Sole Proprietorship

Meaning

 It refers to a business enterprise wholly owned, managed and controlled by a sole person with all authority,
responsibility and risk.

 The sole proprietorship is the simplest business form under which one can operate a business. 

 It simply refers to a person who owns the business and is personally responsible for its debts.
Definition

 According to J. L Hanson
“A type of business unit where an individual is solely responsible for providing the capital and
bearing the risk of the business and the management of the business.”
Characteristics

 Single Ownership

 No separation of Ownership and Management

 Less Legal Formalities

 No Sharing of Profit and Loss

 Unlimited Liability

 One-man Control
 Single Ownership: the Sole proprietorship form of business organization has a single owner who starts the
business by getting together all the resources.

 No separation of ownership and management: the owner manages the business as per his or her skill and
intelligence. There is no split-up of ownership and management as is the case with JSC form of business
organization.

 Less Legal Formalities: the creation and operation of a sole proprietorship form of business organization
does not include any legal formalities. Thus, its creation is quite simple and easy.
 No sharing of Profit and Loss: the owner enjoys the profits alone. But at the same time, the entire loss is also
borne by him. There is no other person to share the profits and losses of the business. He alone bears the
risks to reap the profits.

 Unlimited Liability: The liability of the owner in sole proprietorship is unlimited. In case of loss, if the
business assets are not enough to pay off the business liabilities, the owner’s personal property might be
utilized to pay off the liabilities of the business.

 One-man Control: the controlling power of the sole proprietorship business is always in the hands of the
owner. He/she runs the business enterprise as per his/her own will.
Merits of Sole Proprietorship

 Easy in formation and Winding Up

 Quick decision and Prompt Action
 Direct Motivation
 Flexibility in Operation
 Upkeep of Business Secrets
 Personal Touch
 Easy in Formation and Winding Up: formation of sole proprietorship is easy and simpler compared to all the
other form of business formation. No legal formalities are required to be observed for formation. Similarly,
the business can be wind up any time if the owner so decides.

 Quick Decision and Prompt Action: As stated earlier, nobody can interfere in the affairs of the sole
proprietary organization. So owner can take quick decision on the various issues relating to business
organization and accordingly speedy action can be taken.

 Direct Motivation: In sole proprietorship the entire profit of the business goes to the proprietor. This
motivates the owner to work hard and run the business efficiently.
 Flexibility in operation: It is very easy to impact changes as per the requirements of the business. The
extension or curtailment of business activities does not need many formalities as in the case of other forms
of business organization.

 Upkeep of business secrets: The business secrets are known to the proprietor only. The proprietor is not
required to reveal any information to others unless and until he/she decides to do so. The owner is also not
bound to punish his/her business accounts.
 Personal Touch: Since the proprietor handles everything relating to business by himself, it is easy to
maintain a good personal contact with his customers and employees. By knowing the tastes, likes and
dislikes of the customers, the proprietor can adjust his operations accordingly.
Similarly, as the employees are few in number and work directly under the proprietor, it helps in keeping a
harmonious relationship with employee and run the business smoothly.
PARTNERSHIP FIRM
MEANING

 ‘Partnership’ is an association of two or more persons as they pool financial and managerial resources
and decide to carry on a business and share profit arising from it.
 The persons who form a partnership individually called as partners and collectively a firm or
partnership firm
Definition
 It is a form of business organization in India is governed by the section 4 of Indian
Partnership Act,1932 which defines partnership firm as
“the relation between persons who have agreed to share the profits of the business carried on
by all or any of them acting for all”.

Therefore, a partnership consists of three essential elements.

 A partnership must be a result of an agreement between two or more individuals.
 The agreement must be built to share the profits obtained from the business.
 The business must be run by all or any of them representing the rest.
All these conditions must coexist before a partnership can come into existence.
Examples

 Red Bull and GoPro

 Spotify and Uber
 Levi’s & Pinterest
 Maruti Suzuki
 Hindustan Petroleum
Characteristics of Partnership Form of
Business Organization
 Two or More Persons
 Contractual Relationship
 Sharing of Profits and Business
 Existence of Lawful Business
 Principal Agent Relationship
 Unlimited Liability
 Voluntary Registration
Merits of Partnership
 Easy to Form
 Availability of Larger Resources
 Better Decision
 Flexibility
 Sharing of Risks
 Keen Interest
 Benefits of Specialization
 Protection of Interest
 Secrecy
Limitations of Partnership

 Unlimited Liability
 Instability
 Limited Capital
 Non-transferability of Share
 Possibility of Conflicts
Types of Partners
Active Partner/Managing Partner

 An active partner is also known as Ostensible Partner.

 As the name suggests he takes active participation in the firm and the running of
the business. 
 He carries on the daily business on behalf of all the partners.
 This means he acts as an agent of all the other partners on a day to day basis and with
regards to all ordinary business of the firm.
  At the time of retirement active partner gives public notice. After retirement, he is a
discharge of all his duties.
Sleeping Partner

 This partner is not always active in business activities.

 He is the one who takes part in business on a routine basis. He does not take part in the
daily activities of the business.

 However, he shares profit or loss of the business like other partners.

 He even brings capital to the business. At the time of retirement, he does not give any
public notice.
Nominal Partner

 This is a partner that does not have any real or significant interest in the partnership.
 So, in essence, he is only lending his name to the partnership. He will not make any capital
contributions to the firm, and so he will not have a share in the profits either.
 But the nominal partner will be liable to outsiders and third parties for acts done by any
other partners.
Partner by Estoppel

 If a person holds out to another that he is a partner of the firm, either by his words, actions
or conduct then such a partner cannot deny that he is not a partner.
 They do not invest any capital in the business. Also, they do not share the profit of the
business. They are responsible for the debts of the company to outsiders.

 This basically means that even though such a person is not a partner he has represented
himself as such, and so he becomes partner by estoppel or partner by holding out
Partner In Profits Only

 He is a person who does not take part in the loss of business.

 He only shares the profit of the business. Like other partners, he too brings capital to the
business.
 They do not take part in the management of business activities.
  Even when dealing with third parties he will be liable for all acts of profit only, he will
share none of the liabilities.
Minor Partner
 A minor cannot be a partner of a firm according to the Contract Act. However, a partner
can be admitted to the benefits of a partnership if all partner gives their consent for the
same.
 He will share profits of the firm but his liability for the losses will be limited to his share in
the firm.
 Such a minor partner on attaining majority (becoming 18 years of age) has six months to
decide if he wishes to become a partner of the firm.
 He must then declare his decision via a public notice. So whether he continues as a partner
or decides to retire, in both cases he will have to issue a public notice.
Difference between sole proprietorship and
partnership business
Types of Partnership firm
General Partnership

   A general partnership is the most basic form of partnership. In most cases, partners form
their business by signing a partnership agreement.
 Ownership and profits are usually split evenly among the partners, although they may
establish different terms in the partnership agreement.
 In a general partnership, the liability of each partner is unlimited. It means if the firm’s
assets are inadequate to pay off the debts, the creditors can realize the debts by attaching
the personal property of partners.
 That's a lot of power and a lot of mutual responsibility. For example, say a general
partnership has three partners. One of the partners takes out a loan that the business cannot
repay. All partners may now be personally liable for the debt.
 An exception is made in case of a minor partner whose liability is limited to the amount of
his share in the capital and profits of the firm. In India normally all partnership firms are
general partnerships.
Limited Liability Partnership

 
Limited liability partnership is now allowed in India under the Limited Liability Partnership
Act, 2008.  The main characteristics of a limited liability partnership are as follows:
 a) A limited liability partnership must be registered under the Act with a minimum of two
partners. There is no limit on the maximum number of partners.
 b) An LLP is a body corporate having a separate legal entity and perpetual succession.
 c) In an LLP the liability of partners is limited to their agreed contributions to the LLP. No
partner would be liable on account of any unauthorized or independent actions of other
partners.
 d) An LLP must maintain annual accounts reflecting the true and fair view of its state of
affairs.
 e) The liability of partners and the firm would become unlimited in case the firm or its
partners carry out any act with the intention to defraud the creditors or any fraudulent
purpose.
 Therefore, LLP is a hybrid form of a business organization combining features of both
partnership firm and joint-stock company.
Advantages of LLP 
 1. An LLP is a separate legal entity independent of the partners. It is capable of owing and
holding property in its own name.
 2. It is much more stable than a general partnership because it is not dissolved by the
retirement, insolvency, death, etc. of a partner. It enjoys perpetual existence.
 3. The liability of partners in LLP is limited, they have not to take the unlimited risk.
 As there is no limit on the number of partners, an LLP can raise huge funds for the
expansion and growth of the business.
 Partnership at will: 
 This type of partnership is formed for an indefinite period. The time period or the purpose
of the firm is not mentioned at the time of its formation.
 It can be continued for a length of time depending upon the will of the partners.
 It can be dissolved by any partner by giving notice to the partners of his desire to quit the
firm.

 Particular partnership: It is a partnership for a specific time period or to achieve a

specified objective. It is automatically dissolved on the expiry of the specified period or on
the completion of the specific purpose for which it was formed.
 Particular partnership: It is a partnership for a specific time period or to achieve a
specified objective.
 It is automatically dissolved on the expiry of the specified period or on the completion of
the specific purpose for which it was formed.
Cooperative Society
 Meaning

 The word cooperative is derived from a Latin word “co-operari”,

where means the word ‘Co’ means “with” and ‘operari’ means
“to work”.
 Hence the term cooperation means working together.
 Those who desire to work together with some common economic
objectives can create a society, which is termed as cooperative
society.
 There are some organization which start business activities with the
prime objective of providing service to its members.
 Although they also earn some profit out of it, but their main purpose
is to look after some common interest of the members.
 They bring together available resources from the members, employ
the same in the finest possible manner and share the benefits.
 These business organizations are known as Cooperative Societies.
 It is a voluntary association of persons who come together and work
to promote their economic interest.
 It works on the norm of self-help and mutual help.
 The primary aim is to render support to the members.
 The people come forward as a group, pool their resources make use
of them in the best manner and derive some common benefits out of
it
Definition

 The Indian Cooperative societies Act 1912, section

4 defines cooperative society as
“a society, which has its intentions for the promotion
of economic interests of the members in accord with
cooperative principles.”
Examples
AMUL
 India is the world’s largest producer of milk, this was the achievement of White Revolution
in India, which was spurred by AMUL. 
 It is an Indian dairy cooperative society.
 AMUL is located in Anand, Gujarat.
 AMUL was established in 1946.
 Dr Verghese Kurien is known as the father of White Revolution. He was the chairman of
GCMMF for more than 30 years.
 Gujarat Cooperative Milk Marketing Federation Ltd. (GCMMF) is the cooperative body
which manages the brand of AMUL.
 GCMMF is currently owned by apex body of 13 District Milk Unions, (3.6 million) milk
producers in Gujarat, spread across 13,000 villages of Gujarat.
Indian Farmers Fertilizer Cooperative (IFFCO)

 It is headquartered in New Delhi.

 IFFCO is the biggest cooperative in the world by turnover on GDP per capita.
 It was founded on 3rd November, 1967
 IFFCO is India’s largest fertilizer manufacturer.
 IFFCO reaches  over 50 million Indian farmers, with around 35,000 member cooperatives.
Horticultural Producers’ Cooperative Marketing and
Processing Society (HOPCOMS)

 It is a farmers’ society founded in 1965. 

 HOPCOMS comes under the jurisdiction of the Department of horticulture, Government of
Karnataka.
 It was founded with the objective of direct marketing of farm products.
 HOPCOMS is headquartered in Bengaluru.
 HOPCOMS is spread across districts of Bangalore Rural, Bangalore Urban, Mysuru,
Mandya, Chikkaballapura, Ramanagar of Karnataka.
 The operations of HOPCOMS are three-fold: distribution, storage and procurement.
Karnataka Milk Federation
 After Amul, Karnataka Milk Federation is the second largest milk co-operative in India.
 It is a federation of milk producers association working on cooperative principles.
 In 1974, KMF was founded as Karnataka Dairy Development Corporation (KDDC) to
implement a dairy development project. This project was run by the World Bank.
 Procurement of milk is done from Primary Dairy Cooperative Societies (DCS) by
Karnataka Milk Federation (KMF) 
 Karnataka Milk Federation (KMF) has 14 milk unions throughout the Karnataka State
which procure and distribute milk to the consumers.
 The milk is marketed under the brand name Nandini.
 Characteristics of Cooperative society

 Voluntary Association
 Open Membership
 Number of Members
 Registration of the society
 State control
 Capital
 Democratic set up
 Service motive
 Return on capital investment
 Distribution of surplus
 Types of Cooperative Society
 Consumers cooperative societies:
 Producers cooperative societies
 Marketing cooperative societies
 Housing cooperative societies
 Farming cooperative societies
 Credit cooperative societies
 Consumer Cooperative

 These societies are primarily for consumers who wish to buy household goods at lower prices.
 The society buys goods or products in bulk amounts directly from the producer on wholesale rates and
sells them to the members, thus eliminating the need for a middleman.
  Capital is raised by issuing low denominational shares to the members who also get dividends on the
shares.
 Consumer co-operatives do not use advertising but rely on word-of-mouth.
 These businesses are owned and governed by consumers of a particular area for their mutual benefit.
 Their view is to provide daily necessary commodities at an optimum price. Rather than earning a
pecuniary profit, their aim is towards providing service to the consumers.
 They set up stores or outlets to sell goods and avail huge trade discounts from producers.
 Example: Apna Bazar
Producer’s cooperative societies

 To protect the interest of small producers, these societies are set up.

 The co-operative society members may be farmers, landowners, owners of the fishing
operations.
 To increase the marketing possibilities and production efficiency,  producers decide to
work together or as separate entities.
 They perform several activities like processing, marketing & distributing their own
products.
 Producers pool in their resources, increase production volumes and minimize risk in the
face of the competitive capitalistic markets. 
 This helps in lower costs and strains in each area with a mutual benefit to each producer.
 Best examples are dairy, fish farmers, weavers and artisans and tribal co-operatives.
 Example: Organic Valley, Haryana handlooms
Marketing Cooperative Society
 With an aim of helping small producers in selling their products, these societies are
established.
 Mostly for the benefit of farmers, these societies function to market the produce profitably
at the best possible prices, increase the bargaining strength of the farmers and protect them
from the trials of individual selling and market exploitation.
 The producers who wish to obtain reasonable prices for their output are the members of
this society.
 For securing a favorable market for the products they eliminate the middlemen and
improve the competitive position of its members.
 It collects the output of individual members. Various marketing functions
like transportation, packaging, warehousing, etc are performed by the cooperative societies
to sell the product at the best possible price.
 Example: Sugarcane Co-operative Marketing Society, milk cooperatives
 Housing Cooperative Society

 To help people with limited income to construct houses at reasonable costs, these societies are
established.
 Their aim is to solve the housing problems of the members. A member of this society aims to
procure the residential house at lower cost.
 They construct the houses and give the option to members to pay in installments to purchase the
house.
 One becomes a member by purchasing shares in the co-operative. Instead of owning the real estate,
the members own a share in the entire corporation, which in turn gives them a house to reside in.
 Such societies are commonly found in urban and semi-urban cities. 
 They construct flats or provide plots to members on which the members themselves can construct
the houses as per their choice.
 Example: Vidarbha Premier Co-operative Housing Society, BSNL employee housing board
co-operatives
 Farmers cooperative societies
 The financially challenged farmer may not be able to maximize his agricultural output individually
and earn optimum profits.
 Farming co-ops are a way for farmers to retain the right to their land, yet pool together and
consolidate land, livestock and equipment while earning a share in the total output as per the
contribution made.
 In better farming co-ops, members co-operate for pre-sowing, seeds, fertilizers and equipment, and
joint selling, but cultivate the land separately. In joint farming, they pool in the land as well.
 Co-op tenant farming is the type in which the society leases the land to the farmers and collects the
rent. In collective farming co-ops, farmers are members for life and cannot remove their land but can
transfer the land rights to another.
 Example: Indian Farmers Fertilizer Cooperative Limited (IFFCO)
Credit cooperatives societies

 Credit unions are generally member-owned financial cooperatives. Their principle is of

people helping people.
 They provide credit and financial services to the members at competitive prices.
 Each and every depositor has the right to become a member.
 Members attend the annual meeting and are given rights to elect a board of directors.
 These are urban and rural financial societies that provide loans to members at low rates of
interest, protecting the members from massive debts to traditional moneylending agencies.
 They serve a basic but highly personalized banking role in a sense. They have deposit
schemes in forms of saving accounts, FD, RD, pension schemes, etc. 
 Example: Sahara Credit Society, Navjivan co-op Society
Merits of Cooperative Societies

 Easy to form
 Limited Liability
 Open membership
 State assistance
 Stable life
 Tax concession
 Democratic management
Limitations of cooperative society

 Limited capital
 Lack of managerial expertise
 Less motivation
 Lack of interest
 Corruption
Formation of a cooperative society

 Any group of individuals can form a cooperative society of their own if they so like to act
jointly for the common benefit of each other. But all societies must be formed under the
cooperative societies act 1912 under the relevant state cooperatives laws.
 A application along with the bye-laws of the society containing the details about the
society and its members has to be submitted to the Registrar of Cooperative Societies of
the concerned state.
Application should be in the prescribed form
and proforma
 List of members, their individual addresses,
 Name and objectives of society for which it has been formed
 Collection of funds – share capital or loan fund with their utilization process,
 Office bearers as managing committee and their powers
 Admission and retirement of members and
 Bye-law of the society

After scrutiny of the application and the byelaws, the registrar issues a certificate of
registration.
Joint Stock Company
Meaning

 A joint-stock company is a business owned by its investors, with each investor owning a
share based on the amount of stock purchased.
 The simplest way to describe a joint stock company is that it is a business organization that
is owned jointly by all its shareholders.
 All the shareholders own a certain amount of stock in the company, which is represented
by their shares.
 Definition
 Professor Haney defines it as “a voluntary association of persons for profit, having the
capital divided into some transferable shares, and the ownership of such shares is the
condition of membership of the company.”
Characteristics of Joint Stock Company

 Artificial Legal Person

 Separate Legal Entity
 Incorporation
 Perpetual Succession
 Limited Liability
 Common Seal
 Transferability of Shares
Artificial Legal Person

 A company is a legal entity that has been created by the statues of law. Like a natural
person, it can do certain things, like own property in its name, enter into a contract, borrow
and lend money, sue or be sued, etc.
 It has also been granted certain rights by the law which it enjoys through its
 board of directors.
 However, not all laws/rights/duties apply to a company.
 It exists only in the law and not in any physical form. So we call it an artificial legal
person.
Separate Legal Entity

 Unlike a proprietorship or partnership, the legal identity of a company and its members are
separate.
 As soon as the joint stock company is incorporated it has its own distinct legal identity.
 So a member of the company is not liable for the company.
 And similarly, the company will not depend on any of its members for any business
activities.
Incorporation

 For a company to be recognized as a separate legal entity and for it to come into existence,
it has to be incorporated.
 Not registering a joint stock company is not an option.
 Without incorporation, a company simply does not exist.
Perpetual Succession

 The joint stock company is born out of the law, so the only way for the company to end is
by the functioning of law.
 So the life of a company is in no way related to the life of its members. Members or
shareholders of a company keep changing, but this does not affect the company’s life.
Limited Liability

 This is one of the major points of difference between a company and a sole proprietorship
 and partnership.
 The liability of the shareholders of a company is limited.
 The personal assets of a member cannot be liquidated to repay the debts of a company.
 A shareholders liability is limited to the amount of unpaid share capital. If his shares are
fully paid then he has no liability.
 The amount of debt has no bearing on this. Only the companies assets can be sold off to
repay its own debt. The members cannot be made to pay up.
Common Seal

 A company is an artificial person. So its day-to-day functions are conducted by the board
of directors.
 So when a company enters any contract or signs an agreement, the approval is indicated
via a common seal.
 A common seal is engraved seal with the company’s name on it.
 So no document is legally binding on the company until and unless it has a common seal
along with the signatures of the directors.
Transferability of Shares

 In a joint stock company, the ownership is divided into transferable units known as shares.
 The member of a company can dispose of his shares by selling them in the open market
and can get back the amount so invested.
 The positive side of the transferability is that it provides liquidity to investors and at the
same time ensures stability of the company, the transfer of shares does not affect the
existence and functioning of a company.
Advantages of a Joint Stock Company

 One of the biggest drawing factors of a joint stock company is the limited liability of its
members, their liability is only limited up to the unpaid amount on their shares. Since their 
personal wealth is safe, they are encouraged to invest in joint stock companies
 The shares of a company are transferable. Also, in the case of a listed public company they
can also be sold in the market and be converted to cash. This ease of ownership is an added
benefit.
 Perpetual succession is another advantage of a joint stock company. The
death/retirement/insanity/etc does affect the life of a company. The only liquidation under
the Companies Act will shut down a company.
 A company hires a board of directors to run all the activities. Very proficient, talented
people are elected to the board and this results in effective and efficient management. Also,
a company usually has large resources and this allows them to hire the best talent and
professionals.
Disadvantages of a Joint Stock Company

 One disadvantage of a joint stock company is the complex and lengthy procedure for
its formation. This can take up to several weeks and is a costly affair as well.
 According to the Companies Act, 2013 all public companies have to provide their 
financial records and other related documents to the registrar. These documents are then
public documents, which any member of the public can access. This leads to a
complete lack of secrecy for the company.
 And even during its day to day functioning a company has to follow a numerous number of
laws, regulations, notifications, etc. It not only takes up time but also reduces the freedom
of a company
 A company has many stakeholders like the shareholders, the promoters, the 
board of directors, the employees. the debenture holders etc. All these stakeholders look
out for their benefit and it often leads to a conflict of interest.
 Types of company

Charted Statutory Registered

company company company

Public Private
Company Company
Types of Companies based on Number of Members:

  Private Company:
For a Private Limited Company, the minimum number of members is 2, which can be
extended to maximum 200 at once. The said statutory limit is required to be complied all time.
 One Person Company:
A type of Private Company itself, One Person Company is commonly known as OPC. OPC is
significantly different from other types of companies because of number of member. In OPC,
there is only 1 member at any time during its existence. Here, this member must be an
individual and an Indian resident.
 Public Company:
In Public Company, there is no limit as to maximum number of members. However, minimum
number of members is provided. A public company is registered with minimum of 7 members.
The companies listed on stock market are such Public Companies. Such Companies are able to
attract funds from pubic through Public Offers (IPO or FPO).
Types of Companies based on Liability:
 Company Limited by Shares:
In this form of Company, the capital is introduced in the form of Shares i.e. the capital of the
company is divided into a small portion, known as shares.
The shares are considered interest of the shareholder in the company. The number of equity
shares held, measures the ownership of the shareholder in the company.
If there requirement for capital arises in the company, the shares can be issued for subscription
by shareholders. In this type of company, the liability of the members is limited up to the
unpaid capital on the shares subscribed.
Further, this form of company can be registered as private limited company, One Person
Company or register as a public limited company also, based on number of members and
nature.
 Company Limited by Guarantee:
The company can be either private limited company or a public limited company also, where
the capital is not divided into shares. Here, the capital to be introduced by the members, are in
nature of guarantee.
The subscriber to the Memorandum subscribes the amount guaranteed and puts signature
against the amount guaranteed.
Here, the percentage of the ownership is based on the amount guaranteed. Whenever the
requirement of capital arises, the members introduce the capital to the company. The liability
of members is limited up to the amount of guarantee provided only.
These companies can also issue shares, where the shareholders are also liable up to the
amount unpaid on the shares as discussed above. However, the shareholding is not criteria of
deciding the ownership.
 Unlimited Company: 
In this type of company, the liability of the members is not limited. In case of any debt arises,
the liability of the members does not limit to their part in company, rather it extends to their
personal assets also.
In present scenario, this type of company is not being chosen to be incorporated by the
entrepreneurs.
The liability of the members arises at the time of winding up or bankruptcy or otherwise,
whenever the capital is to be raised or debt is to be paid. Most popular type of company
is Company limited by shares.
The companies can be further bifurcated in different types such as private or public company
i.e. based on the nature of the company. Based on activities, it can be branched into Charitable
Company, Nidhi Company, etc.
Other Types of Companies:

  Foreign Company:
As the name suggests, foreign company is owned by foreigners. An entity is registered as
foreign company when foreign participation is shareholding increases to more than 50%.
Businesses registered outside India find it most accessible way to setup business in India. Such
businesses are registered as Indian Subsidiary of foreign company.
 . Section 8 Company:
It is registered as company under Section 8 of the Companies Act; hence, known as Section 8
Company. It is registered for charitable purpose and as non-profit organisation. Such company
enjoys special status and certain exemption as it is registered as Section 8 Company. Let me
bring this to your attention that for Section 8 Company Registration, special approval from
respective authorities is required.
 Small Company:
Small Company is a special status given to registered companies. You are not required to
incorporate a new company, but it is a status it derives because of its financial and other
positions.
A company is said to be small company, if it follows below mentioned conditions:
Not a Public Company
  Producer Company:
A producer company is basically a company registered to deal with the primary production of
its active member related to farming. The main objective includes production to its selling and
exporting also.
A producer company is registered with ten or more member being producers; or any two or
more producer institutions; or its combination. Alike any other company, the liability of its
members is limited to the extent of unpaid share capital by its members.
The producer company is deemed to be a private limited company under this Act, however, the
threshold of the number of members does not apply to same.
  Paid-up share capital:  Not exceeding fifty lakh rupees
Turnover: Not exceeding two crore rupees, as per profit and loss account for the immediately
preceding financial year
Further, this does not apply to any holding or subsidiary company; Section 8 company; or a
company governed by any special Act.
Small Companies enjoy certain exemptions under Companies Act, 2013 in terms of
compliance.
 Subsidiary Company:
Referred as subsidiary, it is a company in which other company controls the composition of its
Board of Directors or its more than 50% of voting powers. In case, where 100% voting powers
are held by single holding company, the subsidiary is known as Wholly Owned Subsidiary
(WOS) of the holding.

 Holding Company:
Holding company is a company having controlling power or majority of voting powers of
another company (subsidiary as referred above). Holding company is also called as parent
company.
Private company

 This is a type of company that finds mention in the Companies Act, 2013. The purpose of
private companies is when the business is not very large, but the owners/management still
want to opt for a company over a partnership or proprietorship.
 Flipkart, Ola, Snapdeal, Carat Lane, and Zoom Car
Let us look at some of the features/characteristics of a private company.
 Minimum numbers of members required to incorporate a private company are 2. There is
also a maximum limit of 200 members. However, joint members of shares are counted as
one member.
 The minimum paid-up capital for a private company has been kept at one lacs. There is no
maximum limit in this case.
 Transferability of shares by its members is restricted. Such transfers are not absolutely
prohibited, but there are certain restrictions put by the Companies Act. This is to avoid
takeovers by larger companies and multinationals and ensure the sanctity of private
companies
 Private companies under no circumstances can accept deposits from the public. It cannot
invite members of the public to subscribe to its shares either.
 The number minimum of directors to be appointed are 2. No independent directors are
required.
Now a private company under the Companies Act enjoys certain privileges over a public company. Since a
private company does not take deposits from the public, certain rules have been relaxed in their favor. Let us
take a look at all the privileges that private companies enjoy.

 The minimum number of members are restricted to 2. So it does not require many promoters to start a
private company.
 Since the members of the public are not invited to subscribe shares there is no need to issue a prospectus
on any such similar document.
 There is no need to wait for a minimum subscription amount to be received. The members can allot
shares within themselves and immediately incorporate the company.
 While incorporation with the registrar of companies is compulsory, there is no
commencement certificate in the case of private companies. The business can start
functioning immediately after receiving the certificate of incorporation.
 In case of a private company, there is no need to maintain a register of shareholders.
 It can allot any type of shares to its members. even shares with differential voting rights
which are prohibited for public companies.
 Its financial accounts are not accessible by any member of the public. It can maintain some
secrecy in the matter.
 The directors need not retire by rotation and there is no limit on their remuneration as well.
Public Company

 In simple terms, a public company is a company whose shares can be subscribed by

members of the public. As per the Companies Act, 2013 a public company is
 A Public Limited Company under Company Act 2013 is a company that has limited
liability and offers shares to the general public. Its stock can be acquired by anyone, either
privately through (IPO) initial public offering or via trades on the stock market.

A Public Limited Company is strictly regulated and is required to publish its true financial
health to its shareholders.
 A company that is not a private company
 Has a minimum of seven members, no maximum limit is mentioned
 Has a minimum paid-up capital of five lacs, again there is no maximum limit
Basis of
Private Company Public Company
Comparison

Paid-up Capital Minimum paid-up capital of Rs 1.00.000/- Minimum paid-up capital of Rs 500.000/-

No. of Members Minimum 2 members and maximum 200 Minimum 7 members, no max limit

Name of Company Name must end in “private limited” Name must end in “public limited”

Minimum two directors, and no need for Minimum 3 directors, and if listed
No. of Directors
independent directors company one-third must be independent

Managerial Restricted to 11% of the Net profit of the

There are no restrictions
Remuneration company

Quorum of Quorum will depend on the total number

Minimum two members, present in person
Meetings of members of the company

Private companies cannot have public Public offers must be in the demat form
Public offer
offers for shares only

If paid capital exceeds 100 crores, or

Accepting Deposits Not allowed according to the act turnover exceeds 500 crores, the
company can accept public deposits
Basis of comparison Sole proprietorship Partnership Cooperative society Joint stock company

Formation Minimal legal Registration is optional, Registration compulsory, Registration compulsory,

formalities, easiest easy formation greater legal formalities lengthy and expensive
formation formation process

Members Only owner Minimum-2 Maximum: 20 At least 10 adults, no Minimum Private-2 Public
maximum limit Company-7 Maximum
Private Company-200 Public
Company- unlimited

Capital contribution Limited finance Limited but more than that Limited Large financial resources
can be raised in case of
sole proprietorship

Liability Unlimited Unlimited and joint Limited Limited

Control and Owner takes all Partners take decisions, Elected representative, i.e., Separation between
management decisions, quick consent of all partners is managing committee takes ownership and management
decision making needed decisions

Continuity Unstable, business and More stable but affected Stable because of separate Stable because of separate
owner regarded as one by status of partners legal status legal status
 Public Enterprises
 The business units owned, controlled and managed by the local, state or central government are
termed as public sector enterprises or public enterprises. These are known as public sector
undertakings

 A public sector undertaking is defined as “Any industrial undertaking or commercial activity owned
and managed by the government with an intention to maximize social welfare and uphold the public
interest.”
Characteristics of Public Enterprises

 Government ownership and management

 Financed from Government funds
 Public welfare
 Public utility services
 Excessive formalities and accountability
Forms of organization of public enterprises

 There are three forms of public enterprises

1. Departmental Undertaking
2. Statutory company
3. Government company
Departmental Undertakings

 This is the oldest form of public sector enterprises. The departmental undertaking is

considered as one of the departments of government. It has no separate existence than the
government. It functions under the overall control of one ministry or department of
government.
 For example, Railways, post & telegraph, broadcasting, telephone service etc.
Features of departmental undertakings:-

The main characteristics of departmental undertakings are:-

 They operate under the overall control of one of the ministries of central or state
government.
 They are a part of government only, there is no separate entity.
 The revenue of departmental undertakings is deposited in the treasury of government.
 They are financed from the annual budgets of the government.
Merits of departmental undertakings:

  It is very easy to form a departmental undertaking as no registration is compulsory.

  There is direct parliamentary control. The performance of departmental undertakings can
be discussed in parliament. So there is public accountability.
 The revenue of departmental undertaking is deposited in the treasury of the government.
So these undertakings help to increase the government revenue
Demerit

 Excessive Parliamentary Control

 Lack of Professional Expertise
 Inefficient functioning
 Influence of Bureaucracy
STATUTORY COMPANY

 The company which is formed under a Special Act of Parliament or State Legislature is
known as Statutory Company.
 The capital comes from Central or State Government
 It is managed by Board of Directors nominated by Government
 It is controlled by the Government and suitable for public utilities, development projects,
service industry and other industrial and commercial undertakings
 It is more rigid in operations they are formed for particular purpose and accountable to
state or central government
 EG: RBI, LIC, UTI etc
Features of a public corporation:-

The main characteristics of a public corporation are:-

 It is created by an act of parliament or central or state legislature.
 The powers, objectives & limitations of a public corporation are defined in the act only.
 Under total control of central or state government operations of public corporations takes
place.
 a public corporation is a separate legal entity. It gets incorporated automatically when the
act is passed in the parliament.
Merits of a public corporation:-

 A public corporation is able to manage its affairs with independence & flexibility.
 A public corporation is relatively free from red tape, as there is less file work & less
formality to be completed before taking decisions.
 The activities of the public corporation are discussed in parliament. This ensures the
protection of public interest.
Demerits

 Government Interference
 Ignoring Commercial approach
 GOVERNMENT COMPANY

 Government Company means company where minimum 51% of the paid up capital is held by the Central
or State Government jointly or individually
 The capital is contributed by the Central Government or State Government or even by general public and
financial institutions.
 Government Company is managed by Board of Directors appointed by government and shareholders.
 Government companies are formed and registered under provisions of Companies Act, 2013. Government
companies can borrow funds by the way of debt or issuing shares to the public.
 It is suitable for industrial and commercial undertakings and It has less political interference in management
of company as it has its own Board of Director.
 Government companies are more flexible in operations of business. They can change line of business as per
market
 E.g. BHEL, SAIL, Indian Oil Corporation, Gujarat Refineries,
Features of Government Company:-

 Registration: The government company gets incorporated under the companies act, 1956.
All the provisions of companies act are applicable to a government company.
 Ownership: The government company is wholly or partly owned by the government. The
share capital of these companies is owned by the government of India in the name of the
president.
 Management: The government is managed by the board of directors, who are nominated
by the government & other shareholders. The government has the authority to appoint a
majority of the directors.
Merits of Government Company:-

 The government company is relatively free from government & political interference.
  The government company is managed, financed & audited just as any other private sector
company. It can, therefore, secure greater flexibility, freedom of operation & quickness of
action in running the enterprise.
 The government companies can avail & accommodate managerial skill, technical know-
how or expertise of the private enterprise of the private enterprise by conveniently
collaborating with it.
Demerits

 Lack of Initiative
 Lack of Business Experience
 Change in Policies and Management