traders has personal interest in the business. There is direct relationship
between efforts and rewards. All profits are enjoyed by the sole trader himself.
Flexibility in operations:
Sole trader enjoys maximum flexibility. He can take right decision at the right time
depending upon the situation. He can expand his business. He may also change the
line of his business. He may even close down the business, if the situation so
demand
Government control is limited:
The sole trading concern is subject to least government control. There are almost
no legal formalities to start or to close down a business. However, certain type of
sole trading need government clearance. For example, to start a restaurant, one
may require permission from local authorities.

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Merits: (oct.14, 15)

1) Business secrecy:
2) Complete control over business
3) Direct contact with customers
4) Effort- reward relationship
5) Flexibility in operation
6) Limited government control
7) Better relations with employees
8) Convenience to customers
9) Decision can be made quickly
10) Efficiency
11) Formation is easy
12) Limited tax burden

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7) Better relations with employees:

The sole traders can develop good and informal relations with employees. This is
because, the sole trader employs few people. Because of personal relations with
the employees, the sole trader can develop team sprit in his organisation
8) Convenience to customers:
The sole trader offers lot of convenience to his customers. He may sell on credit
basis to his regular customers. He may also provide home delivery. He may also
advice the customers regarding the choice of goods.
9) Decision can be made quickly:
The sole trader can take quick business decisions. This is because of sole
ownership. He need not consult others before taking a decision. In todays
competitive business world, quick and quality decisions are vital to the success of
the organisation.

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Efficiency:
The sole trader business may generate higher efficiency.
The sole trader tries his best to reduce wastages and unwanted expenses. However,
efficiency may be affected due to low managerial skills and also due to the use of
outdated technology.
Formation is easy:
Very easy to start and to conduct of business operation. Any person who is
competent to enter into a contract can start a sole trading business. The sole trader
may also close down the business as per his own will.
Limited tax burden:
Enjoy limited tax burden. tax rate under income tax Act are lower for sole trading
concern

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Limitation: (oct.14, 15)

1) unlimited liability
2) Limited capital
3) Limited managerial ability
4) Weak bargaining power
5) Problem of competition
6) Poor quality of decision making
7) Limited expansion
8) Lacks stability
9) Lacks specialisation
10) Unsuitable for large business
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1) Unlimited liability:
The liability of the sole trader is unlimited. In the
eyes of law, there is no distinction between the
personal property and business property of the
Sole trader. In case business property is not
sufficient to pay debts to the creditor, the private
property of sole traders is used to pay the debts.
2) Limited capital:
The main drawback of sole trading concern is the limited capital. the sole trader
can manage limited amount of capital from his own savings.
He can also obtain loans from relatives and friends. At time, he may obtain a small
loan from a bank.

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3) Limited managerial ability:

Generally the sole trader manages the business on his own. But due to
competition, there is a need for specialised skill in the field of production,
marketing, finance and other area. A sole trader may find difficult to appoint skilled
managers and staff due to limited funds.
4) Weak bargaining power:
The sole trader has weak bargaining power. This is because he purchase on small
scale (small quantity) from the wholesalers. Secondly, he may not have the skill of
bargaining.

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Problem of competition:
Nowadays, sole trader face lots of competition. For instance, a retailer in urban
(city) areas faces competition from large organisation such as shopping malls. Due
to competition, the profits of the sole trader get reduce.
Poor quality of decision making:
A sole trader may make poor decisions regarding business activities. This is because
he may lack decision making skill. Also, he may not be consult experts on
consultants due to lack of funds.
Limited expansion:
A sole trader may find difficult to expand the business. Generally, a sole trader lacks
the capital and skills that are necessary to manage the expansion of a business.

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Lacks economies of scale:

A sole trader may not be able to achieve economies of scale. This is because of the
limited scale of operations. A sole trader may buy and sell in small quantities, and
thus does not get the benefit of large scale operations.
Lacks stability:
A sole trader may face problem of continuity. If a sole trader finds it difficult to
continue the business due to ill health or if he dies, the trading concern may come
to an end. In other words, a sole trading concern lacks stability.
Lacks specialisation:
The sole trader is over burdened with a number of activities such as marketing,
supervising, accounting and so on. He does not specialised in certain areas. He is
the jack of all but master of none.

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Problem of legal status:

A sole trader lacks separate legal status. the sole traders and sole trading firm are
inseparable. A joint stock company enjoy separate legal status.
Unsuitable for large business:
The sole trading concern is not suitable for large business. Large business requires
huge capital and good managerial skills. A sole trader lacks capital and managerial
skill to manage large scale operation.

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Joint Hindu family business

Meaning:
the business which is jointly owned by Member of a JHF Is called as
joint Hindu family business Three successive generations Inherit the
business by virtue of their birth in the Hindu family The business
manage by Most senior member of the JHF Is known as karta, Other
member are called As co- parceners, Who assist the karta in the
working of firm

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Feature of joint Hindu family business. (mar 16)

1) Formation
2) Karta and co-parceners
3) Joint ownership
4) Membership
5) Sole control by karta
6) Unlimited liability of karta
7) Limited capital
8) Local area coverage
9) Business secrecy
10) Business dominated by male member
11) Direct contact
12) Quick decision making

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Formation:
The joint Hindu family business is formed under the Hindu law. At present, it is
operated under the Hindu succession Act 1956, which was amended in 2005. this
Act applicable to the whole of India except Jammu & Kashmir.
Karta and Co- parceners:
The JHFB is managed by senior most family member. The senior most member is
known as karta. The karta has total authority over business decision. The karta may
be assisted by other members of the family. The other members of the family are
known as co- parceners.
Joint ownership:
The business is jointly owned by all the members of a joint Hindu family. Three
successive generation inherit the business or property by virtue of their birth in
Hindu family.

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Membership:
There is no maximum limit to membership in a joint Hindu family business. The
membership depends upon the birth and death in the family.
Sole control by karta:
The karta is the sole manager of the business. The co- parceners have no rights to
interfere in the activities of the karta. The karta has the rights to enter into
contracts on behalf of the family business. However, if co- parceners do not
approve the activities of the karta, they may demand partition of the family
property.
Unlimited liability of karta :
The liability of the karta is unlimited. However, the liability of co-parceners is
limited to the extent of their share in the family business. The liability of karta is
unlimited because he has total authority to manage the business.

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Limited capital:
This type of business may face the problem of capital. The capital raised is from
saving of the family members. The karta may also obtain funds from friends, and
may also take loans from the bank, but of limited amounts.
Local area coverage:
Normally, joint Hindu family business is limited to a local area. This is because of
limited capital and the limited nature of the business.
Business secrecy:
Business Dominated by male Members:
This type of business dominated by male members of the family. Normally female
members do not take part in the joint Hindu family business.
Direct contact:
Quick decision making:
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Merits of joint Hindu family business

Business secrecy:
Better relationship with employee:
Direct contact:
Quick decision making:
Efficiency:
Flexibility in operation:
Government regulations are minimum:
Lower operating costs:
Credit standing:
Limited liability of co – parceners:
Specialisation:
Continuity and stability:

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Credit standing:
This type of business do enjoy a good credit standing in the market. This makes it
possible to obtain credit terms from the suppliers. The karta also can obtain funds
from banks and others because of the goodwill enjoyed by the firm.
Limited liability of co – parceners:
The co- parceners enjoy limited liability. The liability of the co- parceners is limited
to the extent of their share in the family business. However, the liability of the karta
is unlimited.
Specialisation:
In JHFB there can be division of the work. For example, one co – parcener may look
after finance, the other may look after marketing and so on.
Continuity and stability:
This types of business continuity and stability of business. For instance, if karta
cannot run the business due to ill health or if the karta dies, the next head of the
family manages the business.
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Limitation of joint Hindu family business:

Limited capital
Unlimited liability of karta
Limited managerial skills
Limited participation of co- parceners
Limited expansion and growth
Lacks economies of scale
Problem of continuity
Poor quality of decision
Family disputes
Problem of distribution of profits.

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Limited managerial skills:

The karta and the other co-parceners may lacks the necessary managerial skills that
are required in todays competitive business world. Also it may not be possible to
appoint specialists because of limited funds and the limited nature of the business.
Limited participation of co – parceners:
The co – parceners may take limited interest in the activities of the business, may
be because of their limited liability. Some co- parceners may enjoy at the cost of
other co- parceners efforts.
Limited expansion and growth :
This business may not be able to expand even if the opportunities permit to do so.
This is because of limited capital and managerial abilities.
Lacks economies of scale:
This type of business may not be able to obtain economies of scale. This is mainly
because of limited scale of operations. Bulk buying and selling is normally not
possible.
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Problem of continuity:
There may be a problem of continuity, this can happen when the karta dies
or the karta may not be in the position to run business due to health
problem.
Poor quality of decisions:
There is often risk of poor decisions. This is because, joint Hindu family
business firms may not appoint specialised experts.
Family disputes:
There may be a family disputes which may ruin the JHFB. The co-parceners
may demand partition of business. Thus, continuity of business may be
affected.
Problem of distribution of profits:
There may be a problem in distribution of profits to the co- parceners. Some
co – parceners may demand higher share due to their higher efforts.
However, such problems may be sorted out by the karta

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Features of partnership firm

1) Agreements
2) Joint ownership
3) Joint management
4) Lawful business
5) Liability
6) Number of partners
7) Principal-agent relationship
8) Restriction on transfer of interest
9) Registration
10) Sharing of profits and losses
11) Termination of membership
12) dissolution

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1) Agreement:
Partnership is outcomes of an agreement between two or more person
to conduct business.
The agreement may be verbal or written.
It always advisable to have written agreement
The written agreement between partners enables to run the business
in a smooth manner.
2) Joint ownership:
The partnership firm is jointly owned by the partners.
The partners have to use the partnership property only for business
purpose and not for personal use.

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3) Joint management:
Every partner has the right to take active part in the management of
the business.
However, one or more partners may agree to manage the business on
behalf of others.
In such instance, the partners who manage the business act as agent of
the other partners.
4) Lawful business:
The partnership firm must undertake only that business which is
permitted by law. The firm should not undertake any business which is
illegal. For example, a firm cannot undertake sale of illegal arms, or
smuggling activities

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5) liability:
The liability of each partners is unlimited and is joint as well as several
Unlimited liability: when the assets of the firm are not sufficient to
satisfy the claims of the creditors. The private property of the partners
is attached to satisfy such claims.
Joint liability: indicates that each partners is jointly liable with other
partners for the debt of the firm, whether incurred by himself, or by
other partners as agent of the firm
Several liability: indicates that each partner is individually and
separately liable for the debt of the firm, whether incurred by himself,
or by other partners as agents of the firms .
In case some partners become insolvent, the remaining solvent
partners have to bear the liability of the firm.
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6) Number of partners:
A partnership firm has minimum of two person. The maximum persons
in the case of banking is ten and in the case of ordinary partnership
(other than banking) the maximum number of partners is twenty.
7) Principal- agent relationship:
Every partner is the joint owner of the business, and as such he takes
part in the management of the firm. Thus, he assume a double role of a
principal and that of an agent to the outsider.
Every partner is the principal and to the other partners, he is an agent.
8) Restriction on transfer of interest:
No partner can sell or transfer his interest or share in the partnership to
an outside party without the prior permission of all other partners.

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9) registration:
The registration of the partnership firm is not compulsory. The Indian
partnership Act provides that if the partners so desire they may register their
firm with the registrar of firm of the state.
In Maharashtra, the registration is compulsory since April 1985, the firm as
well as the partners enjoy benefits on being registered.
Inspite of registration being made compulsory in certain state, yet several
partnership firms are not register
10) Sharing of profits and losses:
The partners agree to share the profits among themselves in a certain
proportion.
The agreed proportion depends upon the amount of capital contributed.
the partnership deed or agreement is silent regarding the proportion of
capital, then the profits are to be distributed equally.

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11)Termination of membership:
A partner may resign on his own from the partnership business by giving a
notice in writing to the other partners.
The partners may also remove from the firm by other partners for fraudulent
activities.

12) dissolution:
The partnership can be dissolved at any time, if the partners agree to do so.
It automatically gets dissolved in case of death, insolvency, insanity of any
one partners, unless otherwise, the partnership deed provides for its
existence in such situation.

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Registration of partnership firm

The registration of the partnership firm is not compulsory under the
Indian partnership Act 1932, provides that if the partners so desire they
may register their firm with the registrar of firm of the state.
In Maharashtra, the registration is compulsory since April 1985, the
firm as well as the partners enjoy benefits on being registered.
Inspite of registration being made compulsory in certain state, yet
several partnership firms are not register

not compulsory compulsory

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Procedure for registrations

1) Partnership deed 2) Filling of prescribed forms

6) Entry in register of firms

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1) Partnership deed:
The partners must draft a partnership deed or agreement. The
partnership agreement contains terms and conditions relating to the
contract among the partners. It may contains terms relating to sharing
of profits and losses, participation in the working of the firm,
remuneration to active partners etc.
2) Filling of prescribed forms:
The partners must fill up the relevant forms to be submitted to the
registrar of firms for the purpose of registration. The forms must
contain relevant details such as;
The name of the partnership firm.
The place of the head office of the firm.
The addresses of the branches where the partnership would operate
its business

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 The name and address of the partners .

 Qualifications, age, gender, and other personal details of the partners.
 Duration of the firm [under partnership at will].
 Other relevant details.
3. Submission of forms;
the duly filled forms along with partnership deed must be submitted to the
registrar of firms. The partners must also provide registration fees along with
the application form for the registration.
4.Verification of forms;
on receipt of the duly completed form and the partnership agreement, the
office of register of firms will verify to find out whether or not;
1) Documents are in order
2) Details are properly filled in.

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5. Entry in register of firms;

once the registrar of firms is satisfies with the document and details in
the duly filled forms, the registrar will make entries in the register of
firms relating to the registration of the partnership firm.
6. Issue of certificate of registration ;
after recording the registration of the firm in the register of firms, the
registrar will issue the certificate of registration to the partnership firm.
The certificate of registration indicates the legal identify of the
partnership firm.

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ADVANTAGE OF REGISTRATION;
1. The firm gets legal status
2. The partner of a registered firm can sue the firm, or any of his
present or past co-partners, to enforce any right as per the
provisions of the Act.
3. A registered firm can sue any third party for enforcement of rights
as per the provisions of the Indian partnership Act,1932.
4. The firm develops trust, name and goodwill in the market.

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EFFECTS OF NON- REGISTRATION;

1.Suits between partners and firm;

a partner of an unregistered firm cannot sue the firm, or any of his co-
partners, past and present for enforcement of rights under partnership
deed.
The firm also cannot sue any partner or partners.
2.Suits between firm and third parties;
an unregistered firm cannot sue any third party for enforcement of any
rights in the court of law.
however, the third party owe to the firm to be set-off against the claim.

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If the third party files a claim against an

unregister firm, and if the same party
owe some money to the firm, then the
firm cannot say that the money which
the third party owe to the firm to be set-
off against the claim

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•For instance, [if Mr. A] a third party take loan of

₹ 1100 from the firm, and the firm take loan of ₹
1000 from Mr. A.
•The third party [Mr. A] can claim ₹ 1000 from
the firm, but the firm cannot adjust this amount
against the amount due (1100) from the third
party

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Merits of partnership firm

1) Business secrecy
2) Contacts with customers
3) Quick and quality Decision-making
4) Effort-reward relationship
5) Flexibility
6) Goodwill
7) Easy formation
8) Economies of scale
9) Easy dissolution
10) Specialisation
11) Large capital
12) Continued existence

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6) goodwill:
A partnership firm can enjoy good amount of goodwill in the market. In
partnership firms, the partners may take quality decision relating to product
design, pricing, promotion, place of distribution, etc. this can generate
higher sales to the firm.
7) Easy formation:
It is easy to form a partnership firm. Only two persons are required to form a
partnership firm. The partners can sign an agreement and get the firm
registered with the registrar of partnership firms. Such registration is simple
process.
8) Economies of scale:
The partnership business is carried on a large scale as compared to the sole
trading firms. Thus, the partnership firm can get the benefits of economies of
scale such as higher discounts and good prices due to bulk purchasing.

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9) Easy dissolution:
A partnership can be easily dissolved. Any partner can dissolve the partnership by
merely serving a fourteen days notice in writing to all other partners, to that
effect. The partnership stands dissolved from the date mentioned in the notice or
if no date is so mentioned, then from 14 days date of serving the notice.
10) Specialisation:
the partners can specialise in specific areas. Some partners may be good at
technical skills, others may be good at marketing, and so on. This results in higher
efficiency of the organization.
11) Large capital:
the partnership is formed with two or more persons. As such, they can pool
together large capital. Unlike sole trader, the partners can generate huge funds
from their savings and borrowings from friends, relatives and also by way of
loans from banks.
12) Continued existence:
the partnership firm can have a long life. Even after the death of one of its
partner, the partnership business can be carried on by the existing members.

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Demerits of partnership firm

1) Absence of legal status
2) Lacks business secrecy
3) Problem of continuity
4) Limited capital
5) Disputes
6) Dishonest Act
7) Difficulty in transfer of shares
8) Limits on membership
9) Irresponsibility of some partners
10) Difficulty in admitting new partners
11) Limited business operations
12) Unlimited liability

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1) Absence of legal status :

The partnership firms lacks separate legal status from its partners. This
is because partners have unlimited liability. All partners are jointly
liable for the debts of the form.
2) Lacks business Secrecy :
Unlike sole trading concern, a partnership firm lack complete business
secrecy. This is because there are several partners and some partners
may leak out the business information to outsiders.
3) Problem of continuity :
There are problems of continued existence. A partnership may come to
an end because of disputes between the partners. Partnership firms
may find it difficult to survive during recession or such other tough
times in the market.

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4) Limited Capital :
The partnership may also suffer from the limitation of adequate capital
because of limited capacity to raise funds. This is because of less number
of partners in a partnership firm.
5) Disputes :
There are often conflicts or disputes between the partners. Some
partners may be selfish. Some may make secret profits. Some may not
show interest in the working of a firm. All such instance, may result in
disputes and thus there are chances of closure of partnership firm.
6) Dishonest Acts :
Every partner acts as a principal and as an agent of the firm. A partner
can bind the other partners by his fraudulent or dishonest acts. As such,
the firm suffers a loss, which is distributed among all the partners.
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7) Difficulty in transfer of shares :

The partners cannot easily transfer their shares or interest to an outside
party. Prior consent is required to be obtained from all other partners.
8) Limits on Membership :
The number of partners that can be admitted to partnership is restricted. A
maximum of 10 members can run a banking business and a maximum of 20
members are permitted in case of an ordinary partnership.
9) Irresponsibility of some partners:
Some partners are irresponsible in their actions. They may not exercise
necessary skills. They may be irresponsible because of sharing of risks. If
they are alone responsible, then they make exercise care and diligence in
the conduct of their duties.

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10) Difficulty in Admitting New Partners :

There is often a difficulty in admitting new partners. This is because,
some of the partners may object to such admission. Secondly, because
of the restriction on the maximum number of partners, imposed by the
Indian Partnership Act,1932.
11) Limited Business Operations :
A partnership may find difficulty in expanding diversifying its business.
This is because of limitation of capital and managerial skills. However, a
joint stock company may not have such problems.
12) Unlimited liability :
the liability of partners in a partnership firm is unlimited. This means, if
the assets and property of the firm is not sufficient to satisfy the claims
of the creditors, then the private property of the partners is attached
for the purpose. The partners are jointly and severally responsible.

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Types of Partnership firms

General Partnerships Limited Partnership

1) liability of partners is unlimited 1) Indian Partnership Act,
2) In India all types of partnership are 1932 does not permit to set
General in nature. Up limited partnership with
limited liability

Registered unregistered
1) Partnership at will (duration is not mentioned)
2) Partnership for particular purpose (e.g. construction)

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Types of partners
1. Active partner;
the active partner takes active interest in the working of the
partnership firm. he is also called as ‘working partner’. Under the
Indian partnership Act,1932,
The active partners do get extra benefits for their services other than
their share in the profits. The extra benefits may include salary and
incentives.

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2) Dormant partner;
those partners who do not take part in the working of the firm are
called dormant partners they also known as ‘sleeping partners’
such partners are responsible for the acts of the active partners.
The sleeping partners contributes in the capital of the firm.

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3. Nominal partners;
this type of partner only lends his name to the partnership firm he does
not contribute towards the capital of the firm. He also does not take
part in the management of the company. However, he is liable to
outsiders for all debts and liabilities of the firm.

4. Partner in profits only;

this type of partner contributes towards the capital of the firm. He may
not take active part in the business. He becomes a partner on the clear
–cut understanding that he will share only the profits, but not the
losses, if any, however, he is liable to outsiders or all debts and
liabilities of the firm.

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5. Partner by estoppel ;
he is not a partner of the firm. But he may behave or act as if he is a
partner of the firm. Because of his behaviour or actions, outside parties
consider him as a partner of the firm.
contributes capital,
share profits.
part in the working of the firm.
Such a person cannot deny the fact that he is not the partner as far as
outside parties are concerned.
He is liable for the third parties,
if they suffer any loss on account of their dealings with the firm,
thinking that he is a partner of the firm.
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6. Partner by holding out;

a partner by holding out is not a partner of the firm.
contributes the capital
share profits
part in the working of the firm.
Third parties hold him as a partner of the firm.
He is responsible for the third parties, if they suffer any loss on account
of their dealing with the firms, thinking that he is a partner of the firm.

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7. Secret partner:
a secret partner does not want to be known as a partner to the third
parties.
He contributes towards the capital, but may not take part in the
working firm.
He shares profit of the firm.
Even though he is not known to outsiders as a partner of the firm, but
still he is liable for the debts and liabilities of the firm.

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8. Partner with limited liability: this type of partner exists in a limited

partnership. The liability of the partner is limited to the extent of
capital contributed by him in the firm. He is a special partner, and
generally does not take active part in the working of the firm.
9. Quasi partner: he is that partner who has retired from the firm but
left his capital with the firm. He does not take part in the working of
the firm. He gets a share in the profits of the firm. He is liable for the
debts of the firm.

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10. Minor as a partner: a minor is a person who has not yet attained
the age eighteen. As per the Indian contracts Act, 1932’ a minor cannot
enter into a contract and as such he cannot become a partner of the
firm.
The liability of minor is limited to the extent of his share in the capital.
A minor cannot be held liable for the debts and liabilities of the firm.
Again, there should be at least two major partners before a minor
being introduced as a partner.
Therefore, in real sense, minor cannot be treated as a partner.
on attaining the age of majority, he must exercise his option either-
To become a full- fledged partner , or
 To discontinue as a partner of the firm.

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if he opts to discontinue as a partner, then he

must give a public notice to that effect within six
months from the date of attaining the age of
majority. If he fails to give such a notice then he
shall be legally treated as a partner and is
responsible for the debts and liabilities of the
firm, contracted since the date of his original
admission to the benefits of the partnership.

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Cooperative society
1. Meaning:
A cooperative society is a voluntary association

of individuals

formed for the purpose of

promoting economic and social interests.

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Interested individuals can come together and

form a cooperative society under the
cooperative societies Act.
A cooperative society differs from other
forms of commercial organisations. This is
because, the main objective of cooperative
societies is to provide service to members
rather than to make profit.
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2. Definitions:
Section 4, of the Indian co-operative societies Act, 1992 defines
a cooperative ‘as a society

which has its objectives

for the promotion of

economic interest of its members

in accordance with co- operative principles"

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Types of cooperative societies:

1. Credit cooperative society:
This is the oldest type of cooperatives in India. It come into
existence, since the beginning of the 20th century, around 1904 with
the passing of cooperative societies Act, 1904.
The main purpose of this type of cooperative is to provide loans to
its members. The loans are provided at low rates of interest. Thus, they
are saved from the clutches of money- lenders, who charge high
interest

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Such societies are formed by salary earners, small framers, artisans,

and others. They prefer to get the loans from their society, because it is
not very easy to get banks loan. The loans are normally granted to the
members on the basis of some security.
At times, the security may not be required, especially for loans of lesser
amounts. Mostly short term loans are provided to the members.

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2. Consumer cooperative society:

It is formed by consumers. The main purpose is to provide consumer
goods at reasonable prices and of good quality to the members of the
society and others.

The cooperative purchases in the bulk and then sells it to consumers.

The trading is mostly done on cash basis.

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The consumer cooperative societies eliminate the service of the

middleman.

Thus, they can provide the consumers goods at reasonable prices and
also of good quality.
They make good profits as they buy in bulk at a lower price and sell at
higher price.
The profits of the cooperative are distributed among its members. A
part of the profits is transferred to general reserve fund. The society
may also distribute a part of its profits among its employees as bonus.
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3. Industrial cooperative:
The industrial cooperative is also known as producers’ cooperative.
It is organised by small producers to carry out certain production
activities.
. The main objectives such industrial cooperative are:
 To stimulate (motivate) higher production .
 To provide common services.
 To improver quality of production.
 To purchase in bulk raw materials, and other requirements and to
supply them to the members as per their needs.

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 To impart (providing) technical and managerial training to its

members.
 To provide orders or contracts for its members.
 To secure orders or contracts for its members.
 To provide employment to the public.
There are several types of industrial cooperative such as:
 Production cooperatives, which undertake production activities.
 Service cooperatives, which provides production, technical,
marketing assistance.
Cooperative industrial estates, which provides factory sheds or places
to small producers.

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4. Marketing cooperatives:
This type of societies are also known as cooperative sales societies.
They are formed by producers or farmers to sell their produce or
products. The main functions of marketing cooperatives are:
To assemble the goods of its members at a central place for selling.
 To undertake the job of processing and grading the goods.
 To store the goods in the warehouses.
 To undertake to advertise the goods.
 To auction or sell the produce.
 To collect the cash and then make payment to its members
depending upon their share in the total goods sold.

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5. Cooperative housing societies:

These type of societies are found in urban areas, by individuals who
come together and form a cooperative housing society.
The cooperative housing societies are formed for the purpose of
common maintenance of building and to look after various other
activities that are required for the purpose of such societies.

6. Cooperative farming societies:

These type of societies are formed in rural areas, where are farmers
agree to pool their land and conduct agricultural operations jointly in a
scientific manner.

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Features of cooperative societies

1) Voluntary association
2) Open membership
3) Democratic management
4) Disposal of profits
5) Service motive
6) Limited capital
7) Limited liability
8) Easy formation
9) By –laws
10) Cash trading
11) State control
12) Managing committee

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Features of cooperative societies:

1. Voluntary association: cooperative organisation is a voluntary
association of individuals. They come together to achieve common
purpose. The individual joins the cooperative society on his free
will. He can also leave the organisation as and when he wishes to
do so. There is no compulsion become a member and at the same
time to continue as a member.
2. Open membership: normally, membership is open to all those who
are willing to join the cooperative. There is no restriction of caste,
creed, race, religion, etc. anyone who wants to become a member
must pay the membership fee or the face value of a share in the
capital of the cooperative. At least 10 adults, are required to form a
cooperative.

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3. Democratic management:
a cooperative society operates on democratic principles. For instance,
the rule for voting- one member, one vote, and not’ one share, one
vote’ is followed. Decisions are taken by the elected managing
committee.
4. Disposal of profits:
the profits of a cooperative society are disposed as follows:
A part of the net profits are distributed to the members as dividend.

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A part of the profits may be utilised for the welfare of the locality,
where the cooperative society is located.

A part of the profits can be given as bonus to the employees.

At least 25% of the net profits to be

transferred to reserve fund.

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5.Service motive: The main objective of a cooperative is to provide

service to its members. Profit is a secondary objective. Now- a- days,
cooperatives try to balance service motive with profit consideration, so
that the cooperative can expand and carry on its activities more
efficiently. However, more weightage is given to the service factor
rather than the profit.
6.Limited capital: The cooperative organisation suffers from the
limitation of capital. This is because the members may be from
economically weaker section of the society. Again, the rich members
are not willing to take more shares as they do not get more voting
rights.
7.Limited liability: The liability of its members is limited. The members
are liable to the debts of the cooperative to the extent of their unpaid
value on the shares taken by them.
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8.Easy formation: The formation of a cooperative organisation is quite

simple. The registration procedure is quite simple. The cooperative
society need to be registered with the registrar of cooperative societies
of the concerned state.
9.Bye –laws : The rules and regulations governing the working of a
cooperative society is called the bye-laws. The cooperative undertakes
its activities in accordance with its bye-laws are like articles of
association of a joint stock company.
10.Cash trading: The cooperative normally carry on their business on
cash basis. This safeguards the society from the burden of bad debts.
Again, the society may not face problem of working capital (i.e. to meet
its day to day expenses.). Trading on cash basis also keeps the members
out of debts.

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11.State control: the cooperatives are subject to state government

control. In Maharashtra, the cooperatives are subject to the
Maharashtra state cooperatives societies Act, 1960. the cooperatives
have to register under the Act and have to follow the provisions of the
Act.
12.Managing committee: The working of a cooperative society is
managed by managing committee. The members of the managing
committee are appointed by the members of the cooperative society.

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Merits of a cooperative societies:

1) Easy formation
2) Democratic management
3) Stability
4) Limited liability
5) Tax concessions
6) Cash trading
7) Low overhead costs
8) Open membership
9) Government assistance
10) Reasonable prices

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1.Easy formation:
the formation of a cooperative society is a
simple process. Ten adults are required to
form a cooperative society. There are less
legal formalities in the formation of a cooperative organisation.
2.Democratic management: a cooperative
society works on democratic principles.
these is equality in voting. The principle
followed is’ one man ’one vote” and
not” one share” one vote”. Again, the
members elect the managing committee to run the affairs of the society.

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3.stability:
the cooperative enjoys stability and
continued existence. The society can
continue its business or other affairs even if a member dies or resigns
from the society.
4.Iimited liability: The liability of the
members is limited. They liable to the
debts of the cooperative only to the extent of unpaid value on shares
subscribed by them.
5.Tax Concessions: Cooperatives societies are exempt from income tax
upto a certain amount. This benefits the cooperative by way of higher
profits as it has to pay limited tax

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6.Cash Trading: Normally, the cooperatives undertake purchases and

sales on cash basis. This reduces the burden of bad debts.
7.Low Overhead Costs: The overhead costs are comparatively low. The
members of managing committee may provide honorary services.
8.Open membership: the membership of a cooperative society is open
to all members of the public. no discrimination is made on the bases of
caste, creed, race, religion, and so on. Therefore, there is large
membership of a cooperative society. The minimum number of
members required is 10 and there is no maximum limit.

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9.Government assistance: a cooperative organisation receives

government assistance in the form of loans at lower interest rates, land
at cheap rates for industrial purpose and so on.
10.Reasonable prices: the members can make their purchases at
reasonable prices. This is because the main objective of the
cooperative is to provide service to its members. Profit becomes the
secondary motive and as such the consumer have to pay low prices
than otherwise.

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Demerits of a cooperative societies:

1) Limited capital
2) Inefficient management
3) Lack of business secrecy
4) Lack of loyalty among members
5) Government control
6) Lack of economics of scale
7) Lack of public confidence
8) Political interference
9) Lack of motivation
10) Delay in decision making
11) Poor quality of decision-making
12) Disputes

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1) Limited capital:
2) Inefficient management: the management of a cooperative may be
inefficient. The working members may not show keen interest in
the working of the cooperative they may lack the managerial skills
and talents. Often, the management gets involved in corrupt
practices and ruins the cooperative.
3) Lack of business secrecy: there is lack of business secrecy in a
cooperative organisation. This accounts and records are made
available to all the members and also to the auditors and others.

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4.Lack of loyalty among members: the members are often not loyal to
their cooperatives. Some of the members may buy their requirements
from private traders rather than buying from the cooperative. They just
become members for name sake or some other reason best known to
them.
5.Government control : the cooperatives are subject to government
controls. They have to follow the provisions of the concerned state’s
cooperatives societies Act. Often, the cooperatives find it difficult to
deal with government bureaucracy.

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6.Lack of economics of scale: a cooperative society lacks economies of

scale. This is because the cooperative conducts its business activities in
a local area on a limited basis.
7.Lack of public confidence: the members of the public lack confidence
in the cooperatives. They are not willing to become its members
because of failures of many cooperatives. The general public may not
buy from the cooperative because they do not get good quality goods.
8.Political interference: the cooperative organisation acts as a platform
for political interests. At the time of election to managing committee,
some of the political parties get involved.

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9.Lack of motivation: there is often lack of motivation for the managing

committee members. There is no relationship between efforts and reward.
The employees of the society may not be motivated because of low salaries
and incentives.
10:Delay in decision making: there is often delay in decision making,
especially when it requires the approval of the managing committee, again,
more time is wasted, if the matter requires approval of the general body.
11.Poor quality of decision-making: in co-operative societies, the quality of
decision making is poor. this is because; normally , a co-operative society
does not appoint highly competent staff.
12.Disputes: quite often, there are disputes in the co-operative society. in
most co-operatives societies, there are two or more function or groups. Each
group tries to oppose the other. This affects the overall working of the
society.

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JOINT STOCK COMPANY :

Meaning:
A joint stock company is a voluntary association of members formed
for the purpose of undertaking a business.

It is called a joint stock company, because the shares of stock of the

company are jointly owned by its members.

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Private limited company

Indian Companies Act,1956 defines
A private limited company which has a minimum paid up capital of one lakh rupees
or such higher paid-up capital as may be prescribed, and by its articles.
a) Restricts the right to transfer its shares, if any,
b) Limits the numbers of its members to 50 (max limit increased to 200 as per
amendment companies act 2013)
c) Prohibits any invitation to the public to subscribe for any shares or debenture
of the company.
d) Prohibits any invitation or acceptance of deposits from persons other than its
members, directors or their relatives
e) A private limited company must have a minimum paid up share capital of 1 lakh

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Public Limited Company

Indian Companies Act 1956 states that
A public company means a company which
a) Is not a private company
b) Has a minimum paid up capital of five lakh or such higher paid up
capital, as may be prescribed
c) Is a private company which is subsidiary of a company which is not
a private company (public company)

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Sr. No. Private limited company Public limited company

1 Meaning
2 (Minimum 2 7
members)
3 (Maximum 50 (increased to 200 ) Unlimited
members)
4 (No Of 2 3
Directors)
5 (Transfer of Restricted (Shares in private limited Free
shares) company are not transferable.)
6 (Minimum paid-up capital minimum is one lakh paid up capital minimum is five lakh rupees
Capital) rupees
7 Public company can start its business Public company can not start its business after
(commencement after receiving certificate of receiving certificate of incorporation. The certificate
certificates) incorporation of commencement of business is required
8(statutory Need not to hold Needs to hold
meetings)

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Features of Joint Stock Company

1) Artificial Person
2) Incorporated Association
3) Perpetual succession
4) Common seal
5) Separate Legal Entity
6) Transferability of Shares
7) Voluntary association
8) Separation between ownership and management
9) Limited Liability
10) Membership
11) Complicated formation
12) Statutory regulation

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1) Artificial Legal Person: -

A company is artificial person created by law.
It has a separate name and uses a common seal as a substitute for its
signature;
it doesn’t have a physical existence because it is not a natural person
but it has legal existence.
However it can enter into contracts with third parties e.g. it can buy
and sell property, borrow money, etc.

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2) Incorporated Association:
Every company in India has to be registered under the Indian
companies Act 1956.
1) Registration or incorporation gives birth to a company.
2) On registration, it gets a separate legal identity

3) Perpetual Succession:
A company has a perpetual succession. It means that the company has
a long and stable life.
Its existence is not affected by death, insolvency or insanity of its
members.
Its existence is not affected by death, insolvency or insanity of its
members except in the case of its winding up.
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4) Common seal: -
A company is an artificial person, and as such, it has to sign documents
and other papers.
However, it cannot sign as a human being and, therefore, the common
seal as its signature.
The affixing of common seal on important documents is witnessed by
the signature of two directors of the company.
The common seal remains in the custody of board of the directors.

5) Separate legal entity:-

A company has an independent legal entity, separate and distinct from
its members.
A company can not hold a member responsible for the debts of the
company except to the extent of unpaid value on shares
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6) Transfer of shares:-
The shares of a public company can be freely transferable from one
person to another in the open market.
There are restriction on the transfer of shares in the case of private
limited company.

7) Voluntary association:
A company is voluntary association of person. Any person competent
to enter into a contract can become its member.
To be a member, a person should buy or own the shares of the
company.
A person can terminate his association with the company by
transferring his shares.

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8) Separation of ownership and management:

The shareholders are the owner of the company. They elect the board
of directors to look after the management of the company.
The board is responsible for the management of the company. Thus,
there is separation between ownership and management.
9) Limited liability:
The liability of the members of the joint stock company is limited to the
extent of the capital contribution.
If the shares are fully paid, the member is not liable for any debts of
the company.
The members are liable only to the extent of unpaid value on shares

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10 ) membership:
A joint stock company enjoys large membership.
In a private company, the minimum members are two and maximum
members can be 50 (200). The minimum number is one as per companies
Act, 2013, one person company can be formed.
In a public company, the minimum members are seven and there is no
maximum limit.
11) Statutory regulations:
The formation and working of companies is regulated by the provision of the
companies act 1956
12) Complicated formation:
the formation of a company is a time consuming and complicated process.
Certain documents such as memorandum and articles of association have to
be drafted and filed with the registrar of companies

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