Unit I

Types of Business
Objectives
Categories of Business Organizations
Public Sector
Types of Private Sector Business organizations
Sole trading
Partnership
Joint Stock company
Joint Hindu family business
Joint Sector
Cooperative
Public Sector
The business units owned, managed and controlled
by the central, state or local government are termed
as public sector enterprises or public enterprises.
These are also known as public sector undertakings.
Public enterprises consist of nationalized private
sector enterprises, such as, banks, Life Insurance
Corporation of India and the new enterprises set up
by the government such as Hindustan Machine Tools
(HMT), Gas Authority of India (GAIL), State Trading
Corporation (STC) etc.
Characteristics of Public Sector

(a) Government Ownership and Management

(b) Financed from Government Funds
(c) Public Welfare
(d) Public Utility Services
(e) Public Accountability
(f) Excessive Formalities
Advantages of Public Sector
Balanced regional development
Boost the basic industries of an economy
Concentrate on public welfare activities
Promote export
Price control of essential goods
Limit the influence of private monopoly.
Ensure security of the country.
Minimise economic inequalities.
 Public Sector
Enterprises

Public
Departmental Form Corporation

Government
Company
Summarize…
 Private Sector
Completely owned, managed and controlled by
private individual or group of individuals.
No government interference except for social norms,
sole authority in decision making and profit sharing
Types:
Sole Proprietorship
Partnership
Joint Hindu Family
Joint Stock Company
 Sole Proprietorship
A sole proprietorship is a business owned and operated
by one individual.
The shops or stores which you see in your locality - the
grocery store, the vegetable store, the sweets shop, the
chemist shop, the paan-wala, the stationery store, the
STD/ISD telephone booths etc come under sole
proprietorship.
When the ownership and management of a business are
in control of one individual the form of business is called
sole proprietorship.
CHARACTERISTICS
 The business enterprise is owned by one single individual (i.e.
both profit and risk belong to him)
 Owner is the Manager
 Owner is the only source of Capital
 The proprietor and business enterprise are same in the eyes
of the law.
 Suitability of SP:
For business where capital required is small and risk
involvement is not heavy, this type of firm is suitable.
It is also considered suitable for the production of goods
which involve manual skill e.g. handicrafts, filigree works,
jewellery, tailoring, haircutting etc
 Advantages:
 Easy to start
 No registration

 No profit sharing

 Easy decision-making

 Easy to windup

 Secrets (information about business techniques)

 No corporate taxes

 Disadvantages:

 Unlimited liability

 Employee benefits such as medical insurance premiums

not deductible(taxes)
 Difficulty in raising funds

 Limited Life
Partnership

 A Partnership is a legal relationship formed by the

agreement between two or more individuals to carry
on a business as co-owners.
 Each member of such a group is individually known as
‘partner’ and collectively the members are known as a
‘partnership firm’.
 These firms are governed by the Indian Partnership
Act, 1932.
 A Partnership consists of two or more individuals in
business together
 Characteristics of PF
1. Number of Partners: Maximum limit is 10 in case of
banking business and 20 in case of all other types of
business.
2. Contractual Relationship: The agreement in writing is
known as a ‘Partnership Deed’.
3. Competence of Partners: Minors and insolvent persons are
not eligible.
4. Sharing of Profit and Loss: In absence of an agreement, they
share it equally or as decided in agreement
5. Transfer of Interest: No partner can sell or transfer his
interest in the firm to anyone without the consent of other
partners.
6. Voluntary Registration: Registration of partnership is not
compulsory. But since registration entitles the firm to
several benefits, it is considered desirable.
Advantages:
 Relatively easy to start
 The ability to raise funds
 More skilled persons
 Loss sharing
Disadvantages:
 Unlimited liability
 Profit sharing
 Conflicts
 Limited life
 Transferability is difficult
Suitability of PF:
Retail and wholesale trade,
Professional services,
Medium sized mercantile houses and
Small manufacturing units.
 Joint Hindu Family business
 Comes into existence as per the Hindu Inheritance Act of
India
 This form of business found only in India
 All members of the Hindu Undivided Family(HUF) own the
business jointly
 The affairs of the business are managed by head of the family
called “Karta”. All other members are called “Co-partners”
 Membership is restricted only to members of the Joint family.
No outsider can become the member
 Karta has unlimited liability while all other members have
limited liability
 The share of each member keeps on fluctuating
 Business continues to exist upon the death of any member or
Karta.
ADVANTAGES OF HUFs:
Every co-partner has an assured share in profits
The business has continued existence
Decision making is quick as the powers are with
the Karta
No corporate tax
People use it mostly for tax benefits these days

DISADVANTAGES OF HUFs:
Absolute power in the hands of Karta.
Instability
Limited Resources can be raised
Scope for conflict
Joint Stock Company
 A voluntary association of persons to carry on
business.
 Members of a joint stock company are known as
shareholders and the capital of the company is
known as share capital.
 The companies are governed by the Indian
Companies Act, 1956.
 Tata Iron & Steel Co. Limited, Hindustan Lever
Limited, Reliance Industries Limited, Steel Authority
of India Limited, Ponds India Limited etc.
Features of JSC
1) Artificial Person
2) Separate Legal Entity for management and
ownership
3) Common Seal
4) Perpetual Existence
5) Limited Liability
6) Transferability of Shares through which capital is
raised
7) Membership: Minimum 2 persons and maximum
fifty for a Private Limited Company. Public Limited
Company, the minimum 7 and the maximum
membership is unlimited
Importance of Private Sector
Improves the economic development of the country
Increases employment opportunities – direct and
indirect
Enhances quality of goods and services delivered
Increases standard of living
Competition leads to efficiency and variety for choice
Helps in attaining global recognition and
benchmarking
Contributes to the economy also by paying taxes,
duties and other such revenue sources to government
Attracts FDI
Reduces red tapism and corruption
Platform for technological advancement and utilization
of resources
Drawbacks of Private Sector
Lengthy procedures for entry, licensing and exit –
government regulations
Heavy taxes and duties
Increasing cost of productions – labor, raw materials
and equipment
Heavy competition from MNCs and other national
firms for SMEs
Unethical practices observed and frauds
Exploitation of workers and resources for profit
maximization
Ignoring social concern
 Distinction between Private Sector and Public
Sector
Private Sector Public Sector

Profit motive is of primary Profit motive is of secondary

importance. importance.

Owned and managed by Owned and managed by Central or

individuals. State Govt.

Limited capital. Large capital.

Limited Capital. Large amount of capital is needed.

Equitable distribution of wealth

It causes concentration of wealth. and income.
Face competition in the market. Absence of competition.

It dominates in the production of It dominates in the production of

consumer goods. producer goods.

Chances of exploitation of general

public. Protect people from exploitation.

It does not undertake risky

ventures. It undertakes risky ventures.

It leads to unbalanced growth of It encourages industrial growth of

industries. under-developed regions.

Wastage of material and labour is Wastage of material and labour is

minimum. maximum.
Summarize…
Joint Sector

Joint sector industries are owned jointly by the

government and private individuals who have
contributed to the capital.
In joint sector, both public sector and private sector
join hands to establish new enterprise. It combines
merits of both public and private sector. The
concept of joint sector matches with the concept of
mixed economy.
As mixed economy is the combination of both
capitalism and socialism, joint sector is combination
of both public sector and private sector.
Features

 In joint sector financial participation is 26 % from

the government, 25% from private enterprise and
49% from public and financial institutions.
 In case of a foreign collaboration or participation
with domestic partner, the share of government will
be 25%, Indian business concern 20%, foreign
investor 20% and public 35% in the paid up capital.
 No single party can hold more than 25% of the
shares without the sanction of central government.
Scope of Joint Sector
 Social control over industries: preventing monopoly by private
sector
 Merging private and public Sector. Efficiencies and technology of
private sector and funds and government support from public
sector
 Acceleration Of Economic Growth: for all sections of the
economy and also SMEs
 State Sponsored Industrialization: the government decides on
the choice of projects which are desirable from a social point of
view and persuades private parties to join hands
 Extension Of Public Control: improved version of public sector
for betterment of the people and society
 Mobilization Of Financial, Technical and Managerial Resources:
from private sector to moderate the flow of resources into the
economy for increased per capita income
 Instrument of industrial growth and regional development
Drawbacks of Joint Sector

1. Choice of Project
2. Matrix management and structure issues
3. Limitations of public sector – red tapism and
corruption
4. Limitations of private sectors – lack of social welfare
and exploitation of resources
5. Extent of government interference and profit
distribution issues
Cooperative Sector
It refers to the sector which is voluntary association of
persons owned and managed for their or sometimes the
communities benefit. A cooperative is a legal entity with
several Corporate features, such as limited liability, an
unlimited life span, an elected board of directors.
Members or Owners pay annual fees to the cooperative
and share profits.
A cooperative organization is an association of persons,
usually of limited means, who have voluntarily joined to
achieve a common economic and through the formation
of a democratically controlled organization, making
equitable contributions to the capital required and
accepting a fair share of risks and benefits of the
undertaking.
A cooperative is defined as an autonomous
association of persons united voluntarily to
meet their common economic, social, and
cultural needs and aspirations through a
jointly-owned and democratically-controlled
enterprise.

A cooperative may also be defined as a

business owned and controlled equally by the
people who use its services or who work at it.
Co-operatives are autonomous associations formed and
democratically directed by people who come together to
meet common economic, social, and cultural needs.
Founded on the principle of participatory governance,
co-ops are governed by those who use their services:
their members.
The International Labor Organization stated it as :
“A Co-operative organization is an association of persons
who have voluntarily joined together to achieve a
common economic end through the formation of a
democratically controlled organization, making
equitable contributions to the capital required and
accepting a fair share of risks and benefits of the
undertaking”.
Features
Voluntary association
Open membership – min 10
Legal entity
Equal voting right
Service Motive
Co-operation among Co-operatives
Concern for community
Self help and mutual assistance

The five pillars of a co-operative organization are :

 Mutual Trust
 Mutual Supervision
 Self-reliance
 Spontaneity
 Equality
Types of Cooperatives

Consumer’s Cooperative Societies

Producer’s Cooperative Societies
Housing Cooperative Societies
Credit Cooperative Societies
 Co-operative
Sector
Enterprises

Producers Housing
Co-operative Co-operative
Society Society

Consumers Credit
Co-operative Co-operative
Society Society
Merits Of Cooperatives

Easy Formation
Open membership
Democratic Control
Limited liability
Elimination of Middlemen’s profit
State Assistance
Stable Life
Demerits of Cooperatives

Limited Capital
Problems in management
Lack of motivation
Lack of Cooperation
Dependence on government
Example

Amul (Anand Milk Union Limited), formed in

1946, is a Dairy co-operative movement in
India. Which today is jointly owned by some 2.6
million milk producers in Gujarat , India.
Indian Coffee House
Adrash Co-operative Bank
Shri Mahila Griha Udyog Lijjat Papad
 Distinction between Co-operative and Joint
Stock Company
Parameters Co-operative Society Joint Stock Company

Formation Under Co-op. Society Under Companies Act.

Act.

Limits to Minimum 10 Minimum 2 for Private Ltd.

membership and 7 for Public Ltd.

Membership Local or regional Wide spread membership

territory.

Capital Limited. Large capital.

Transfer of Shares are not

shares transferable. Shares are transferable.

Liability Limited. Limited.

 Spirit of
Spirit of competition.
Co-operation.
Fundamental Promote self-help and No need for unity of
Principles mutual assistance. purpose.
Large number of
Unity of purpose.
shareholders.
Maximum dividends on
No limit on dividend.
Distribution of shares 12 p.c.
profit
Not profit motive. Profit motive.

Privileges Special privileges. No special privileges.

Management Democratic with equal Democratic with unequal

voting rights. voting rights.

Contact Good contact. No such contact.

Life Short. Permanent existence.