ORGANIZATION AND

MANAGEMENT
Chapter 1.4 Forms of Ownership
Er. Rajesh Bhattarai
Pashchimanchal Campus
Class: BME /BAME III/I
 1.4 Forms of Ownership – course outline
1.4.1 Single Ownership
– Advantages and limitations
1.4.2 Partnership
– Types of Partners
– Advantages and limitations
1.4.3 Joint Stock Company
– Formation of Joint Stock
Company
– Advantages and limitations
1.4.4 Co – operative Societies
– Types of Co – operatives
– Advantages and limitations
1.4.5 Public Corporations
– Advantages and limitations

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1.4 Forms of Ownership
A firm is an ownership organization which combines the factors
of production (men, materials, and machines) in a plant for the
purpose of producing goods or services and selling them at
profit.

The types of ownership selected depends upon the following

factors:
i. Size and nature of the business to be started.
ii. Technical difficulties.
iii. Market competition and scope of the articles in the market.
iv. Capital required to start the business and means to collect
funds.
v. Limitations and restrictions put forth by the Govt. in
connection with grant of loans, foreign exchange and such
other things.

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 1.4 Forms of Ownership
The different forms of ownership found in practice
are illustrated below:
• Single Ownership
• Partnership
• Joint Stock Company
• Co – operative Societies
• Public Corporations

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1.4.1 Single Ownership
It is the simplest and oldest
form of organization.
A business owned and
managed by one individual;
the business and the owner are
one and the same in the eyes of
the law.
This form of ownership is
most satisfactory in small
scale industries, agriculture,
cottage industries, commercial
shops, handicrafts etc.

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1.4.1 Single Ownership (Proprietorship Form)

• Sole trader is a type of business unit where a person is

solely responsible for providing the capital, for bearing
the risk of the enterprise and for the management of
business.-J.L. Hansen
• The individual proprietorship is the form of business
organization at the head of which stands an individual
as one who is responsible, who directs its operations
and who alone runs the risk of failure.-L.H. Haney
• "Private Firm Registration Act, 2014 (1958)”.

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 1.4.1 Single Ownership
Advantages • .
 Easy to Establish
 Easy to Dissolve
 Flexibility
 Quick Decision
 Sole claim on profit
 Better labor relationship.
 Least costly form
 No special legal restrictions
 Quality production
 Confidentiality of
information
 Motivation
 Tax benefit

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1.4.1 Single Ownership
Limitations
 Limited Capital
 Unlimited personal liability
 Limited skills and abilities
 Chances of wrong decision
 Lack of continuity of
business
 Small income and short life
 Cannot compete with a big
business

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Sole Characteristics Merits Demerits
Proprietorship

Sole trader is a Single (Sole) Ownership Effective Management Limited specialization

type of business control
unit where a No separate existence of Quick decision Chances of wrong
person is solely business & owner decision
responsible for
Unlimited Liability Sole claim on profits Unlimited personal
providing the
(Undivided Risk & Profit) Liability
capital, for bearing
the risk of the Individual Capital Investment Credit standing Limited Capital (Small
enterprise and for size)
the management Freedom of occupation Secrecy Limited market &
of business: Single Management Control expansion
J.L. Hansen Limited legal formalities After registration Uncertain future
business may be
started
Easy to Start & End Easy to form by Private Business close after
firm registration act death, insolvency or
illness of proprietor

Limited area of operation Direct relationship with Cannot compete with a

customer big business
Flexibility Benefit of inherited
goodwill
Avoids corporate
income tax 9
1.4.2 Partnership • .
A person may posses
exceptional business ability,
experience, talent but no
capital, he can have a
financing partner.
A financier may need a
managerial expert as well as a
technical expert and all of
them may combine to set up a
business with common
ownership and management by
mutual agreement to form a
partnership business.
An association of two or more
people (Upto 20) who co-own
a business for the purpose of
making a profit

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Definition
“The relation between two or more persons who
have agreed to share profit of a business carried on
by all or any of them acting for all”
Or
By Professor Hancy
“Partnership is relation existing between persons
competent to make contracts who agree to carry on a
lawful business in common with a view to private
gain”
Nepal Partnership Act 2020

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 1.4.2 Partnership
Types of Partners
• General partners: partners who participate in the working of the
firm and are responsible jointly with other partners, for all liabilities,
obligations and defects of the firm are the general partners.

• Active or managing partners: who take active part in the

management and formulation of policies. Sometimes they get
salaries in addition to the normal profits as partners

• Limited partners: the liability for debts of the limited partners is

limited to the extent of their contributed capital. They are not
entitled to interfere in the administration of the firm.

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 1.4.2 Partnership
Types of Partners
• Sleeping and silent partners: they simply contribute their
capital in the business and get their share in the profit of the
firm. They are liable for all liabilities of the firm as partners.
They do not take any active part in the business.
• Nominal partners: they lend their reputed name for the
company’s reputation. They do not invest money and do not
take active part in the management.
• Minor partners: those whose age is below 18.
• Quasi partners: his capital change to loan to the form

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1.4.2 Partnership
Advantages • .
 Easy to form
 Complementary skills
 Division of profits
 Larger pool of capital
 Ability to attract
limited partners
 Little governmental
regulation
 Flexibility
 Prompt decisions
 Divisions of labor
 Reduced risk

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 1.4.2 Partnership
Disadvantages
 Unlimited liability of at
least one
 Difficulty in disposing
of interest
 Lack of continuity
 Potential for personality
and authority conflicts
 Less public confidence
 Less secrecy
 Short life
 Taxation

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Partenrship Characteristics Merits Demerits
“The relation between Plurality or Safeguard of the Uncertain future
two or more persons Association of persons interest of
who have agreed to minorities
share profit of a Joint Ownership Management Possibility of conflicts
business carried on by Control by partner
all or any of them acting Unlimited Liability Quick decision Limited Capital
for all” (Based on agreement) making
Or
By Professor Hancy Partners Sharing of profit & Unlimited liability
“Partnership is relation Capital investment loss, loan facilities,
existing between reduced risk
persons competent to Joint Mgnt. & Control Advantage of Less public confidence
make contracts who division of labor &
agree to carry on a skill
lawful business in Limited legal formalities Easy to Start & End Life of business
common with a view to depends on till good
private gain” relation between
Partnership Act 2020 partners
Life is based on agreement Direct relationship Cannot compete with a
with customer big business
No transfer of interest Flexible Less secrecy than single
(Consent necessary)
Mutual agency Possibility of Limited specialization
(responsible to each other) expansion
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 1.4.3 Joint Stock Company
In this type, capital is contributed by a large number of persons, in the form of
shares of different values. Persons who purchase the shares are called
shareholders, and the managing body known as “Board of Directors” is elected by
the shareholders. The shares are transferable.
(According to Nepal Company Act 2063: )
Characteristics of Joint Stock Company
i. Created by registering under the company act.
ii. Separate legal existence.
iii. Perpetual life and stable.
iv. Common seal.
v. Limited liability.

Types of Joint Stock Company

i. Private limited company: Max. number of shareholders 1 to 101, generally
within friends and relatives where transfer of shares is limited to members only.
ii. Public limited company: Min. number required is 7 to unlimited numbers, and
offers shares to general public. Shares are transferable without any prior
approval.

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 1.4.3 Joint Stock Company
Formation of Joint Stock Company.
“A company is an artificial person having an independent legal
entity and a perpetual succession with a distinctive name and
common seal having a common capital divided into shares of fixed
value which are transferable and carry limited liability”. The
promoters of the company prepare the following documents.
a. Memorandum of association.
b. Articles of association.
c. A list of persons who have consented to be the Directors of the
company along with the consent in writing of such persons.
d. A declaration by an advocate to the effect that all the
requirements of the Act have been fulfilled.
e. Name and address of promoters

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 Characteristics of JSC
• .
Particulars
Characteristics Private Limited Company
Joint Stock Company
Public Limited Company

Number of Association of Persons Association of Persons

Shareholders Minimum one & Maximum 101 Minimum Seven & Maximum
number is Unlimited
Share transfer Restricts to Transfer shares Transferability of shares
Start of After registration business may After registering the certificate of
Business be started permission must get to start
business
Name of As per company act As per company act
company (End of the name Pvt. Ltd. (End of the name Limited Company
Company must be added) must be added)
Statutory Not necessary to be held Compulsory inform to members &
Meeting Notice publication
Capital Capital is based on share Capital is based on share numbers,
numbers Huge capital
Legal Artificial person, Separate entity, Common name & seal
Liability Limited Liability
Management Separation of Ownership & Management, Democratic Management
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•Form
. Difficulty of formation

Life Perpetual Existance

Scope Scope of business expansion is

higher
Specialization Specialization on Management

Decision Decision after board meeting

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Advantages & Disadvantages of JSC
COMPANY Private Limited Company Limited Company (Ltd.)
(P. Ltd.)
Merits Cannot be sold share Share can be sold by issuing
publicly public notice, Easily
(Capital can collect within Transferability of shares
members)
Perpetual Existance, Artificial Person by law
Limited Liability
Large Resources
Scope of Business Expansion
Professional Management
Public Confidence
Less Risk
Clarity of company by: Memorandum , Prospectus & Articles
of association 21
1.4.3 Joint Stock Company
•Demerits
. Lack of personal interest
Complexity in formation
Lack of secrecy
Delay in decision making
Possibility of speculation
Groupism
Conflicts of interest
Excessive of Legal Provision
Possibility of Monopoly
Numerous Rules & Regulations

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 1.4.4 Co-operative Societies
Co-operative societies is a form of organization where in persons
irrespective of caste, creed, and religion, voluntarily associate
together as human beings on the basis of equality for the fulfillment
of their common economic interests.
Cooperative society means any cooperative society or registered
according to section 5 of the cooperatives act 2048. A society is
constituted in order to provide services and facilities for the
economic and social development of its members.
It is an association of the weak who gather together for a common
economic need and try to lift themselves from weakness into
strength through business organization.
Co-operative spirit is the heart of a co-operative society. “Each shall
work for all and all for each” is the motto of co-operation.
Minimum 25 Members
Registered : Cooperative act 2048
2013 first Bakhan cooperative society Nawalparashi

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 Characteristics:
i. Voluntary organization (Easy to join & leave).
No discrimination of religion, caste & gender)
ii. Legal Status (Registered on concern govt. body/Govt.
control)
iii. Limited liability
iv. Profit is not important (Service Motive)
v. Democratic Organization (BOD)
vi. Equal Voting Rights
vii. Common Interest
viii. Cash Transaction
ix. Sources of finance (Collection from members / Loan/
Credit, Registered Auditors)
1.4.44

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 1.4.4 Co-operative Societies
Types of Co-operative societies
1. Producers co-operative society: the workers wish to be their own
masters the business owned by them. E.g. agricultural and cottage
industries. (help to small producer, Provides: Raw
Material/Tools/Equipment at reasonable price)
2. Credit co-operative society: its objective is to finance the poor
cultivators by providing loans at low rate of interest for the
development of land, purchase of agricultural machinery, fertilizers etc.
(Financial support to members at low i%)
3. Consumers co-operative society: a store is opened in which articles of
common use are stocked and sold at reasonable prices.
(Producer/cooperative/Consumer: eliminate middle man)
4. Housing co-operative society: the main aim is to provide houses to
people with limited income at reasonable price. They are formed for the
purpose of getting plots or constructing houses for the needy persons.
Government provides facilities for this purpose.
5. Cooperative Marketing society: (Society Collects the products from
members and distribute to market) transportation/packaging/distribute
6. Cooperative farming societies: group of small farmers (land
cultivation/Fertilizers /machine/lift irrigation)
7. Multipurpose cooperative society
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 Advantages & Disadvantages
Advantages
• Capital Formation
• Increase of production
• Democratic System
• Dev. of morals qualities
• Equitable distribution
• No speculation
• Supply of scarce commodities
• Employment
• No discrimination (Equality)
• Improving living standard
• Elimination of middle man
Importance of Cooperative organization in Nepal ???
Disadvantages
• Limited resources
• Lack of efficient management
• Difficulty in control
(Lack of coordination)
• Political influences
• Danger of mismanagement
• No enthusiasm
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 1.4.5 Public Corporations or Public Enterprises in Nepal

A public corporation is a
corporate body created by a law
of parliament with its powers,
duties and liabilities defined in
the written law. Public
corporation try to combine the
public interest of the
government body and the
autonomous management by
public sector. These
corporations have no profit
motive and work for the sake of
social welfare.
Public enterprises are
established by the government
contributing total or majority Example: Nepal Airlines corporations, Nepal oil
capital corporations, Nepal Electrical Authority, Nepal
telecom etc.

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 1.4.5 Public Corporations or Public Enterprises in Nepal

 "Public enterprises are established, controlled and

operated by the government to produce and supply
goods and services to the society."- A.N. Agrawal
 "State-owned enterprises are finally autonomous
and legally distinct entities wholly or partly owned
by central or sub- national governments." - World
Bank Report- 1998“
 "Public enterprises are established, control and
operated by the government to produce and supply
goods and services to the society." - A.N Hansen

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1.4.5 Public Corporations
Characteristics Objectives:
 To help the economic development
 State Ownership of the country in planned manner by
 Manage by establishing different industrial and
Government
 Service Motive commercial enterprises.
 Public  To provide the qualitative goods and
accountability services of daily necessities at a
 Perpetual reasonable price.
Succession
 Separate legal entity  To control monopoly and unfair
trade practices in the supply of
goods and services.
 To provide import substitution and
to save foreign currencies.
 To increase the revenue of the
government by paying taxes.

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 1.4.5 Public Corporations
Advantages
• It increases the rate of economic growth.
• It develops the infrastructure like electricity, communication,
banking, petroleum products, transportation, water supply
etc.
• It provides qualitative goods and services of daily necessity
at a reasonable price.
• It maintains balanced economic development.
• It creates greater employment opportunities in the society.
• It increases the revenue of government by contributing tax.
• It helps to earn foreign currencies by exporting goods and
services and increase the foreign exchange reserve.
• Avoid uncertainties

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1.4.5 Public Corporations
Disadvantages
• Time consuming for establish the company and
amendment of rule and regulations if any
• Highly politicalize
• Monopoly eg. Nepal Oil corporations
• Inefficient Management
• Wastage and Corruption of resources
• More Strike /Lockout
• Favourism for recruitment/transfer/Promotion

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 Home Assignment for Chapter 1.4
1. What are the advantages and limitation of Sole Proprietorship
organization?
2. Describe the different types of Partners. What are the advantages
and disadvantages of Partnership organization?
3. Define Joint stock Company. How they are form, state the
advantages and disadvantages of Joint Stock Company
4. State the advantages and disadvantages of Cooperative
organization. Describe the different types of Cooperatives
Societies.
5. Under which legal provision, Nepal Airlines corporation has been
registered? Write down the characteristics and limitations of such
type of ownership.
6. Distinguish between partnership and Joint stock Company.
7. Distinguish between Sole Proprietorship organization and Joint
Stock Company
8. Distinguish between Public Ltd. Company and Private Ltd.
company.

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