forms of business organization

We can divide business organizations into five categories according to their functions and people. Those five categories are:

  • Sole proprietorship
  • Joint Hindu Family Business
  • partnership
  • Cooperative societies
  • Joint Stock Company

Let us discuss all types of business organization in detail:-

1) Sole proprietorship

If we split the word, sole means only and proprietor means owner. That is, a business in which there is only one owner who owned, controlled, and managed the whole business, then that business will be called business under sole proprietorship. For example- A shop owner. In this, all the profits and loss are enjoyed by only one person.

Things that the person enjoys in sole proprietorship

a) No one else controls the business

b) Fast and quick decisions will be made

c) enjoy own monopoly and control in the business

d) get high profits in less investment

Problems faced by an individual in Sole Proprietorship

a) Cannot expand the business on a large scale as the person is the only one who is handling the business

b) Revenue and Income will be limited

c) If something happen with the owner business will be shut down.

d) Unlimited liability- During a loss in business, the owner will also have to sell his personal belongings at the time of loan repayment.

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2) Joint Hindu Family Business

Joint Hindu Family business is a type of business in which members of family run the business together but business is controlled by the head of the family who is the eldest member. If the person carrying on the business leaves the business or dies for any reason, his successor will manage and control the business. This type of business is found only in India. This is one of the oldest form of business organization in India.

The family person who is actual owner of the business will be known as Karta and his liability would be unlimited and liability of rest of the family member in the business would be limited. In this type of business, there is a large number of family members of the Hindu Undivided Family (HUF) and all members run the business together. For example- Haldiram.

3) Partnership

A partnership is a type of business in which two or more members control and manage the business. In partnership members should not be less than 2 and more than 100. If the members exceed 100 then it will no longer be called a partnership, it will be called a company.

Things that the person enjoys in Partnership

a) Enjoy the high profits as business runs on large scale

b) two or more mind work together and generate more Ideas

c) Enhance the creativity in the business

d) Workers will do their work perfectly as there will be two or more boss in the business.

Problems faced by the person in Partnership

a) Not full control in the business

b) Delay in taking decisions as other partner can Interfere in your decisions if he did not like your decision

c) All partners will have unlimited liability

d) Profits will be divided in two or more parts

4) Cooperative Society

Cooperative Society is a business in which people work together for a common purpose. For example- Amul. In amul, the common problem among the people was that they wanted to eliminate the middleman as the middleman used to charge the high commission from the people. So a group of people facing the same problem formed their own cooperative society and started providing milk directly to the customer. To start the business of co-operative society, there should be at least 10 members.

The main motive of this type of business is to provide good services to the people instead of earning profits. This business is a voluntary association of persons, who join together with the motive of welfare of the members. In cooperative society business, it is compulsory required that the business should be registered under the Cooperative Societies Act 1912.

5) Joint Stock Company

Joint Stock company is a artificial person which has its own separate identity from its owner. For example- Reliance, TATA. The company has a common seal which is used by the company to give approval. Today every company is following the rules and regulations of the Companies Act, 2013.

Being a separate legal entity (a separate identity in the eyes of the law) whenever there is a conflict against the company, the aggrieved will sue the company in court instead of the owner of the company. Along with this in the company owner enjoys the benefit of limited liability. If company face losses in the future and disable to pay back all its debt then creditors has right to sell the things of company and recover their amount as much as possible but they cannot even touch the things of company’s owner to recover their amount.

In Joint Stock Company, owner called as Company’s director and in each company there should be minimum 2 directors compulsory to form a company. Every director has his share percent in the company as per of that they get their salary. For example- There are 5 directors in a company, one director holds 10% share of the company, one hold 8% share, now as per of these share percentage they get their salary. Director who has more percent of share will get more salary. The percent of share among the shareholders is decided on the basis of their investment in the company. Director who invest high in the company will get high percent of share.

Types of company

There are two types of joint stock company:-

1) Private Company- Private companies are the type of companies that does not registered in stock exchanges. Normal people cannot buy share of these companies and cannot invest in these companies. In private company minimum number of people should 2 and maximum number of people should 200. The name of each private company should be accompanied by the title of Pvt.Ltd (Private Limited). For example- Dominos Pvt.Ltd.

2) Public Company- Public companies are the type of companies that are registered in stock exchanges and normal people can buy and sell their shares and invest in these companies. For example- TATA, TATA is registered in national stock exchange (NSE) and Bombay stock exchange (BSE). Every day many people buy and sell TATA share in share market. In public company, there should be minimum 7 member and maximum no limit. The name of each public company should be accompanied by the title of Ltd (Limited). There is no Pvt. in the name of public companies. For example- TATA Ltd., Reliance Ltd.

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