Forms of Business Organization

Legal Aspects of Business Unit I

Forms of Business Organizations
Sole Trader Partnership Hindu Undivided Family Joint Stock Company Cooperatives Government in Business
Departmental Public Corporation Government Companies

Sole Trader
Oldest form of Organization Features :
One man Ownership and Control Capital Contribution Unlimited Liability Enjoyment of Entire Profit No separate Legal Entity

Sole Trader
Merits
Easy Formation Flexibility Quick Decision

Demerits
Limited Capital Lack of Specialization

Partnership Firm
Acc. to Sec. 4 of Indian Partnership Act, 1932, “Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all”

Partnership Firm
Features : Agreement Sharing of Profits Unlimited Liability No separate Legal Entity Non-Transferability of Interest Registration Agency Relationship

Partnership Firm
Merits
Flexibility More Credit Standing Quicker and Better Decisions Sharing of Risk

Demerits
Unlimited Liability

Hindu Undivided Family
Unique in India Based on Hindu Law Head of family : ‘Karta’ Members : ‘Coparceners’ System is declining as the current concept is Nuclear Families.

Joint Stock Company
Haney : “A company is an incorporated association; It is an artificial person created by law, having separate identity, with a perpetual succession and a common seal.”

Joint Stock Company
Features
Separate Legal Entity Perpetual Succession Common Seal Limited Liability Easy Transferability of Shares Professionalism of Management Economies of Large Scale

Joint Stock Company
Merits
Availability of Credit Easy Expansion

Demerits
Separation of Ownership and Control Not Flexible Neglecting Minority Interest Delay in Decision Making

Cooperative Society
Principles :
Voluntary Organization Equality Democratic Management (1 person- 1 vote) Pooling of Resources Spirit of service Membership : min. 25 & max. no limit Registration Compulsory (Cooperative Societies Act, 1912) Separate Legal Entity Limited Liability

Cooperative Society
Merits
Easy Formation Limited Liability Social Benefit

Demerits
Inefficient Management Limited Capital Non Transferability of Interest

Government in Business
Objectives
Helping all round industrialization Developing Basic Industries Establishing Enterprises requiring heavy investment To provide Necessities To run Monopoly sectors For Balanced Economic growth Making Full Employment To Increase Government Resources

Forms
Department of the Government Separate Corporation Joint Stock Company

Departmental Organization
Eg. Railways, Post & Telegraph, Defense Features
Wholly dependant on Government Management in Govt hands (Minister is responsible & answer to Parliament) Financed through Budget Legal Immunity (action not taken without Government permission) Employees are civil servants

Departmental Organization
Merits
Complete Govt Control Source of income for Government Secrecy

Demerits
Excessive Govt Interference Delay and Red-tapism Inefficiency Tax Burden on Public Political Changes

Public Corporation
Autonomous body created by a special statute of a State or Central Government. Features :
Separate Legal Entity Perpetual Existence Government Investments wholly Management (Board of Directors) Service Motive Accountability (to Parliament) Employees not civil servants

Public Corporation
Examples
Life Insurance Corporation of India Provident Fund Employees State Insurance Corporation Food Corporation of India

Public Corporation
Merits
Internal Autonomy (Free from Govt.) Protect Public Welfare

Demerits
Difficulty in making changes Misuse of powers Inefficient Lack of Interest (Ownership & Control in different hands)

Government Companies
Company in which not less than 51% of shares are held by Central or State Government and registered under Companies Act, 1956. Started in fields where investment is heavy and also take over private sick units Eg. Air India, Tamil Nadu Newsprint and Papers Ltd., BSNL

Government Companies
Merits
Participation with public Technical know-how Flexibility (like a Company)

Demerits
Return on Investment is low Operational Efficiency

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