Forms of business organizations
Forms of business organizations
|
- Business may be started by an individual, group of few people, or a very large number of people. As the business expands and grows in size it may transform into new form of business organization, based on the need. Generally followed common forms of business organization are;
- Sole Proprietorship - One person is the owner of the firm and he is the manager of the firm.
- Joint Hindu Family Firm - The business is owned by members of undivided Hindu family. Generally the head of the family is the leader of the management team.
- Partnership Firm - The Partnership Act, 1932 defines Partnership as “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”.
- Joint stock company: A Joint Stock Company is a voluntary association of persons to carry on business. It is an association of persons who generally contribute money for some common purpose. There are two are two types of joint stock company - Private limited (minimum number of members can be 2 and maximum is 50) and public limited (minimum number of members is 7 and maximum is unlimited).
- Co-operative Society - Established based on the principles of cooperation. It is a voluntary grouping of individuals who are willing to work together for achieving their common objectives.
- Each of these organizations have their own characteristics based on which they differ in their merits and demerits. These organizations can be described based on their ownership, ability to raise capital, flexibility in management, risk bearing, profit sharing, continuity etc. The choice of business organization has to be made based on the type of business, size of business, amount of capital required, etc.
Characteristics of various forms of business organizations
Traits
|
Single Proprietor
|
Hindu Undivided Family
|
Partnership
|
Joint stock company/Public Limited Company
|
Cooperative Society
|
Ownership
|
Only one person
|
|
Few
|
Many own shares
|
Only members
|
Ease of formation
|
Easy
|
Inherited
|
By mutual agreement
|
Not easy and company should be Registered under Companies Act
|
Easy and the society is Registered with Registrar of Cooperative societies.
|
Ability to raise capital
|
Less
|
Less
|
More
|
Most
|
Limited as the society is confined to a locality
|
Limit of Liability
|
Unlimited Liability
|
Limited for coparceners and unlimited for karta
|
Unlimited
|
Limited
|
Limited
|
Flexibility in management
|
Flexible
|
Flexible
|
Less flexible
|
Based on rules
|
Based on rules
|
Management
|
one
|
Karta
|
All the partners or nay one on behalf of the partner is eligible
|
Board of Directors
|
Executive committee elected by the members
|
Profit sharing
|
Single
|
Shared
|
Shared
|
Dividends / Share value
|
Dividends / shared
|
Continuity
|
Depends on the individual
|
Inheritance
|
Mutual agreement
|
Continuous
|
Dissolving the society is difficult
|
* Karta - Head of the family ** An individual, his sons(s), and his grandson(s) (three generations) can become members of a Joint Hindu Family by birth and they are called “Coparceners”.
|
Last modified: Tuesday, 5 June 2012, 8:58 AM